Carriage Services Inc (CSV) 2008 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Carriage Services third quarter earnings conference call. (OPERATOR INSTRUCTIONS)

I would now like to turn the conference over to Ken Dennard of DRG&E. Please go ahead, sir,

Thanks.

And good morning, everyone. We appreciate you joining us for Carriage Services conference call to discuss third quarter 2008 results.

Before I turn the call over to management, I have the normal housekeeping details to run through.

If you'd like to be on the e-mail distribution list for future Carriage Services releases or if you had any technical difficulties and did not receive your copy of the release yesterday afternoon, please call our offices at DRG&E, and we'll be happy to assist you, and that number is (713) 529-6600.

Carriage Services has posted supplemental financial tables and information on its Web site, and that's www.carriageservices.com, regarding it's recent financial results, and the company encourages you to review that information at your convenience.

In addition, if you'd like to listen to a replay of today's call, one will be available via webcast by going to Carriage's Web site.

Also, additionally there is -- in a few hours, there'll be a telephonic instant replay of this call. It'll be available 24 hours a day for the next week. The replay and access code are in the release yesterday afternoon.

Please note that information reported on this call speaks only as of today, November 5, 2008. Therefore, you are advised that any time-sensitive information may not be accurate as of the time of any replay listening.

Also, as you know, certain statements made today on this 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 23 -- 21E of 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 31, 2007, and all subsequent SEC filings could cause the company's results in the future to differ materially from the forward-looking statements made today or in other documents or oral presentations made by or on behalf of the company. A copy of the company's Form 10-K and 10-Q's, news releases, and other information are available for free on the Carriage Services Web site.

With that, now I'd like to turn the call over to Mel Payne, Chairman and Chief Executive Officer.

Mel?

Thank you, Ken.

And good morning, everyone.

Considering that we had quite a bit of expense noise in our numbers that has either already been or in the process of being managed out, we're actually pleased with the financial results we reported, which showed a modest profit compared to breakeven in our second quarter 2008.

Be assured that we have been hard at work doing whatever is necessary to position our company for an improved operating and financial performance in 2009 that will be sustainable on an ongoing basis.

I would like to now turn the call over to Terry Sanford, our Chief Financial Officer, and then Jay Dodds, our Chief Operating Officer, to provide details on our financial results and to provide additional color about our operations and what we're seeing in the markets.

Terry?

Thank you, Mel.

And good morning.

As I discuss the financial results for the third quarter of 2008 and comparable periods, please note that there are no discontinued operations during the third quarter of 2008 nor did we complete any acquisitions during the period.

For the third quarter of 2008, we reported revenues of $43.2 million, compared to revenues of $40.4 million in the third quarter of 2007, an increase of 7%.

The increase in third quarter revenues was attributable to several factors, including, first, a 0.9% increase in same-store funeral contracts and a 6.5% increase in total funeral contracts, a 3% increase in same-store funeral operations revenue and a 7.2% increase in total funeral revenue, and, lastly, a 6.5% increase in same-story cemetery operations revenue and a 6.3% increase in total cemetery revenue.

Total field EBITDA was $13.2 million in the quarter, compared to $13.6 million in the third quarter of last year.

Total field EBITDA margin was 30.6%, compared to 33.8% in the same period last year.

We experienced an increase in expenses of $3.2 million in the third quarter of 2008 relative to last year's third quarter. That negatively impacted our field EBITDA and field EBITDA margins.

The increase in expenses was primarily due to higher costs in four categories. First, our self-insurance cost and claims were up about $1.1 million; labor and benefits cost was up approximately $600,000; we had higher bad-debt expense, up about $500,000; and transportation costs were approximately $200,000 higher.

The year-over-year increase in labor costs reflect normal annual pay increases and higher salaries for upgraded positions. Yet, as a percentage of revenue, the amount is higher than required by our salaries and benefits operating standards.

We self-insure up to particular stop-loss levels (inaudible) property casualty, workers' comp, and general liability risk. As an example, we self-insure up to $200,000 for claim in our health plans and $150,000 for our property casualty, general liability, and workers' comp risk.

Our claims experience in the past several years has actually been very good, but that kind of caught up with us in the third quarter as we experienced much higher claims. A little breakdown on that -- in the health-care area, our claims were almost $400,000 greater than they were a year ago.

