Carriage Services Inc (CSV) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Carriage Services first quarter earnings conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today Friday, May 9th, 2008. I'd like to turn the conference over to Mr. Ken Dennard. Please go ahead sir.

Thank you Liz and good morning everyone. We appreciate your joining us for this morning's conference call. Before I turn the call to management I have the normal housekeeping details to run through. If you'd like to be on the e-mail distribution or fax list for future Carriage Services releases or if you have technical problems or didn't receive your copy of the release yesterday afternoon. Call our offices at DRG&E, we will be happy to help you with that. That number is 713-529-6600.

Additionally due to the fact that the financial tables are too long for the wire services to have on one page formatted correctly, you are probably advised to pull down the PDF that's off the website or attached to my e-mail yesterday afternoon, I did resend it about an hour ago just because we had some people that didn't notice it. Also, if you'd like to listen to a replay of today's call, one will be available via webcast by going to Carriage's website, www.Carriage Services.com. Additionally in a few hours there'll be an telephonic instant replay available and it will be available for the next week. And the replay and access code are in the press release from yesterday afternoon. Please note information reported on this call speaks of today May 9th, 2008 and therefore you are advised that time sensitive information may not be accurate a the time of any replay listening.

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 27 A of the Securities Act of 1933 as amended and Section 21 E and the Securities Act of 1934, as amended. These statements are based upon is summations the company believes are reasonable. However, many factors that are discussed under forward-looking statements and cautionary statements in the company's annual report on10K for the year December 31, 2007 and any 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 10K and 10Q's and other information and news releases are available for free on the Carriage Services website. Now, I'd like to turn the call to Mel Payne, Chairman and Chief Executive Officer. Mel.

Thank you Ken. In 2004 we rolled out a new, and different, operating model for this industry called the standards operating model. As we entered 2007, we realized that we needed a different type of reporting over much longer periods of time to properly report a, against a standards operating model. So, a year-ago, and this is our first anniversary. We rolled out what we call our trend reports. Both long-term and short-term.

Today I will cover those in detail. And try to let you see through my eyes and words, how our own people see these reports and what they mean.

Because they're beginning to tell a compelling story with numbers, that would be impossible to tell with just words, we have enlarged the numbers to make them easier to read. That certainly was a benefit for me. So I am asking you to do what Ken suggested, please pull up these trend reports so that you can see long-term trends on one page, short-term trends quarterly on another page, so that you'll be able to follow along with me when I cover them later in the call.

Our first quarter of 2008 was a glass about 3/4 full. As we earned $0.17 a share, but could have easily earned as much as $0.235 a share without the weak same store cemetery performance and high variable legal cost. Yet, the costs of the good and bad performance extremes, related to same story funeral ops which were very good, same store cemetery ops, which were very bad and acquisition portfolio which was good and getting better, and total overhead which was down as a percent of revenue, it is the perfect quarter to discuss how effective execution of our three models will drive sustainable financial performance overtime.

In fact, while it was only one quarter, and we don't think short-term results reflect permanent value creation, we nevertheless believe that the sustainable first quarter earning power of our existing portfolio of assets as they exist today, as defined by EPS should be in the $0.20 to $0.22 per share range over the near term. Which we defined as a rolling four quarter outlook ending March 31, 2009. We are maintaining that outlook at an EPS range of $0.48 to $0.52, but what I will try to explain to you on this call is that once we achieved sustainable earning power in the first quarter and the year our portfolio should grow thereafter over time.

We believe that the secret black box to increasing and sustainable financial performance is a simple strategy we call first two then what. With what being defined as increasing and sustainable standards achievement according to our model overtime, which is then followed as certainly as night follows day by increasing and sustainable financial performance.

So we have come to believe that a relentless and never ending focus on 4E entrepreneurial leadership and what we call being the best quality people is the secret and the only secret to achieving our goal of increasing and sustainable financial performance. All the industry stuff we talk about. Market share, death rates, cremation rates, average funeral revenue, pre need sales, litigation, deliveries, trust performance, et cetera is simply necessary, operational, and financial pipeline noise.

Compared to the right leadership and the right people being in place to execute our models. Our company is an exciting and fun place to work these days. I can testify to that.

