Carriage Services Inc (CSV) 2009 Q2 法說會逐字稿

Good morning, ladies and gentlemen and thank you for standing by. Welcome to the Carriage Services Second Quarter Earnings Conference Call. (Operator Instructions.) I would now like to turn the conference over to Ken Dennard with DRG&E. Please go ahead, sir.

Thank you, and good morning, everyone. We appreciate you joining us for Carriage Services' conference call to discuss second quarter of 2009 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 email distribution list for future Carriage Services releases or if you had any technical difficulties and didn't receive your copy of the press release yesterday afternoon, please call our offices at DRG&E and that number is 713-529-6600.

Also, Carriage has posted supplemental financial tables and information on its website - it can be found by going to www.carriageservices.com - regarding its recent financial results. The Company encourages you to review that information at your convenience. 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. Additionally, in a few hours there will be a telephonic instant replay of this call. It will be available 24 hours a day for the next seven days. The replay number and access code for the call are found in the news release distributed yesterday.

Please note that information reported on this call speaks only as of today, July 31, 2009, and therefore, you are advised that any time-sensitive information may not be accurate as of the time of any replay listing. Also, certain statements made today on 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 23-21E of the Securities Act of 1934, as amended.

Statements made on this call today by Management are based upon assumptions 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, 2008 and all subsequent SEC filings could cause the Company's results in the future to differ materially from those forward-looking statements made today and--or in other documents or oral presentations made on behalf of the Company.

A copy of the Company's Form 10-K and 10-Q, news releases, and other information are available for free on the Carriage Services website. And now I'd like to turn the call over to Mel Payne, Chairman of Carriage and Chief Executive Officer. Mel?

Thank you, Ken. Entering this year we were optimistic that we would have a much better performance than 2009, even though the headwinds of a historically deep recession were blowing strong in our face. But even we were surprised that our second quarter set four different Carriage records, including earnings per share - and this is the best part - three separate cemetery pre-need property sales records. First, in April, which was then broken by a wide margin; in May; and finally, the pre-need property for any one quarter was set for the second quarter.

At a time when everything we read and everything we hear is that consumers are under tremendous financial pressure, the one word that sums up these record sales performances is "wow." These performances and the many other performance highlights in our second quarter are all about our top notch funeral and cemetery operating and sales leaders and their employees teams across the country. I have never been more proud to report that we simply have a group of high standards performance leaders in our company that have become very good at building championship teams.

With that, I'd like to turn it over to Terry Sanford, our CFO, and to Jay Dodds, our Chief Operating Officer, to provide additional details about our people and their results. Terry?

Thank you, Mel, and good morning. It's very nice in this environment to be able to report the combination of higher revenues and lower expenses. As identified in the press release, diluted earnings per share was $0.12 in the second quarter of 2009. That compares with diluted earnings per share of zero from continuing operations, including special charges we incurred in the period a year ago and adjusted EPS of $0.04 when you exclude those special charges that we had in the second quarter of '08. For the six months ended June 30, 2009, diluted earnings per share is $0.25 compared to $0.17 from continuing operations, again, including those special charges, and $0.23 excluding those special charges a year ago in 2008.

There were no discontinued operations or unusual items to report in 2009. At the end of the third quarter of 2008, we announced the following near term initiatives to improve revenue and profitability. One, to increase the number and quality of sales staff at our larger cemeteries in an effort to increase pre-need cemetery sales and profits. Two, convert direct cremations to cremations with services in an effort to increase the average revenue per cremation service, and three, we wanted to manage our costs and expenses lower than we have in the past.

These are three significant things that we can actually manage, unlike the death rate which we have really no impact over. Our company's execution of these initiatives produced the following results as follows. One, for the second quarter of 2009, we reported revenues of 44.6 million, compared to 42.7 million in the second quarter a year ago, an increase of 4.2%. Revenue improvement is due to the 2.9 million increase in our pre-need cemetery sales. This is no small feat when you consider the bulk of the improvement occurred in the state of California and in southern Florida where the economy has been in a very dire condition. Two, cremation contract revenue grew year over year because cremations with services have increased by approximately six percentage points, and the average revenue per cremation contract accordingly grew 3.2%. And three, expenses are lower in practically ever area of the company.