The other increase on our self-insurance claims was principally related to litigation that we have previously disclosed and accruals that we're setting aside for settlement of those.

Much of the higher bad-debt expense was related to our pre-need receivables from funeral operations, where the weakened economy is having a noticeable effect. Additionally, turnover in sales personnel at particular cemeteries also resulted in collection issues.

Total overhead in the third quarter of 2008 was $5.8 million versus $5.6 million in the same quarter last year, contributing to a higher total overhead in this year's third quarter or higher legal expenses associated with previously disclosed litigation, as well as termination expenses, each of which was approximately $200,000 higher than the prior year. The termination expenses were one-time events and will not have an impact on our future periods.

While total overhead increased from a dollar perspective, total overhead in this year's third quarter as a percentage of revenue actually declined to 13.5%, compared to 13.8% last year.

Consolidated EBITDA was $7.4 million in the third quarter of '08, compared to $8.1 million in the third quarter of last year, consolidated EBITDA margin fell to 17.1%, compared to 20% in the third quarter of last year, and consolidated EBITDA and consolidated EBITDA margin was lower in this year's third quarter compared to last year's third quarter due to the higher expenses that we just discussed.

Depreciation and amortization increased to $2.7 million from $2.4 million last year and was largely associated with the acquisitions made between last year's third quarter and this year's third quarter.

Interest expense was roughly flat compared to last year. Our diluted earnings per share was $0.01 this year, compared to $0.04 in the third quarter of '07.

Free cash flow was a negative $1 million in the third quarter of '08 versus a negative $3.3 million in the same quarter last year.

For the first nine months of '08, the company has generated $7.5 million of free cash flow, compared to $3.4 million for the first nine months of 2007.

On September 30, Carriage had $3.3 million in cash and cash equivalents.

In addition, we do not have any debt that needs to be refinanced. Our $35 million credit facility, which is undrawn, matures in 2010, and our 7.875% senior notes mature in 2015.

Our capital structure, additionally, includes $94 million of 7% coupon convertible preferred securities maturing in 2029, which, together with our free cash flow, provide ample financial liquidity and flexibility both to operate our business on a day-to-day basis and to pursue strategic capital initiatives in a capital and credit-constrained environment.

During the recent market downturn, we felt the best use of our capital was to repurchase shares. Accordingly, Carriage completed its previously disclosed $5 million share repurchase program by repurchasing 1,347,000 shares of stock on the open market. The buyback reduced the company's outstanding shares by 7%, and we used our excess cash flow from operations to do the buyback.

I realize that certain of you on the call are interested in how the recent turmoil in the financial markets has affected Carriage's trust funds. We'll be filing our 10-Q in a couple of days. The footnotes to the 10-Q include information on each of our trusts, such as cost basis, market value, unrealized gain, and unrealized cost for each category of investment.

Carriage employs an investment advisor to oversee the allocation of the assets in accordance with an investment policy that was approved by our board. During the first nine months of 2008, it was, quite frankly, difficult for our investment advisors to find investments that they felt comfortable with. So, as of September 30th, we had accumulated a large position in cash and short-term investments.

During the last three weeks, the trust has employed a large amount of cash and a high-quality senior corporate fixed income securities that yield approximately 12% overall and with terms ranging from six to ten years.

The trust have also invested a sizable amount of cash into mostly high-dividend-yielding equity securities in leading US brands across sectors in our economy.

We're extremely pleased that we had the financial flexibility to lock in these new high returns over the long run and believe that over the next three to five years or some intermediate term those unrealized portfolio losses that were in our trust funds at the end of September will actually turn into unrealized and realized gains.

Now, from an accounting perspective, the recent decline in market values has little effect on our reported results.

In the funeral segment we recognize the accumulated trust income on a contract-by-contract basis as pre-need contracts convert to at-need. Because only 20% of the families served have pre-need contracts and of that population approximately 60% are (inaudible) contracts versus trust contracts, only 8% of our funeral contracts are impacted by trust investment gains and losses. Trust earnings represented 4% of funeral revenues in the third quarter of 2008.

In the cemetery segment, which is 25% of our revenues, the effect is a little more significant because 3% to 4% of the cemetery revenues typically come from the perpetual care trust fund earnings and 2% to 3% from the merchandise and services trust fund earnings. Trust earnings represented 5.7% of cemetery revenues in the third quarter of '08.