As we have an increasing number of leaders and employees who have a passion for the simple, first who, then what strategy, designed around standards. But it would be fruitless for me to spend time on the detailed mechanics of standards operating model on this call.

The reason is, one of the lessons we have learned over the past year or two, is that it is very difficult for most people to get a good understanding of how a standards operating model actually works in this industry at the field level and to have a grasp of what a 4E A-player, leader in our industry looks and acts like. And the trend reports, they tell you so much information over so long a period of time on one page, much less two or more, that they are sometimes confusing, especially when it becomes, when it, when it relates to so many different percents of this and that. I've heard this multiple times.

Well, for those of you on this call, don't take my comments personally, because I'm not talking about you. I'm talking about, I'm not talking about investors, bankers, analysts who might read our quarterly press release, our public filings and listen once in a while to a conference call or even participate in a one-on-one Q&A about Carriage.

I'm talking about talented industry veterans at both the corporate and field location level that we have hired from large a public death care companies and from independents who are living with these new and different concepts in the operating trenches every day. Based on a bunch of data points with new hires over the last one and a half years and also in our own ranks, including the executive team, regional corporate leadership and managing partners over the last few years, it takes at least six months minimum, more likely a year, for smart and savvy leaders to grasp the simple and powerful concepts behind these models to begin to be effective at executing.

They often have to first unlearn what made them successful in other organizations before they can then learn how to be successful at Carriage in a leadership role. Please note that I'm not saying that what other companies are doing is wrong, just that what we're doing is very different and that it's hard for new people to adjust to it. It's literally like changing out their DNA, which I can promise is not easy to do. And that's the good news.

The bad news is that it is very difficult, and time-consuming and never-ending, the search to find talented candidates for operation and sales, leadership positions who fit the profile of 4E A-player whose DNA we can successfully reprogram, a process we call Carriageizing.

This is why we've out sourced much of the operational and sales leadership recruiting function to a full-time industry specialist. Once a candidate has been sourced, we put them through a rigorous Darwinian process, which makes us able to tell who will and who won't thrive in a high performance, high transparency culture, where the goal is organic growth of the business within standardized margin ranges with Top-Flite employees energized around a vision for each business, called being the best. So while it's taking longer and costing more in the form of recruiting fees to find the right operating and sales leadership talent, the trending results speak for themselves both good and bad.

So, I want to spend a few minutes talking about the operation, operating and financial dynamics that simply happen overtime when we do have the right leadership in place. We have enough data now for you to see how this works to create shareholder value. As an investment banker friend recently said to me "Mel, you have no place to hide with these fill level and overhead trend reports" to which I responded "that's why we did it" so we'd have no choice but to get better faster. And there are no excuses for sustained under performance, only reasons that present opportunities for A-players. Let's start with the long-term trend report, which is my favorite.

This is a high fixed cost business, at Carriage we started out in the funeral business, so our same store funeral operations represent about by 75% of our total same store revenue. That's been the case for years. If you look at our trend reports, we show the important drivers of financial performance. Starting with the funeral contracts. If you look over the last full four years on the annual trend report, we had 21,814 services in '04. I'm going to give you deltas on the trailing four quarters ending March 31, 2008.

We were down 704 contracts or 3.2% in contracts over this period of time. Four full years and one quarter. That's a little more than 1% annually. If you go down to same store funeral revenue, we don't show averages. We don't think that's relevant. We were $107.7 million in '04 and 115.5, I round up to the nearest million, 115.5, a delta of $7.8 million or 7.2%.

So not with standing the fact that volumes were down, our revenues, same store revenues on funerals were up 7.2%. Throughout that period of time our same store revenues went up modestly. Now if you come down to same store funeral field EBITDA dollars, you will see that in '04 we had $37.4 million of same store funeral field EBITDA dollars. In the four quarters ending March 31, 08, 44.5 million, a delta of $7.1 million.

In other words, volumes were down 3.2% over this period. Revenues were up 7.2%, but field EBITDA was up $7.1 million or 19%. That is because our field EBITDA margin went from 34.7 to 35.6 in '05 to 36.6 in '06 to 38% in '07 to 38.6% in the four quarters ending March 31. We had an incremental field EBITDA margin increase every year. The total delta was 390 basis points.