Field level EBITDA grew by $2.4 million year over year. When you factor in the higher commission costs related to the pre-need sales growth, we're actually able to see that we reduced operating expenses by approximately $1.4 million across the board.

In our funeral home segment, we experienced a very slight .6% year-over-year decline in revenues. It was essentially flat. Contract revenues declined by 297 or 4.7% in the second quarter of this year, compared to last year's second quarter, but was substantially offset by a 4.4% increase in our average revenue per funeral contract. Jay Dodds will provide additional color around those changes in our volumes and our averages in his comments.

Our cremation rate in the second quarter of 2009 was 41.8%, up slightly from 41.4% in the first quarter of 2009 and up from 39.9% in the second quarter of 2008. Cremations are here to stay and cremation customers are going to continue to make up an increasingly larger part of ours and the industry's business. That is why we have embraced that trend and modified our strategy in order to enhance our bottom line profits.

Focusing on expenses within our funeral operations, controllable expenses declined 7.3% in the second quarter of this year compared to the second quarter of last year and declined sequentially from the first quarter of this year by 1.3%. Total funeral field EBITDA increased 8.6% from 10.4 million in the second quarter of last year to 11.3 million in the second quarter of this year. Funeral field EBITDA margin increased 320 basis points this quarter to 35.7% as compared to 32.5% a year ago in the second quarter.

Our cemetery businesses did have an impressive quarter. Cemetery revenue increased 20% to 12.7 million versus second quarter of 2008, and increased 16% sequentially over the first quarter of 2009. The amount of property sold in the second quarter of this year increased 43% over the second quarter of last year and increased 20% sequentially over the first quarter. The average price of cemetery property sold in the second quarter of 2009 increased 18% over the same period a year ago and 17% sequentially, which as stated in the press release, resulted from selling higher end property that we built primarily during 2008.

Strong cemetery revenue growth, coupled with the decline in controllable costs, led to a 55% increase in cemetery field EBITDA or 2.7 million in the second quarter of last year, to 4.2 million in the second quarter this year. Of note, we had a 68% flow through of the incremental second quarter 2009 cemetery revenue to the field level EBITDA line. Total overhead declined slightly, .9%, to 4.6 million in the 2009 second quarter, as compared to the same quarter last year. However, our total overhead declined to $550,000, or a little over 10% sequentially from the first quarter of 2009 as costs in almost all categories in the corporate office have trended down as well. Consolidated EBITDA in the second quarter increased 28.4% to $11 million versus consolidated adjusted EBITDA of 8.5 million in last year's second quarter.

Consolidated EBITDA margin increased in the second quarter of this year by 460 basis points to 24.6% compared to consolidated adjusted EBITDA margin of 20% in the second quarter last year. We adjusted the 2008 consolidated EBITDA numbers for litigation costs, termination charges, and other costs that we believe are nonrecurring in nature and we've shown those as special charges on the 2008 income statement. Free cash flow was 6.5 million in the second quarter of this year versus 6.7 in the same quarter last year. The relatively small decline is due mostly to the working capital required as the result of a $2.2 billion increase in our pre-need receivables that resulted from the higher pre-need sales.

Capital expenditures totaled 2.1 million for the quarter, half of which was for cemetery inventory growth projects. We've lowered our expectations for CapEx for 2009 to approximately 8 million and of that approximately 4 million will be maintenance CapEx. We are in the market pursuing acquisition opportunities as we believe that is currently the best use of our capital.

During the second quarter of 2009, we continued buying back our shares. We purchased 673,000 shares of common stock at an average cost per share of $3.15. Through June 30, 2009, we had repurchased a cumulative total of 2,753,000 shares at an average cost of $3.12 a share. The amount available to spend in the future as approved by our board is 1.4 million. The improvement in our earnings per share was aided by having approximately 11% fewer shares outstanding. As of June 30, 2009, Carriage had 5.6 million in cash on had. There is nothing currently outstanding on our bank credit facility, which matures in April of 2010. Our capital structure includes 94 million of 7% deferrable coupon convertible preferred securities maturing in 2029, and 130 million of 7.875 senior notes maturing in 2015.