Total companywide trust earnings recognized in our results for the third quarter totaled $1.9 million, or 4.4% of our total revenue. That was up slightly from the prior-year period.

Regarding our rolling fourth quarter outlook, as discussed in our earnings release, our outlook remains unchanged. Further, our long-term outlook remains stable and unchanged as well.

We believe Carriage is on track to get its financial results back to higher sustainable levels. We can manage our business well through the current challenging economic conditions, and we remain confident that our operational and strategic models position us well to (inaudible) grow our business going forward and that we are well positioned to capitalize on rising death rates and more favorable economic conditions as they materialize.

Three areas of focus that will improve profitability in the near term are, one, reduction of costs and expenses; two, higher revenue realization on cremation contracts; and, three, increased quality and quantity of our cemetery sales counselors.

Now I'd like to turn the call over to Jay Dodds, our Chief Operating Officer, to provide additional color on our business and our focus areas.

Jay?

Thanks, Terry.

As Mel commented, we were relatively pleased with our results for the third quarter, but there are many areas where we can improve, and we're working to do so.

In the third quarter, July and August performance was relatively -- relative to historical patterns, but September was weaker than normal. We experienced growing volumes in the quarter relative to last year, and our average revenue per funeral grew over last year, which we were pleased to see given the third quarter is seasonally weak.

There are three primary areas of focus for Carriage right now: improving the performance of our cemetery operations, managing our costs as compared to revenue, and training our people to be able to better serve the client families that choose cremation. I'll touch on each of these areas to provide you with some additional details on what we're doing.

We have been working hard to improve the sales leadership and sales organizations at most of our cemeteries to drive sales and increase margins. In addition to adding top sales leaders, which we have discussed in previous conference calls, we also need to meaningful increase the number of sales counselors at our cemeteries. To that end, we are striving to hire approximately 75 cemetery sales people before the end of the year, and we are already about one-quarter of the way towards achieving that goal.

From experience, we know that, when we hire a new sales leader, it takes about six months for them to get performance to an acceptable level. Generally, it takes three months for them to get onboard and train new sales people, with another three months to get programs and systems in place to achieve their targets. Based on that general timeframe and the pace at which we have been hiring sales leadership and sales counselors, we believe we will see improved results in our cemetery operations over each successive quarter.

While we believe challenging economic and real estate conditions have an impact on our cemetery operations, particularly in markets such as California, this also creates opportunity for us to attract quality, experienced real estate professionals to our various cemetery sales organizations.

During the year, and particularly in the third quarter, we have seen revenues increase without the benefit of increased earnings. During the managing partner meetings in August, each business leader designed specific goals to reduce costs at their respective businesses. Business reports that are filed for each business visit by the regional operating teams have reflected the progress with those goals.

Some of the areas where we see opportunity to improve operations and results from cost-control emphasis are salary and benefits, facilities and grounds, and transportation costs. Several of our 2007 acquisitions now have leadership in place, and their operating performance will be brought into alignment with the same-store portfolio, something that took longer than originally anticipated.

Our cremation rate at the end of the third quarter was 40%. As our cremation rate has increased, we have spent time and resources to try to better train our employees on how they can better serve our client families that chose cremation.

In addition to better training, our standards counsel has recently approved a significant increase in waiting for our cremation-related criteria. This information has not been rolled to the field so we're -- so the particulars will be forthcoming.

The opportunity to serve our client families that choose cremation is boundless in the sense of being able to create meaningful and personal services that focus more on the living. We have a large percentage of client families choosing cremations that currently do not choose any type of service.

There has to be a culture change within our organization that addresses client families that choose cremation in the same manner that our client families that choose burial are served. The change will only take place if we gain buy-in by our managing partners. We believe the heavy weighting on the cremation criteria that is directly tied to our being the best incentive plan will give us the results we desire.

With that, I'd like to turn the call back over to Ken.

Thanks, Jay.

And, operator, we are ready to take questions.

Thank you. (OPERATOR INSTRUCTIONS)

Our first question comes from the line of Chris Fendley with Davenport & Company. Please go ahead.

Hi. Good morning, gentlemen. This is Drew Gaputis filling in for Clint this morning.

I was hoping you guys would speak a little bit more to the margin shortfall in the funeral operations portfolio and what maybe increased expenses there impacted that result.