So, on a revenue increase of $7.8 million, we brought 7.1 down to field EBITDA dollars. That's pretty awesome and the reason for that is because '04 was the first year of the operating model and it took time. I can promise you throughout this entire period, it was not pretty quarter-to-quarter and we talked about a lot of stuff, death rates, market share, averages, I can't even recall all the stuff we talked about. Who cares? When you trend it all out, the result is very impressive.

And all the time we were getting better talent and realizing what kind of talent needed to be in place to operate this kind of model. It's been an impressive performance over a long period of time and the reason I wanted to cover this first is because this is the opposite of the performance you will now see in the cemetery side.

Before I leave the funeral though, we could not have guessed four years ago, or five years ago, at the end of '03 that we would be 38, 38.6%, total portfolio field EBITDA margins. If someone had told us, we could do that, we would have told them, they're crazy. I can tell you though, it's sustainable. Not necessarily the first quarter, which I'll cover later, but, the margin is sustainable. The point I'd like to make is this has been in a declining death rate environment.

If you look out four or five years, certainly ten years when death rates were supposed to go up, can you imagine what the financial dynamics would then look like. When the volumes go up and the revenues go up and your average continues to modestly increase, the margins then will go up. We don't know when that will happen, our whole goal is to put in place a portfolio that is well positioned when that happens.

Now, let's start at the same store cemetery. We only got in the cemetery business ten years ago. We've been in the funeral business 17 years. It wasn't until mid '06, the third quarter '06 to be exact, that we eliminated a cemetery division or region and collapsed it into three regions that have both funeral home and cemetery operations. We also eliminated the leadership that were mostly sales oriented leadership and are learning how to be better operators. If you look at cemetery internments, same store, they've been declining more rapidly than our funeral contracts.

We think the reason for that, there could be some market share in there, but certainly we've had lower death rates as we had in funeral, but also cremation rates are affecting the funeral internment overtime. Not with standing same store revenues, if you look in '04, 36.1, '05, 37.6, back to 36.1, up to 38.8, back to 37.4. We've been in a range of 36 to 38 million on our cemeteries. A pretty tight range, but if you look at the delta between '04 and the four quarters, we're only up $1.3 million on revenues. Or 3.6%.

If you come down to same store cemetery field EBITDA, it's been in a range of 29 to 34%. It's a small low roller coaster. And it hasn't been sustainable, either at the sales level or at the EBITDA and margin level. But it hasn't been a disaster either.

Even though, in the third quarter of '06, our EBITDA field margin in cemeteries hit 24.5%, the same as we had this quarter in the first quarter. What we decided to do beginning '07 was to simplify the cemetery standards model. It had been way too complicated under the cemetery region, so we simplified it to figure out how to move forward. Then we hired what we consider some really top notch A-players as managing partners. During the year, even though they did a great job of cleaning up a lot of administrative things, systems, things like that, the sales programs continued the way they had been. And they, they were good.

And it made our performance in '07 look pretty good, way up from '06. But the more we heard from these managing partners, the more we realized that we weren't looking at these cemeteries in a strategic way, we weren't doing the master planning, we weren't doing the product planning, we weren't doing the demographic analysis and it wasn't sustainable. It was all short-term focus and I don't mean everywhere, I mean in like our top seven cemeteries, which is most of our performance.

They made the tough call, 100% supported by us to crash those sales programs, terminate those sales managers, terminate key sales counselors that had been tops for years and we supported them 100% and said, okay, now let's build it back the right way so that it lasts and grows. That's what we did. What you see in the first quarter is simply the result of that, what you see is not a surprise to us. A lot of work has already been done to rebuild, but that process will continue.

So we will continue to work on rebuilding the cemeteries and we'll, we believe, we will trend up our performance, both at the sales level and the margin level over the next four quarters to somewhere close to where, in the 33, 34% range. It's hard to, to forecast this on a quarterly basis and we see no value in that. What we do see is that we're doing the right things at the right way, with the right people to rebuild these businesses the right way. If you, if you look at the acquisitions, before we move from the cemeteries, I want to point out something about value creation. If you look at what we've done with same store funeral in the 7.1 million of EBITDA over the 3.25 years, the way we look at value creation here is not complicated.