If you reviewed our earnings release, you will have noted that we provided some financial details regarding the performance and condition of our trust fund portfolios. We've received numerous inquiries from investors regarding the investments this year mainly because of the significant losses in the capital markets. Over the last nine months we've substantially repositioned the holdings in each of our trust fund portfolios in order to capitalize on opportunities to increase both the income and quality of our holdings. We also believe that we're positioned to produce capital gains over the next few years.

At June 30, 2009, our yield on cost was 7.8% with an estimated annual income of 7.4 million, as compared to June 30, 2008 when our trust fund portfolios had a 3.2% yield on costs with an estimated annual income of 4.3 million. Future funeral home and cemetery results will benefit from these actions as we recognize the realized revenue in the cemetery perpetual care trust funds each period as they're earned and we recognize the accumulated realized income that accumulates over the life of those pre-need contracts at the time that they turn at-need.

Regarding our rolling forward four quarter outlook as disclosed in our earnings release, we increased our outlook for the next four quarters due to the strong second quarter financial results and our belief that the three initiatives that we have discussed on past calls have taken hold and should continue to produce solid results. Selected metrics in our outlook that have increased include expectations that our revenues will be in the range of 177 to 182 million over the next four quarters, our consolidated EBITDA will be in the range of 41 to say 42.3 million, and consolidated EBITDA margin will be in excess of 23% and diluted earnings per share should be in the range of $0.38 to $0.42.

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

Thanks, Terry. As mentioned earlier, we are pleased with our operating performance for the second quarter. Terry discussed the three areas of focus that we outlined during our third quarter 2008 conference call and we are now seeing the fruit of that concentrated effort. Although we used three focus areas to rally our troops to higher performance, these areas are actually more long-term in nature and I feel that we are building a very sustainable foundation. We are still in the beginning of the executing aspect of these plans and I expect the performance to stabilize and become even more predictable.

Before I review where we are in our three focus areas, I wanted to provide some color around why our funeral volumes declined by 297 calls or 4.7% in the second quarter of '09. Nearly half, or 47% of the decline, was concentrated in two of our funeral businesses. The reason for the volume decline at these businesses was due to not successfully renewing several county funeral agreements, which tend to be lower dollar and lower margin. We did not get these agreements because we were not the lowest bidder. While we experienced some loss of volume going forward as a result of not winning these contracts, the lower mix of low margin county services should benefit our margins.

With that, I'd now like to provide some comments on our three areas of focus. Our expense management was excellent in the second quarter of this year across our funeral, cemetery, and corporate operations. In the first quarter of 2009, we implemented a goal for our managing partners to reduce their controllable costs to a range of 40 to 41% of total revenue. These controllable costs are costs that our managing partners have direct control and responsibility over. The types of costs that are considered noncontrollable from a local operating perspective are property taxes, insurance, data processing, and accounting fees.

We began to see positive results from this effort midway through the first quarter and those results continue into the second quarter. We experienced declining trends in expenses across nearly all expense categories company-wide.

In August of '08, we rolled out a company-wide cremation strategy and training program. We continue to train our people and develop new options and opportunities for enhancing our client family's experience when choosing cremation. For several decades throughout the death care industry, the trend of rising cremations has been largely ignored from the standpoint of managing the trend operationally. And outside of Carriage, I would say that is still largely the case. As we have discussed on our previous earnings calls, Carriage has been in the process of training on how to provide better options for our client families to choose cremation. We have been pleased with the progress we have been making. However, we still have some ways to go, which when we view as--which we view as a tremendous opportunity for Carriage.

At the end of the second quarter of last year, approximately 35% of our client families who chose cremation also had some form of memorialization service. At the end of this year's second quarter, we had increased that statistic to approximately 40%. This effort in increasing services we believe will begin to set a precedent with families on how they memorialize when there is a cremation. This will be a long process as we are changing norms with not only our families, but with our employees. Our cremation average is continuing to show improvement, but we still have a long way to go. We believe ongoing training and continued effort in enhancing our client family's cremation options and experiences will provide a growth opportunity for Carriage over time, which will have a favorable impact on margins and will help offset the revenue impact of a rising cremation trend.