As we talked about before really on a more global basis, on the funeral side, the largest increase was in the salaries and wages area, followed by the claims that we have from our self-insurance programs.

All right. Thanks. And then is it safe to say that the spike in cremation rate may have also had an impact there?

Well, the additional -- I mean, from a sheer numbers standpoint, the increase in volumes was primarily attributable -- or came through primarily as cremation contracts. They do have a lower average so, yes, had that been at a percentage that we typically have in the past, it would have improved our revenue, which would have improved the bottom line a little.

Okay. And you -- would you guys be willing to give a dollar figure on the average revenue per cremation? Is that up sequentially from the last quarter? I think last quarter you guys said it was around $2,800.

Our average revenue for cremation contracts for the third quarter was $2,843.

All right. Great. And one final question. Could you just a little bit more color on the bad-debt expense? Is that a problem you guys seeing continuing going forward, or has that kind of been nipped in the bud? I just -- any more color on that would be helpful.

Well, I tell you, I think -- we're definitely feeling an impact from the weakened economy, particularly on the West Coast. I spent some time in California, and it's difficult, when you have a large number of businesses that are concentrated in an area like that that has now such high unemployment rates, such dramatic foreclosure rates, the state government there itself is having difficulty, and it's hard to pick up a newspaper or listen to the news without hearing negative comments about the economy, and I think people have lost a lot of confidence. In a number of cases, they've lost some of their discretionary income. So I think that that has had a -- certainly an impact on us. When the economy improves and creates improvement in that, I can't say for sure.

Now, there's an additional component to that additional bad-debt expense, we believe, and we've had some fairly significant turnover in some of our sales counselor positions at some of the large locations. Typically, that is followed by higher collection problems. So I think there's a portion of that -- I'm not -- I don't have a way of actually identifying what portion that would be related between the two, but I think it's a combination of those two.

The second, obviously, is something that will improve. As Jay and his group are busy bringing in additional and higher quality sales counselors, we do think the quality of our receivables overall will improve. So we do expect that number to go down.

All right. Thank you, guys, very much, and we appreciate the simplified press release. It was very helpful. Thanks a lot, guys.

Thank you.

Thank you.

Our next question comes from the line of Mike Scarangella with Merrill Lynch. Please go ahead.

Thanks.

Good morning, guys. Looks like you had a pretty decent growth in your average revenue per funeral despite what was almost a 300 basis point increase in the cremation rate. Could you just talk about anything in particular you're doing to drive up your averages in the quarter and then any color you have on the cremation rate? It was a pretty big uptick. Do you get the sense that's economic-driven, do you get the sense that's continuing in the fourth quarter, or any comments would be great.

Mike, this is Jay. The cremation average, I think, was a direct relation to shining the light on that issue and putting a lot more emphasis on cremation. And I think on a go-forward basis, the cremation rate I don't think will accelerate like it has in the past, but it's going to be here for a long time, and we have a number of things that we're developing or have developed and actually are rolling to the field this week to address cremation and how to provide meaningful services to families, as cremation is actually a method of preparation, it's not the end result, and shining a bright light on that with our people and putting emphasis in our being the best incentive plan for the managing partners to really focus on that, I think, will help a lot.

Mike, this is Mel. I don't know that there's any evidence anywhere that says a person will pick cremation over ground burial because of economic circumstances. I don't believe that to be true, and I've never seen any evidence that it is.

Okay. Thank you.

You talked about the economy impacting your business a little bit -- and I'm sorry, this is probably in the numbers someplace -- but how much is your pre-need sales off, if that's the most sensitive part of the business?

Well, the area that that impacts is pre-need cemetery sales because the pre-need funeral sales actually won't be reflected in our results until we actually provide the service.

Right.

Now, from a pre-need perspective, our volumes were actually up as far as the number of interment sites that we sold during this quarter versus a year ago, and our average revenue per pre-need contract on the cemetery side was also up, actually from about $3,349 last year to $3,520. As a percentage, that's pretty nice. The average price of our interments actually grew too. So we're actually -- even though the economy was weak, we're seeing some strength and some trending improvement on the cemetery side.

Now, I can tell you that we began seeing that really nearer the end of the quarter than the first part of the quarter, and I would hope and expect that to be primarily from some of the changes that have occurred with respect to the sales leadership in some of the cemeteries.