That EBITDA is incremental EBITDA without incremental depreciation and amortization because that's already baked in. We've owned these businesses for ten years. So it really goes to pretax, unless you eat it up somewhere down below with overhead. So if you look at the same store funeral $7.1 million delta from '04 to the trailing four quarters, our pretax is about $300,000 converts into a penny a share. That means our same store funeral operations have created $0.24 per share of earnings in the last three years -- 3.25 years. On the cemetery side, we've only gone up .3, 300,000 over that period of time, which is flat. That's a penny a share. We'll take it.

But we know that there's a lot of upside in these cemeteries. It will take some time to get there, but we will get there. Going to the acquisition line, we have added, in the trailing four quarters, six, $19.6 million of revenue, $6.6 million of EBITDA, all that has been literally in the last couple of years. Mostly in '07 and that equates to $0.19 a share of incremental EPS because you do have to subtract some depreciation and amortization and you can, for, back of the envelope purposes, assume it's about 4% of acquisition revenue. So it's real easy to convert incremental EBITDA into EPS because of the structure of our company.

The question is whether or not at the field level, we retain it with our capital structure and our overhead structure. So if you go down to the overhead section, looking over '04 to the first quarter '08 period of time, we've increased our overhead by $6 million from 16.6 to 22.6. Now most of that has been in variable and most of the variable has been in '07 because we went way up on some variable litigation expense, which has continued into the first quarter, but primarily on incentive compensation. With a standards operating model, you really open up the upside for the managing partners who run these businesses and are successful.

You have to open up the upside and compensate them for what they achieve. So we want to be very liberal with our incentive compensation and that will vary according to standards achievement and financial performance. Our fixed corporate has gone up not quite $2 million and I can tell you since '04, we've done a lot of foundation work, there were cracks, we've improved the plumbing, electricity, our infrastructure of the consolidation platform is there. Do we have more work to do?

Yes, but it's knits and gnats, compared to the heavy lifting that has been done over the last four years. Same store revenue and EBITDA increased and by adding on the acquisitions on top of that that will fall primarily to the bottom line or the consolidated EBITDA and we measure our earning power with consolidated EBITDA margins. So if you look at what happened over this period of time, our same store funerals created about $0.24 of EPS, our same store cemetery, $0.01, our acquisitions $0.19, and our overhead has taken away $0.20. But we're fit. And ready to go. Of that $0.20, 13 is variable. So we're, we're fit.

Our capital structure has taken away $0.02 a share. So our capital structure costs, which is interest, has remained relatively flat. If you look at the first quarter, or the, the, let's move to the first quarter, and the short-term trend report. We, we had good calls, there was a heavy flu season, there probably won't be next year, there hasn't been, so we're not counting on that. The cemeteries are what they are, primarily pre need property sales, we knew it, and bad debt reserves, penny and a half related to that that won't be recurring.

And then we had a lot of bump up, upward bump from acquisition performance in the quarter. If you, if you look at what happened in this quarter, in terms of sustainable performance, here's the way I would describe it. First on an EPS, I would say that our funeral contracts are not sustainable at that level because the flu season is one-time event. If you adjust for that, that's about a million one in revenue. About a penny and a half in earnings per share on the volume increase

424,000 EBITDA. If you look at the higher cremation rate, we looked at that. That's a spike that's not sustainable. We have increasing cremation rates. Take it down to half of what it was, that's about 6/10 of a penny.

If you pro forma out the extra litigation expense, which won't be there at some point, it's not sustainable, that's $0.02 a share. And if you get the cemetery sales back to where they were over the near term, that's up a million four and you put a smaller margin on the total cemetery sales of maybe 33, 34% field EBITDA, then you're going to add about $0.03 a share or something like that.

So if you, if you work your way through, what is a normalized sustainable EPS earning power, you would deduct about a, you'd deduct about $0.01 for funeral, you would add two for the litigation, and you would add three for the cemetery so you would get about an additional $0.04 a share added to the $0.17 or about $0.21. So, we don't like to be precisely wrong about this, we would rather be roughly right, so we'd prefer to say our sustainable earning power for the first quarter for example, is in the $0.20 to $0.22 per share range. Now that could be right or wrong in the future, but that's what we think it is. If everything is executed right.