Our third area of focus was improving the performance and consistency of our cemetery operations, especially sales. Our cemetery group had a record performance in the second quarter despite significant headwinds in the economy. One of the initiatives we have been implementing in our cemetery operations was to increase the number of cemetery sales counselors and improve the caliber of our cemetery sales teams to drive pre-need cemetery property sales. When we started that effort we had about 150 cemetery sales counselors. We began by terminating 40 underperformers then began the process of hiring higher caliber sales counselors and have achieved our minimum staffing requirements of about 200 sales counselors. We continue to build our cemetery sales counselor teams and believe the improved caliber of our people are reflected in the numbers they achieved.

As Terry mentioned, the number of cemetery property units we sold increased 43% in the quarter, as compared to last year, and increased sequentially by 20.5% over the first quarter. The average price of property sold increased 18.1% in this year's second quarter over last year's second quarter and increased sequentially 16.7% over the first quarter. In addition, the delivery rate of cemetery property was approximately 90% in the second quarter of 2009, compared to 81.5% in the second quarter of 2008, indicating higher quality sales. These statistics would be impressive in a favorable economy and operating environment, so to perform like this in a recession is that much more impressive.

As previously discussed, our cemetery operations also did an excellent job controlling and reducing expenses, which resulted in significant EBITDA growth and margin expansion when coupled with the strong revenue growth our cemetery operations generated. 68.5% of the improved cemetery operating revenue in the quarter converted to EBITDA. In short, our cemetery operations knocked the cover off the ball in the second quarter.

In summary, we are pleased with the progress we have been making in these three focus areas since implementation in the third quarter of '08. We will remain focused on these areas going forward. We believe our continued efforts to manage expenses will create opportunities for EBITDA margin and earnings expansion for the balance of the year. We believe that we can continue to advance the number of cremation services across the company and create opportunities to provide more options to our client families who choose cremation. This action will increase our cremation averages to capitalize on the nation's rising cremation trend.

Finally, we believe that our cemetery operations have found a solid footing to continue to improve--to improve upon and produce more consistent results going forward.

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

We're ready for Q&A.

Thank you. (Operator Instructions.) Our first question will come from the line of Clint Fendley with Davenport. Please go ahead.

Good morning, Mel, Terry, and Jay.

Good morning, Clint.

Good morning, Clint.

I wondered if we could then begin with the pre-need cemetery. I guess my read on this, it sounds like a lot of this is attributable to internal improvements that you all have made in your staffing and sales counselors. I mean, could you provide any kind of color on just the market conditions that you're seeing? Has there been any evidence that things are getting better out there in the last few months?

Well, Clint, what we've been seeing is a consumer that is scared. And we've been able to offer certain programs and certain methods for them to take that leap and have that faith and go ahead and purchase their cemetery property. Obviously, bringing in higher quality sales counselors has made a big difference as well, because our sales pitch to the family is still the same. I mean, cemetery property is something that everyone needs to have. And they've just been able to execute at a high level, number one, because I think we have a little better counselor than we used to. And number two, over the last--probably the last 30 days, I've heard a little less about the pushback from the consumer than I did prior.

Okay, great. That's some nice color. Jay, obviously, you talked quite a bit about the overhead costs and the ways that you have been able to reign in those costs. I've noticed when I look at your rolling guidance here, the revenue guidance is up. Your overhead costs are actually down relative to my model. I wondered if you could provide some examples of some of the controllable costs that you guys have been able to reign in here.

Well, the biggest controllable cost is in salary and benefits. Obviously, a wage freeze would have an impact on that. But we've also with the better talent and the leadership, they're able to much more efficiently operate these businesses. And by--a big point is the know how. They know how they should operate, so we have fewer people doing a better job, both in the cemeteries, in the funeral homes, and in the administrative side. We have very good technology and so the number of people and the hours that are put in for that have decreased. So I think that's a big one in the S&B. But all the way across the board, just better leadership, paying attention, having a focus on cost, talking about it, discussing it, coming up with the operating teams and the managing partners as a continual thing.