Now, having said that, though, I mean, we are not at a level in cemetery sales, particularly our pre-need sales, where we expect to be where we want to be and where our standards show us. But we've got a lot of work in that area still to do. Jay and his group, for instance, as he's talked, he's probably got 75 people and holes that he's trying to fill in that area. So this is an area that we still have a tremendous amount of upside in.

Okay. But in terms of the economic impact on your business, it's only pre-need cemetery, and that was up so --

Mike, this is Mel. I have a philosophy here, and I've been wrong a lot and right early so it didn't look like I was right. There was -- there is a true question about whether top-quality people in sales leadership positions then recruit and train and develop top-quality sales counselors. This is an environment where we can find those. In a booming environment, it's more difficult because there are lots of other ways they can make money, especially in real estate.

We're seeing the seeds of the hard work and heavy lifting that was done earlier by eliminating weaker sales leadership, recruiting top-notch sales leadership, and we're beginning to see those seeds grow into fruit. It won't happen overnight, and Jay and his team are hard at work, but the trends are encouraging.

Okay. And just my last question -- did I hear you that you're going to hire 75 cemetery sales people by year end?

That was our goal. We're over -- we've hired over 25 to date.

Okay. So should we expect a little margin pressure over the next two quarters as those people ramp up, or is that -- is it not enough to (inaudible)?

No. I don't think we'll see any. It's very limited on the cost of bringing people on. They're straight commission. So what we're paying out, they're earning.

Okay. Thank you.

Thank you.

Our next question comes from the line of Alan Weber with Robotti & Company. Please go ahead.

Good morning.

Good morning, Alan.

Hi. A few questions. One is, given the stock price -- you completed the authorization, I was wondering, since the price is lower, what are the thoughts in terms of doing another authorization?

Well, Alan, that's an excellent point, and our board has to address that. Our next board meeting is actually tomorrow morning, and it will be considered by our board at that time. Then if -- assuming that they do approve it, we'll have an announcement out immediately for that.

We do see Carriage as being a great value, quite frankly, from an acquisition perspective. We're the most fairly valued funeral home and cemetery business on the market. So we would be interested in increasing our repurchase program.

What would you recommend, Alan?

Oh, to repurchase more stock.

Okay.

I mean, that's pretty -- it's pretty clear now.

But I did have a follow-up to that -- and, of course, it takes a long time to show the benefits of that -- the repurchase. Down the road, as the results improve, obviously, the per share numbers go much-- do much better.

Can you talk about pricing in terms of acquisitions because, obviously, part of the use of the cash is the alternative to make acquisitions, and in terms of date, environment, pricing, does that really change?

I'll address that. I've been spending quite a lot of time on that -- or had been spending a lot of time on that. And it's been a very fascinating couple of months and certainly a fascinating October, and I think the world has changed. We have a new president. We have valuations of all kinds of assets that have precipitously declined over the last couple of months and especially over the last month.

I think it's very difficult in this environment, with credit costs very high, to know what your cost of capital is. We view our capital as very precious. We produce our own capital. It's not easy to produce your own capital. Our balance sheet, which is long-term maturity and low cost, allows us to do that from operations. We're going to be very careful about how we allocate the use of that capital, whether it's internally or externally on acquisitions.

At this point, we pulled back on acquisitions when the market started really in a freefall and started buying our stock. At this point, it's too early to know how to value our operating business so we don't have any specific plans to do that. We're going to let the valuations and the market settle out, then we'll figure out what our strategy will be, but at this point, it's too early for that.

When you say "too early," too early so you haven't really seen from a seller's perspective a change in what they're looking to receive upon sale?

We received some fairly recent acquisition candidates for consideration -- and by recent, I'd say over the last three months. They didn't in every case fit our criteria, which are very specific and strategic in nature and allows us to apply the proper pricing multiple to their local EBITDA. We turned most of those down. We have seen an uptick in activity over the last little while as people, I think, couldn't get credit, didn't have the other options available for them, so they're looking for an exit. But we haven't seen anything of a real high-quality nature that made us want to get real serious here in the last month or so. I think people are just holding back to see whether this crisis in the financial markets passes and then what their next steps will be.

Okay. Thank you very much.

You're welcome.

Thank you.

(OPERATOR INSTRUCTIONS)

And our next question comes from the line of Chris Sym with Shenkman Capital. Please go ahead.