The analogy that I would give you here is that that's the kind of range we use in the individual businesses with the standards operating model. We never use precise numbers, because they were always wrong. Our people operate within margin ranges. If you look at the first quarter the same way with those kinds of adjustments, on a pro forma basis, our, our EBITDA, consolidated EBITDA would have been about $14.1 million on a revenue of about $48 million or, of consolidated EBITDA margin percent of 29.5%. If you look at last year, we were 27.1% and everything was hitting last year.

So if you just look at this year, and we had a lot more acquisitions and we didn't go up a lot on the platform overhead, it would make sense that that margin should go up. And this also is consistent with single digit, or in this case, small double digit revenue growth, more than that in EBITDA growth, more, in field EBITDA growth, more than that in consolidated EBITDA growth and even more than that in EPS growth. So you get smaller revenue increases leading to earnings momentum over time. That's the concept with our company.

And I think that's what you'll see, maybe not every quarter, like in this case, because we had some bumps in the road on our cemetery, but overtime we'll get that dynamic right. More often than we'll get it wrong.

And in summary, before I open it up for questions, I would simply like to say, that, we have evolved as a company, to a point where we firmly believe, with a lot of conviction, we're the right size. With the right models, with the right capital structure, and the right timing on the industry consolidation landscape, to make Carriage an attractive death care industry consolidation investment platform. That's a mouthful, but it's true.

We are thus positioned to create substantial shareholder value over the next three to five years. That's the timeframe we're looking to do something, that's why we're excited and I'd like to open it up for questions.

Thank you. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS). Please ask one question and one follow-up and requeue for additional questions. One moment for our first question. And our first question comes from the line of Jamie Clement with Sidoti. Please go ahead.

Morning, Mel.

Hey, Jamie.

I've got a couple of questions and first, first off, just on the funeral operations and this isn't about the quarter, this is about, this is about the long-term trends.

Yep.

If you, if, and I'm basically just talking about, the trailing four quarters, compared to 2004. If you got a declining death rate environment and contracts aren't up over long period of time to improve your EBITDA, the way I got it figured in simple terms. You either have to generate more money, uh on the contracts you are selling, on the services you are providing or you have to spend less money in providing those services.

Now with your operating model, just so that we can understand this a little bit better, and I know that a lot of this comes down to talent at the local level, okay? What does a more-talented A-level guy that you have now in Carriage, what has that guy done or that woman done to make those improvements over the last couple of years?

First of all, they're competitive. They want to win and when we talk about competitive and winning at the local level, it's all about market share. They want, they want to know who, who they can take it from. They also want to look at their staff and see who's keepers and who are the ones that are really holding them back.

And there's been a lot of transformation at the staff level. Because when you get an A-player who wants to win, not everybody can be on a championship team and it's just like a sports team. You have to rotate off the weak players, so you can make room for the stronger players because they're just taking up the spot, they're not creating any value. They're probably not giving the service that the families deserve and this is the kind of dynamic that has to take place.

When that does take place, you get a team of employees around a vision that is painted or developed by that A-player. They are more productive, they do more with less, but they do it better. And this all changed when we went to this model where we used to try to get these efficiencies. I mean, we just turned it upside down and made the managing partner the most important part of our company, opened up incentives, focused on the quality of staff and opened up the ranges for, for them to maneuver and operate and make decisions on their own and this is, this is the result of that kind of process over a period of four years. That's what you're seeing.

We don't focus, I don't focus on pricing. I wouldn't have a clue of what people are doing with their pricing or costs but the margins don't lie. The data don't lie. We're not cutting service, I can tell you that. We're doing more training, we're making them better.

Okay.

But they have to have the right people to, I mean we've trained a lot of people that "for what?"

Okay, I don't think we necessarily have enough of a time horizon to really, to maybe see the, the, your operating model in effect at the, at the businesses that you've acquired. But can you, can you just discuss maybe anecdotally how you feel your model is translating to your acquired businesses and would you expect to see, no difference between the overall margin that you have in your same store businesses versus what you've acquired?

Overtime I would expect to see margins in our acquired portfolio equal or exceed those in our same store portfolio. Because we are looking for bigger businesses in markets where the demographics are very strong. We call A, B+ businesses and when you get businesses like that you can attract really top notch talent. And as soon as the talent shows up, you begin to see a difference. We recruited six managing partners, well, there's one still to go, but out of the seven acquisitions, six new managing partners, only one was in place that we bought.

