Carriage Services Inc (CSV) 2009 Q4 法說會逐字稿

Welcome to the Carriage Services fourth quarter earnings conference. 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). This conference is being recorded today, Thursday, February 18th, 2010. I would now like to turn the conference over to Ken Dennard, DRG&E, please go ahead, sir.

Thanks Mitch. Good morning everyone. We welcome you to the Carriage Services conference call to discuss fourth quarter and full year 2009 results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on the E-mail distribution list for future Carriage Services releases, or if you have technical difficulties and didn't receive your copy of the press release yesterday afternoon, please call our offices at DRG&E. 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 recent financial results. The Company also encourages you to review that information at your convenience. If you would like to listen to a replay of today's call, one will be available via webcast by going to the Company's website. Additionally, in a few hours there will be a telephonic instant replay of this call that will be available for the next seven days, 24 hours a day. The replay number and access code for that replay call are found in the news release distributed yesterday.

Please note that the information reported on this call speaks only as of today, February 18th, 2010, and therefore you are advised that any time-sensitive information may not be accurate as of the time of any replay listening. 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 and 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 also available for free on the Carriage Services website.

Now with that behind us, let me turn the call over to Terry Sanford, Executive Vice President and Chief Financial Officer. Terry?

Thank you, Ken. Good morning. We appreciate everyone joining us this morning. Consistent with the first nine months of 2009, operating conditions in the fourth quarter of this year remain challenging. But we continue to execute on our models and the three focus areas, which represent important parts of our business we can control, and which continue to produce solid results. It has been a little more than a year since we articulated and implemented strategies for our three focus areas that were aimed at getting us through these difficult economic times, and improving the consistency of our financial performance. As we reported our progress and results over the last four quarters, it is clear that these efforts have proved successful.

As highlighted in our fourth quarter earnings release, diluted earnings per share was $0.10 in the fourth quarter of 2009. That compares to a loss of $0.09 per share in the same quarter of 2008. The fourth quarter of 2008 results included special charges associated with litigation costs, termination charges, and a few other costs that we believe are non-recurring in nature. And we have shown those as special charges in the 2008 income statement. Excluding those special charges we incurred in the fourth quarter of 2008, adjusted diluted earnings per share were $0.04. There were no special or non-recurring charges in 2009.

As I discuss the comparisons between 2009 and 2008 periods, the 2008 results will exclude the special charges so that it is a good apples-to-apples comparison. For the fourth quarter of 2009, we reported revenues of $45.1 million, compared to $43.8 million in the fourth quarter of 2008, an increase of $1.3 million, or 2.9%. Both the Funeral and Cemetery segments provided year-over-year increases for the quarter. Our Cemetery operations were the most significant contributor to this revenue growth, posting a strong 8.9% increase in revenues for the quarter over the same quarter a year ago.

Our Funeral revenue increased by 1%, driven by a 1.7% increase in our average funeral contracts. That included a 5.3% increase in our average cremation contract. The strong growth in our cremation average is due to our success in increasing the percentage of cremation contracts with services, relative to otherwise direct cremations. For the fourth quarter of 2008, 37.7% of the Cremation contracts included services. By the end of the fourth quarter of 2009, 45.2% of our cremation contracts included services, a 750 basis point increase. Our cremation rate in the fourth quarter was 42.5%, compared to 42.6% in the immediately preceding third quarter of '09, and up versus 39.2% in the fourth quarter of 2008.

We would note that the 330 basis point increase in our cremation rate over the last year, illustrates why we believe it is so important for Carriage to increase the percentage of cremation contracts with services. The rising cremation trend is not going away, so it is important for us to provide as many options to our client families who choose cremation, which in turn will increase the cremation contract averages. Over the past four quarters, we have been focused on expense management, for which we have consistently reduced expenses across all areas of the business. Our increase in revenues, coupled with our expense management at the field level, yielded an 8.6% increase in field level EBITDA, to $15.9 million this quarter, up from $14.6 million in the same quarter of 2008. Our field EBITDA margin increased 180 basis points to 35.2% in the quarter of 2009, compared to 33.4% in the 2008 fourth quarter.

Total overhead expenses declined 5.4% in the 2009 fourth quarter to $5.5 million, and was 12.1% of our revenues, as compared to $5.8 million, and 13.2% of revenues in the fourth quarter of 2008. Consolidated EBITDA in the fourth quarter of 2009 increased to $10.4 million, representing an increase of 17.8%, compared to the fourth quarter of 2008's adjusted EBITDA of $8.9 million, and consolidated EBITDA as a percentage of revenue in this year's fourth quarter was 23.1%, compared to adjusted consolidated EBITDA as a percentage of revenue of 20.2% in the fourth quarter of '08, an increase of 290 basis points.

As pleased as we are with our performance and execution in the fourth quarter of 2009, we are more pleased with and believe it is more important to consider the execution and success we achieved for the full year of 2009, because it reflects the Company's ability to perform in a very difficult environment, particularly for the consumer. As we have discussed in our previous earnings conference calls, we focused our skills in particular on the following areas. Better management of cost and expenses, increasing the percentage of services provided for our families that choose cremation, and increasing the number and quality of our cemetery sales staff to improve cemetery operating performance. We have been focused on these areas because we believe these are key areas we can control.