Guys, good morning. Thanks for the breakout of the costs earlier. Could you just repeat the increase in transportation cost that you mentioned?

It was approximately $200,000 year over year for the third quarter.

Okay. And then --

And we're really -- most of that, quite frankly, was made up in the oil and gas category on our general ledger so it's higher price of fuel.

Right. I mean, I guess what I'm getting to is that, obviously, has come down very significantly so should we be expecting to see a benefit of that in Q4 or Q1 going ahead?

That's certainly what we're expecting.

Right. I hope so.

And then you mentioned labor being up $600,000, but as a percent of revenue it was also higher. What -- I'm sure I can go back and figure it out, but do you have in front of you what it typically runs at and what it was as a percent of revenue this quarter?

Yes. On a same-store basis, our revenues should be much closer to approximately 27% of our revenues, compared to approximately 29%. So it was approximately 200 basis points higher --

Okay.

-- than we would have liked to see.

Great. Can you just drill down a little bit more into that, and what can be -- I mean, that seems to be out of the self-insurance bed that -- obviously, the transportation will take care of itself -- but it seems like some of the labor should be something you guys could pull some levers on, and just go through how much of that you think you can get back and what's actually being done about it.

Well, there's pieces of that that are related to cremation rate and the staffing of our businesses and how we're properly staffed compared to what their revenues -- and not just revenues but the volume of business that they do. So a reexamination of each of our firms and the staffing levels and also the use of part-time. We have a lot of variable use in our businesses, and that will -- that's under review as well.

I tend to think one of the most significant areas is the part-time labor because approximately 50% of the number of our employees are part-time employees, and, quite frankly, it takes a little less labor units to take care of a cremation customer than it does a traditional burial customer. So I think the jump in cremation rates has -- is creating a change in our mindset with respect to now how we utilize and when we schedule, particularly, the part-time employees.

In addition, the salary and benefits as a percentage of revenue is one of the operating standards, and our managing partners, as they look to year end and achieving more standards, they will be focused on that as well.

Okay. And then, lastly, obviously, from a bond holder's perspective, we'd rather you not use -- authorize more share repurchases and possibly you'll reinvest in the business trying to get costs down. Frankly, even if I wasn't a shareholder, I think in this market trying to increase EPS by buying back shares is -- hasn't been working out for a lot of the people we've seen out there doing it, and just suggest trying to build it through some more efficient operations and building (inaudible).

That's all I have, but thanks, guys.

Thank you, Chris.

Thank you.

Our next question comes from the line of Robert Kosowsky with OFI Institutional. Please go ahead.

Good morning, and I guess congratulations to Terry, Jay, and Brad on the promotions.

Good morning, Robert. Thanks.

I guess, first off, with the cemetery sales force that you're going to add, what percent of the total cemetery sales force is this, and kind of how many cemeteries is this impacting?

This will impact probably 60% of our cemeteries -- cemetery revenues. So that would probably be 20 of our cemeteries maybe. Our smaller cemeteries can only take so many people, but our larger cemeteries, that's really where the focus is.

Okay. And how big is your, I guess, total cemetery sales force?

I'm not sure I've got that number with us, but that would be an increase, I'm guessing, somewhere in the range of 15% to 20%.

Jay?

Yes. Probably 20% to 25%.

Twenty to 25%?

Yes.

Okay.

So it's like a net increase of maybe 20% to 25%?

Right.

Okay. And then, as you get this cemetery sales force up and running, what do you -- do you guys have like an annual revenue goal for the same-store cemetery operations?

Each of the businesses have their standard revenue goal, and those are in development right now for what it will be for next year.

Okay. But you don't want to shed light as to what that could be for us to --

Well, we really haven't come up with that number yet, Robert. As we talked earlier, though, while we had some improvement, particularly near the end of the quarter, in our sales volumes and averages on the cemetery, we're seeing people hold back. It's been tougher and tougher to make these sales out there because of the weakened economy in some areas. We think there is a lot of upside in the way of that once we, one, have the additional sales counselors on staff, and then, two, when this economy provides a little more confidence for people to spend their discretionary income. It's going to be substantial.

Okay. And then I guess just looking sequentially on the cemetery -- same-store cemetery side, it seems like revenue was up maybe $750,000 and EBITDA was up maybe $275,000, which is about like a 35%, 40%, kind of, flow-thru to, I guess, the bottom line. Is this, kind of, a good gauge to use, or is that, kind of, held back by some cost pressures?