Okay, okay.

And they're beginning to see the fruits of that leadership.

Okay, I just want to make sure I interpreted some of your comments in the prepared remarks in the right way, but with respect to your, your fixed corporate overhead. That obviously has increased over the last couple of years.

Yep.

Is, other than just normal inflationary type of costs, I mean, are you, are you at a level now, where you think you have the corporate infrastructure in place to support future acquisitions without, and really to support your operating model without significantly increasing it?

Yes.

Okay.

I mean, it, to see what was here in '04 and now to see it now, it's like two different companies and I mean, HR, legal, we have an operation and analysis group now that people who are coming from some of the other companies are going "man, this is the best thing since sliced bread." We have a group like that. Accounting, trust administration, training, payroll, you name it, I mean, it's, it's, it wouldn't resemble very much what was here in '04.

And then the final question and I can get back in the queue. You've talked a little bit about obviously the funeral operating model, was sort of the first thing you all discussed then you started talking about changes to the cemetery model, you alluded to some simplification there. Can you give it, what is just for, maybe dumbing it down for somebody like me. What's sort of different about how you look at cemeteries today than let's say how you were looking at them four years ago?

Well, we didn't have a cemetery model until '05.

Okay.

And it was created in the cemetery region, but I wasn't real happy with the performance there in '06 and once I started looking at cemetery operating model and all the pieces of it, it was, I mean, I couldn't figure it out. I'm sure you couldn't figure it out and I'm going "if we can't figure it out and we're numbers people, what about our operating people?" So let's just, the way we do this around here, let's just trash it and start over.

Okay.

And this time, let's make it simple and then we'll tweak it so, I just, I redesigned it along with some help from some of our people here to start out '07 and there are only four little pieces to it right now and 40% of the waiting is on pre need property sales.

Okay.

40% of the waiting is on operating margin range and that range is five points, depending on the size of that cemetery and the mix. Uh, I mean, it's got an earning power range that we call our operating margin because the financial revenue is not under the control of the managing partner.

Right.

That's not here so we don't put that in there. And the other two standards are right quality of staff, that includes sales manager, sales team, sales council and so we started looking really hard at that last year and said this is not right, this is not sustainable, we have got to fix this piece. We will have more standards on the cemetery because there are more moving parts.

Okay.

But not yet.

Okay.

We wanted to get two full years under the simplified model with the new leadership in place and then the way this works, we'll come to, we'll come to Houston and we'll have these A-players come in here and sit around a table and say "all right, now let's expand this and make sense to you." If we invent it here and they don't think it makes any sense to them, it has no credibility. We'll take what we call A-players, some on standards counsels and redesign and expand the cemetery model so that it's more effective and complete. That will probably be to start out '08 -- '09.

If maybe I could ask a follow-up question which is a preview to future calls. If obviously you are heavily weighting toward pre need property sales, it's one thing to say "go out and sell" what it sounds to me, and just reading the press release too is that if, is the idea of just, going out and selling, that, that doesn't sound like that's quite good enough. So, what are, are there some nuances that you can share with us, with respect to maybe, what happened this quarter in the west, that might be useful for us to kind of consider going forward?

Well, yes, I'll give you a little color. Rolling Hills was 45% of the short fall. Now it was, it was a hero last year, but the managing partner we hired, it was around September, October, said "look, now that I've been here six or seven months, this is not sustainable" and some of this into the last quarter.

This is not sustainable, there is no vision here, it's all been short-term oriented, the salespeople in place and selling are not the best to take it to the next level and I have a vision for this part that is more strategic, more important, more demographic and they can't get it there. So we said we understand, we agree, pull the trigger. If you have to change it all, that's no problem. Build it the right way, build it for the long-term, make it sustainable. That's what he did.

Same thing in Fort Lauderdale where we manage a big cemetery operation for the city. And then there were a couple other, two or three others where we changed out the sales leadership, you're right, Jamie, if they weren't doing it the way that's sustainable, there's no vision around it. So we made that call knowing we'd take a hit, glad we did it, now let's get on with it and move it back up.

Our next question comes from the line of Clint Findlay from Davenport, please go ahead.

Hi Mel. How many people actually have you replaced in that segment and have they been focused more on the local level or on a regional basis here?