There is one thing that I wanted to make sure was not happening and that was that we were squeezing these businesses and actually hurting future performance. And all of the operating teams have been very aware of that, that we are not doing that. That we--our cemeteries in particular and our funeral homes look better than they've ever looked before. So we're not squeezing these businesses. We're just paying more attention to costs and what's going out the door and making sure that that makes sense.

And a follow-up comment to that. Too, I think it's important to note that more than 50% of our employee base are part-time employees. So as the volumes have trended--have been lower this year than they've been last year, I think our leadership in the locations have just done a much better job managing the part-time staffing that we have. It probably helped a lot, too. But as I go down--this is Terry--as I go down the P&Ls of our businesses, it's not any one thing in particular. It's just a little bit everywhere that's making a cumulative difference. And some of it's skill and some of it's luck. The gas prices being cut in half from where they were last year sure helps.

One of the other things, Clint--this is Mel--our standards model, whether it's the funeral side or the cemetery side, is focused on growth and in the funeral side we've had soft volumes. So when you don't get the volumes as your standard, which is the biggest part, the other parts of the standards model are focused on margins, whether it's S&B, whether it's gross margin or the EBITDA margin. So our people are really focused on achieving the standards that they can have control over.

Great, that's helpful. And then, final question here. On my model, your acquisitions field EBITDA went up for the quarter. Were there any acquisitions in the quarter?

No, there were not.

There were not. And I guess, Terry, the way that you guys are reporting the acquisition revenue line, is that going to continue to include all businesses that you've acquired since 2005?

We will probably change that at the end of 2008 to combine those two areas. We are hopeful, like I said in our comments. We are active looking at acquisition candidates and we are hopeful that we'll be able to secure some of those in the near future. At this point though, and our principal goal was to monitor those businesses that we acquired in 2005 through 2007, so that we could actually prove to ourselves and I think everybody that we could grow the profitability of those businesses up to the level or higher than our existing operations. So we've had them now for what will be three years at the end of the year. So I suspect we will collapse those. Our plans are right now to collapse those businesses into our existing at the end of the year.

Okay, that's helpful. Thank you, guys. Congrats on a nice quarter.

Thank you.

Thank you. We'll move to our next question from the line of Alan Weber with Robotti and Company. Please go ahead.

Oh, good morning.

Good morning, Alan.

Hi. My first question is--just so I understand, when you talk about the level of cremations, I think you said it was at--was it at 40%? That's 40% or so of the 3,927 at-need contracts.

That's 40% of the number of cremations we do that have--.

--That's right. I'm sorry. What percent of total contracts are cremation?

41%.

So it's 41% of that 3,900?

Yes, that's correct.

Okay. And then, when you talk about percent that have a service with it as opposed to--which is more revenue for you, can you talk about kind of in a bigger picture like what specific stores or funeral homes have the highest percent? And what potentially does that really mean in terms of revenue for the company, if you looked out, I don't know, five years or something?

Well, the--I think I want to start by talking a little bit about history and then I'm going to let Jay comment on the specific areas of the country that are affected most by creation. The cremation rate historically over long periods of time have grown by approximately 1%. Now, one thing that we have been so focused on for a long time is increasing the value that we're delivering to the customer, whether it be a traditional burial service or whether it be a cremation contract. As a result, we have been able to grow our average revenue per contract and the growth in our revenue per contract has exceeded the impact from the change in the product mix.

So as cremations have become a higher proportion of the services that we provide, our revenue has continued to grow. This isn't anything that's new. This is something that it's always been a part of our business. We've always been working toward it, so it hasn't had a negative effect on our total revenue in the business at all. Now, there are some areas of the country that have a much higher cremation rate. Now, those businesses, their models are different than those that have a higher percentage of traditional burial contracts - the way they're structure and the way of their staff and their expenses are different. They produce margins though that are as high or higher than traditional burial businesses. Jay, you want to talk about some of those in particular?