That is definitely our -- what we shoot for in way of typical incremental EBITDA margins to come out of the incremental dollar revenues as a percentage. That's right.

Somewhere in that 35% give or take?

Oh, yes. Absolutely.

All right. Okay. And then do you have any restrictive covenants on your debt we should be aware of?

Well, we -- not anything that's going to create any problems for us. We've never had any covenant problems. We've got great relationships with our banks, and we haven't drawn anything on our revolver.

The senior notes are essentially covenant light. There's not anything there that we need to be concerned about, and these subordinated preferred shares really don't have any covenants at all.

Okay. Very good. And then, finally, do you have any updates on when the legal costs are going to sunset?

Well, in some instances we do. It's probably unfair to try to draw some timelines. On one of them, we are in the process of -- or the court should provide final settlement on one of the more significant ones that we've been enduring for the last year. I think that's -- final sign-off on that is supposed to be in early January. The preliminary settlement occurred approximately a month ago.

I know our legal department has been working real hard to try to bring these to a close as soon as possible, and I, for instance, work closely with them to make sure that we have the accruals as well as the documentation for our insurance coverages so that we're reporting the impact of these timely and preserving capital as best as we can.

Okay. Thank you very much and -- oh, just one last question.

You mentioned that September was a little bit weaker than July and August. Any comments on how October shaped up?

What I was referring to there is on the funeral side. We don't have the final numbers in for October. The preliminary numbers were comparable to last year, maybe a little higher.

Okay. Thank you very much, and good luck.

Thank you.

Thank you.

And we have a follow-up question from the line of Alan Weber with Robotti & Company. Please go ahead.

Hi. Maybe I misunderstood. The sales people that you're hiring, what are they actually -- what is the -- their job going to be?

Well, in the cemetery -- they're cemetery sales, and our -- there's two components of cemetery sales. There's family service, which the family service counselors take care of the at-need calls, as well as follow up and sell pre-need hinged from the at-need call. Then there's also community service, which those are the folks that go out and sell new heritage and sell property to families that weren't necessarily thinking about buying cemetery property.

Over the last couple of years, we've really focused on the family service aspect and maximizing each opportunity that we have to serve the family, and the community service part of the business just really was not managed real well. And as we go forward, the majority -- the vast majority of these folks will be in community service out selling new heritage to new families.

Alan, this is Mel. At the same time, over the last year we've been doing master plans. We've mentioned this on prior calls. We never did master plans, strategic plans, property plans, development plans for our larger cemeteries, and we're well along in our largest cemeteries building product of different kinds, different price points to go along with those master plans. And so the uptick in sales -- new sales leadership now (inaudible) new sales counselors -- boots on the ground -- are going to have more product also in their toolkit.

Okay. And the focus on the community side, is that somewhat of an industry change also?

No. Well, I think it's somewhat of an industry change. It was how things were done several years ago. It was primarily all community service, and then it shifted to a family service focus, and then I think the reality is it's best to be a balance of both.

Okay. And one last question. On the cremation, did you talk about -- I think you gave out what the average cremation cost. Can you talk about what -- with additional services, is there a goal in terms of how much you hope the revenue of some cremation can actually increase?

Well, that's kind of hard to put a number on. What we're looking at in our businesses is trying to increase through goals and through some of our programs an entry step of $300 to $400. Just to -- our biggest challenge right now is to get families to choose services period and not immediate cremation. And so the programs we've developed are to move the families from an immediate cremation into some type of services. Once we get families and communities used to having services, then we can start working on having a focus on merchandise, a focus on more services, but we have to start somewhere.

Oh, okay. Maybe I -- okay. Thank you very much. Again, thanks an awful lot.

Thank you.

Thank you.

And at this time, I show no further questions in the queue. I'd like to turn the call back over to management for any closing remarks.

Thank you, operator.

And thank you to everyone who joined us on the call this morning. We appreciate your interest, and I look forward to speaking with you on our fourth quarter and full-year 2008 conference call.

Ladies and gentlemen, this concludes the Carriage Services third quarter earnings conference call. This conference will be available for replay after 11:30 Eastern Standard Time today through November 12, 2008, at Midnight. You may access the replay system by -- at any time by dialing (303) --