No, this is all local. Everything that happens with these numbers is, that's why we do field results. And let me, that's a good question. Because we report the way we do, the revenue and field EBITDA, that's the same way our independent businesses get their reports and results.

So each and every one of them can see how they impact the total company. They can see on an earnings per share basis how much difference they make good or bad. For the A-players that's wonderful. For the weak players, they want to hide under a rock and they just don't hang around. We like it that way.

It's transparent. This is all local. The changes that have been made are all local. We changed out the sales organization, many sales counselors in several of our large parks that amount to four, five, different parks, but amount to 100% of the variance here.

So it's not like we have to change 100 places to get back up to where we were, we just have to do well in a few places over the next year. We are. A lot of work's already occurred.

Could you make talk a little about the kind of skills you're looking for in your new people here. You said you took out some of the sales oriented leadership that were there, but yet when we listen to some of the 4E, or some of the goals the new leaders have to meet, many of them still remain financially driven metrics and goals. So what exactly are you maybe looking for within these individuals?

I hate to say this, there's a lot of rotating of salespeople in this industry who have been around for a long time and they, they like to, to go to a new place and grab all the low hanging fruit and revisit the existing files of the existing heritage and do a lot of selling. That's not going out, that's not recruiting on a daily basis, that's not having a vision for the business that is forward-looking and adding new families to the heritage that, that you can serve when they have a death in the family. We're looking for people who are like that and the 4E's apply to them.

I mean, we've had this discussion here recently about some of the terminations we made and if you can't energize your sales staff around a future vision and then practice what you preach every day by recruiting, training, developing, weeding out, you have to improve their skills, but you have to inspire them. It is a sales business, we're looking for people who are great at inspiring and building sales teams. But I'm telling you, there are a lot of retreads in the industry who want to grab the low hanging fruit and want to revisit the past. That's not who we're looking for. Those are harder to find.

Is what you're trying to do here going to require an increase on the CapEx on the cemetery?

I don't think it has anything to do with CapEx. Would we be making strategic investments according with master planning and product planning in any event.

What we need to do is have the sales organization that could then sell those products according to that plan. But the two are not necessarily connected. I think the product planning and the master planning and the strategy and the vision comes first. You have to have a team that can execute according to that plan.

And I don't think this is the case, but you didn't change any of your accounting policies or take any write downs on the cemetery during the quarter did you?

No.

Okay--

We just crashed and burned a few places.

Okay, thanks, Mel .

You bet.

(Operator Instructions). And our next question comes from the line of Mike Scarangella from Merrill Lynch. Please go ahead.

Hey, Mel. Good morning.

Hey.

I'm still struggling with what went on in the, in the cemetery division, so I'm sorry to revisit it here, but. All the pain you guys went through in late '06 with Rolling Hills and you replaced a lot of the management, and you really reexamined the field level numbers. And we heard since then Rolling Hills was doing well, doing well, we see overall that the cemetery division has done really well in the low to mid-30 margins. It's just hard for me to understand how kind of in one quarter we're down over a thousand basis points and all of a sudden it's just not working and we need to replace all the salespeople.

I guess, help me kind of understand how that happens and then, if that's the case, is there not a more, a way to kind of transition that so you're not replacing all these sales teams at once and we see this kind of precipitous drop?

Here's the deal, Mike, and I know it's difficult to get your arms around it. If you have an A-player, which we do, who tells you, the whole sales program, it's selling, but it's not, it's not in alignment with a vision of the future. There's, it's all seat of the pants, short-term, it's been this way for a few years, it looks good, it's making a lot of money, but we can't take the business to the next level.

I know he's right, the people who are in our regions know he's right, then we're going to say "this is what you have to do." Make that call, we'll support you. He's going "well it's not just one person, it's the whole thing..." and you start going down the list and say, we understand that. Make the call. That's what he did.

When you make that call, he made this call in '07, the results you're seeing is the first quarter of '08. All that stuff has already happened. He's already rebuilding it back. Now, will it happen overnight?

No, but when you lose eight or 900,000 of pre need property sales, and you reserve against sales you already made last year by these same teams, $400,000, I mean it doesn't take long to, it goes to the bottom line because your fixed costs still are there. So it's not like this is complicated. And it, it is very sensitive because of the high fixed cost nature of the cemetery business to pre need property sales.