Well, the highest cremation averages that we see are basically in the Southeast and the West Coast. And it's very interesting looking forward as the cremation rate increases, the biggest increases will be through the more traditional parts of the country through the midsection, the Midwest, the growth in areas where people are more traditional. So our expectation and what we're creating in these funeral homes is that when people come in and have a cremation they'll still have their same traditions of having a funeral.

And so, that's really where we're focused. I was visiting with someone in a very large company in Canada yesterday and they were telling me that 80% of their families that choose cremation have a service. So we've been looking at some of the things that they do. But there's definitely a need to have a service and as we show the products and show our services in a manner to families we feel that they'll continue to choose them. And we have a great opportunity since 40% of those families are choosing service now. As we increase that, that will help mitigate some of that revenue loss of the change from burial to cremation.

And then, just (inaudible), what is the average revenue for a cremation service, the incremental that the service brings in?

Well, the average revenue for a cremation service is approximately $2,800. Now, that's the average, including direct cremations as well as the ones--cremations with services. Now, Jay, correct me if I'm wrong, but our direct cremations average approximately $1,600 to $1,800 a case. The cremations with services average right at $4,000 or just slightly over $4,000, I believe.

Well, what was the $2,800 that you mentioned?

That's the weighted average of those two categories.

Okay.

So all cremations.

All right. And--okay, so that's--and do you long-term have any view of what as a percent of cremations that you see will have services or a goal or anything like that?

Well, our longer term--our mid-term goal three years is to have that to 60%.

Okay.

And that will have a huge impact on our top line revenue growth.

Right. That's what I was trying to understand. Okay, thank you. And then, just unrelated, if you don't mind, when you showed the investment in the trust fund preferred--in the trust fund performance rather, when you showed the yield on cost a year was 3.2% and today is basically 7.8%, can you tell me just quickly kind of was it more stocks a year ago and today's more bonds or--?

No, the mix was actually--between equities and fixed incomes is approximately the same as a year ago. What changed though is the type of fixed income investments and the type of equity investments that we have in each of those two classifications. For instance, if you go back to the first half of 2008, we owned a great deal of treasury securities as well as agency obligations. And quite frankly, those held up pretty well during the first half, but the yields were very low on those.

Now, we sold substantially all of our treasuries and agency obligations, everything that we could at least in our discretionary trust funds, and most of what we went into during the last six months--or last half of 2008 and first quarter of 2009 were corporate bonds. They were selling at significant discounts and they had some nice coupons as well. So we were able to buy those and when we talk about gains going forward in the future, some of those gains simply are going to be the result of the decreasing spreads in the corporate securities that have occurred over the last few months in those particular corporate bonds. But they produce a much higher yield than the U.S. government agency obligations.

Thank you. Our next question will come from the line of Kyle Smith with Jefferies. Please go ahead.

Hi. Good morning and congratulations on a fantastic quarter here.

Thanks, Kyle.

Looking at the strong pre-need sales in the cemetery, clearly the piece of that that's coming from the expansion and improvement to your sales force is probably the sort of thing that would give us a nice stair step up initially and hopefully a little bit of a lift to your long-term growth rate. But you also mentioned some of the growth came from your recent investments in better inventory. How much of the growth is coming from that and how long is that pipeline before you've sold off all of the upgraded mausoleums, et cetera?

No. The second part of that question is going to be very difficult to answer. We historically--when we build these types of mausoleums and lawn crypts they tend to last quite a while, a number of years. Jay can correct me, but I would say we've probably got three to five years probably out of most of that. With respect to the percentage of the increase that was attributable to that, I think we realized an average increase in the price of approximately 18%. And I would say most of that had to do with selling these higher end type inventory projects.

This is Mel. Clearly, we've got the talent in place now to sell a better quality mix of products. Our job is to make sure they have plenty of product to sell. So in terms of allocation of capital, this will be one of the first places it goes if we see a need.

Okay, very helpful. And then, from your earlier comments, am I right in getting a sense that some of the volume growth here is a function of market share capture, but also that your sales force is doing a better job of convincing the worried consumer to take the plunge and in that sense they might be actually expanding a little bit the local market for pre-need sales?

Yes. The--and also with the higher quality sales counselor you get a lot more families putting the 10% down on the contract, which allows us to recognize that contract. With the lesser sales counselor they tend to cut a deal where we get less than 10% down. So with the higher quality person, we're seeing people putting the 10% down. Now, we're calling more folks than we used to before, because we just--we have more people, more boots on the ground.

So you get--do you get to recognize the full amount of the revenues with the 10% down or how does that work? I want to make sure that they're not just pulling forward some revenues.

No. We can recognize the revenue on the property sale only once we have 10% down on the property.

Okay.

Merchandise and services at the time of need.

Okay, that's good to know. And then, on the funeral side, it sounds like a big piece in the quarter related to those county contracts that you exited. So as we think about this as we move forward and start to lap that, the pricing trend should moderate down to something a little bit less than the 4.4% that you experienced in the quarter. Correct? But that would hopefully be offset by a return to a more normal death rate.

I think as we look forward say 12 months from now, that's going to be exactly right.

Okay. And then, just my last question here. As you look at acquisitions and survey the field, what kinds of multiples are you seeing among the moms and pops?

Well, this is Mel. I'm spending all of my time essentially on this part of the business. We--it's a different market than it was before. But we're only looking at the top end of the market. We only want to affiliate with the best remaining independents in the country, so we're being very choosy. We're building relationships long-term. We will pay a very fair price. We won't steal anybody's business, nor do we even try, because the best businesses know what they're worth and so do we.

What we want to do though is attract the best businesses, keep them healthy, and grow them, so that at the end of the day they feel like they've joined a company of other great businesses of like mind quality. So I don't want to throw any multiples out. We negotiate all our transactions and we'll continue to do that. One of the reasons we wanted to show separately the acquisition we've made over the last few years is to show the improvement over time. And it takes a little time to get fully integrated for people to feel at home in our company, but we're there so we'll probably start bringing the acquisition group that we did in '07 into the same store group and then show separately any acquisitions we make for about three years going forward. We're talking to a lot of good people. Let me put it that way. Succession planning is always going to be here.

Thank you. (Operator Instructions.) Our next question is a follow-up question from the line of Alan Weber. Please go ahead.

Good morning, again. Mel, a question for you. In the last call or two you were very clear about buying back the stock versus looking at your bonds or the trust preferred and even acquisitions. Where do you stand today as we look out over the next six months or so?

Well, where we stand today is we have a little remaining on our stock repurchase program. Depending on what happens to the price, we may continue to buy it. We've considered it a blessing over the last year that people were willing to sell it. And so, we bought as much as we could. We knew we were getting better. If the market didn't, that was the market's problem. And we view going forward we're getting better as a company. We've transformed the company over the last five years. You've seen the most recent piece on the cemetery side. I told my wife, I can't think of another part of this company that needs to be improved. We're there. So how we allocate the capital will depend on the price of the stock. But I will tell you that we want to grow the company as well.

And with the cash flow, you can do both?

We can do both.

Okay, great. Thanks an awful lot.

Thank you. (Operator Instructions.) And at this time there are no additional questions in the queue and I'll turn the conference back to you at this time for any further remarks.

For those of you on this call who are not employees of Carriage, I want to thank you for your support and interest in following our progress. And for the many Carriage managing partners, sales managers, and employees on the call, I thank and salute each one of you for epitomizing what it means to be the best. I look forward to publicly recognizing your hard work and success for the rest of 2009. So let's finish strong. Thank you.

Thank you, management. Ladies and gentlemen, at this time we will conclude today's conference. To listen to a replay of the presentation please dial 1-303-590-3030 and enter access code 4116677. Once again, if you'd like to listen to a replay of today's conference, please dial 303-590-3030, with the access code of 4116677. At this time we will conclude today's teleconference presentation. We do thank you for your participation on the conference call. You may now disconnect and please have a pleasant afternoon.