So this was done earlier '07--

No it was done in the last half of '07 in terms of the sales toward the end of '07 in terms of the sales teams. All of these, in last half of '07 at all of these cemeteries. Now that hasn't changed our outlook. Our outlook is no different than it was at the end of the year for the next four quarters.

I'll ask you about the outlook actually in a second, that's Rolling Hills, 45%, the other 45% was how many other cemeteries?-

Three or four other cemeteries.

Is this under the same managing partner and the view was the same or just coincidental--

Under the same managing partner -- wait a minute -- whoa. They're all different. I didn't follow your question.

I'm trying to understand, is this a coincidence that Rolling Hills, Fort Lauderdale and all these other cemeteries had problems at the same time or is this all under the same guy and he has taken a view --

These are all different regions. These are all different regions but we're taking a view that across the company, in seven different cemeteries, we want to do master planning. Seven. Kevin Muisco came from Alderwoods.

He's responsible for master planning, strategic development of all our properties. We have those master plans, some complete, some underway. With those, that's land planning, then you have product planning and development. Much more strategic view of the cemetery business because it's a long cycle business. And we, we weren't running it that way under the previous leadership.

The new leadership in the regions, and myself, and the executive team, along with the managing partners we recruited, who know the difference, said we're going to have to make a more strategic decision here and, and to get it where we need to, we're going to have to get rid of the existing program and the existing people running the existing program. And we said "go do it, do it fast, get through it fast and let's move on." This is not like, I mean I remember the third quarter of '06, everybody was saying "can you sell the central region and can you sell Rolling Hills?"

No, Rolling Hills is fantastic it's better than ever, in terms of what we can do with it. Now everybody's excited about the future. Including me.

Okay, let me just switch to the outlook then. You maintain your guidance, it sounds like based on what you've said that the cemetery region maybe has bottomed in this quarter, you'll start to rebuild and improve from here. Does that imply that funeral will continue to out perform for you to keep guidance where it is? Because obviously cemetary is out if initially put the guidance out.

Our guidance is for 12 months, I just walked you through how I would adjust the first quarter of this year, $0.22 a share on a sustainable basis, assuming the cemetery in the first quarter '09 is up to where I said. I mean, we don't, I don't care about quarters or calendar years. I know other people do, but we're looking at the next 12 months and our sustainable performance is defined in the, in the rolling four quarter outlook. And we are maintaining that exactly the way it was.

Okay, maybe lastly, on your CFO position. I'm sure Joseph Saporito is not replaceable. What do you think you do to replace him? When do you think that seat might be filled?

I have a search underway. Looked at a few candidates. None got to 1st base. We're in no hurry. It's got to be right. We're looking for a 4E leader more than anything else. We know what that looks and acts like and we won't settle for anything less.

Okay.

I fired one big recruiting firm right away because they didn't have a clue, and the one I got now is doing a great job.

Good, okay, thank you.

And our next question comes from the line of Robert [Colsowski] from OSI Institutionals. Please go ahead.

I just had a question about the cemetery business with regards to the bad debt reserve. Do you think that's a kind of symptom of the former sales target of going towards lower income for, I guess, credit quality customers and now you're trying to change that to go towards I guess, higher income, better demographic?

No, no. It had everything to do with the sales leadership. I mean, to try to say it's, the higher income people pay and the lower income -- that's not what it was. It's just the sales organization that was in place, they were selling anything to anybody and we have to reserve against it.

It all, everything, first who then what happens. Also the reverse, happens, good things happen, but bad things happen if the who's not right too. So the reserve is related to prior leadership and sales teams that were in place. That's the what you get when they're not right.

Liz, I think we're out of time. It's bottom of the hour.

Okay, Mr. Payne, there are no further questions at this time. Please continue with any closing remarks.

We appreciate the attention and questions. Keep following our progress because we're making it. We look forward to reporting it. Thanks a lot.

Ladies and gentlemen, this concludes, excuse me, the Carriage Services first quarter earnings conference call. This conference will be available for replay after 12:30 eastern time today. You may access the replay system at any time by dialing 1-800-405-2236 and entering the access code 11113713. Thank you for your participation. You may now disconnect.