For the full year 2009 diluted earnings per share were $0.40, compared to adjusted diluted earnings per share of $0.30 in 2008. For the full year 2009 total revenues were $177.6 million, compared to $176.9 million in 2008, an increase of approximately $700,000, or 0.4%.

In our Funeral Home segment, revenues did decline 2.4% to $131.1 million from $134.2 million in 2008. The decline in funeral revenues was due to the lower number of deaths this year compared to 2008, which caused our funeral contract volumes to decline 4.6% for 2009. We experienced an increase in our average revenue per funeral contract in 2009 to $5,296, as compared to $5,153 in '08, a 2.8% increase.

As I mentioned earlier, for the fourth quarter of 2008, 37.7% of our cremation contracts included services and we were able to grow that to 45.2% at the end of 2009. As a result we increased our average revenue per cremation contract by 4.8% for the year 2009, to $2,841 from $2,710 in '08. Despite the increases in our average funeral and cremation contracts in 2009, these increases were not enough to offset the decline in contract volumes.

Focusing on expenses within our Funeral operations, total field level funeral operating expenses declined 3.3% in 2009 to $83.1 million, compared to $85.9 million in 2008. Controllable expenses in 2009 declined 4.5% to $56 million, compared to $58.6 million in the 2008 year. The decline in total and controllable expenses represents the expense management and reduction strategies we have been implementing as one of our focus areas for the past four quarters. Total funeral field EBITDA decreased only slightly by 0.7% to $48 million from $48.3 million in 2008, largely due to the lower death rate in 2009 resulting in lower funeral contract volumes. However, our total funeral field EBITDA as a percentage of revenues did increase 60 basis points this year to 36.6% from 36% in 2008.

Our Cemetery operations produced record results in 2009, which is even more impressive when you consider we have been operating in the worst economic conditions the country has seen since the Great Depression. And we are effectively selling real estate. Cemetery revenue increased 9.1% in 2009 to $46.6 million, versus $42.7 million in 2008. The amount of Preneed properties sold in 2009 increased 23.7% over 2008, and the average price of our Preneed cemetery property that we sold this year increased 2.5% compared to the 2008 year.

As we have discussed on previous calls, we achieve these outstanding results by upgrading the quality of our cemetery sales managers and sales staff, and by significantly increasing the number of cemetery sales counselors across our cemetery operations. When we implemented our cemetery initiatives in the fall of 2008, we had 178 cemetery sales counselors, as compared to 233 at the end of 2009. In addition, due to the economy, we were able to attract higher quality sales people to our cemetery sales operation than we have historically. Our Cemetery field level expenses increased 4% in 2009 to $33 million, compared to $31.7 million in 2008. The increase was due to the variable sales commissions which is tied directly to our sales revenue. However, 2009 controllable Cemetery expenses declined 4.9% to $14.6 million, versus $15.4 million in '08.

The increase in Cemetery revenues combined with a smaller increase in Cemetery field expenses resulted in a 24% increase in Cemetery field EBITDA to $13.6 million in 2009, up from $11 million in 2008. Cemetery field EBITDA margins increased 350 basis points to 29.2% in 2009 compared to 25.7% in 2008. Total overhead in 2009 declined slightly to $20.1 million compared to 2008, consolidated EBITDA in 2009 increased 5.9% to $41.5 million from 2008's adjusted EBITDA of $39.2 million, and consolidated EBITDA margin grew 120 basis points to $23.3 million, versus adjusted EBITDA margin of 22.1% in 2008.

Moving to capital expenditures, our CapEx was $3.3 million in the fourth quarter of 2009 and included $1.4 million in growth CapEx, primarily for our Cemetery inventory development projects. For the full year of 2009, CapEx totaled $9.3 million, but that included $4.1 million in growth CapEx.

In the fourth quarter of 2009, we completed the repurchase of our common stock under our previously authorized stock repurchase program. In 2009, we bought back a total of 1,377,882 million shares at an average price of $3.09, for a little less than $4.3 million. Under our two Board authorized stock repurchase programs, we have acquired a total of 3.1 million shares, at an average price of $3.19, for a total cost of $10 million during 2008 and 2009.

For 2010, we expect our cash flow will primarily be used to acquire quality funeral homes and cemetery businesses. At December 31st, 2009, Carriage had $3.6 million in cash, and senior debt of $136.9 million. As you may have read in our November 5th, 2009 press release, we amended and extended our existing senior secured bank revolving credit facility with our lenders. The amended credit facility is in the amount of $40 million, with an accordion provision for an additional $20 million. The facility matures in November of 2012. The primary purpose of the credit facility is to provide acquisition financing. Jay will provide some color related to our acquisition opportunities. At the end of 2009, and as of now, the facility is undrawn. We want to thank our lenders, Bank of America and Wells Fargo for their continued support of Carriage Services.

As you saw in our press release, our trust funds have performed very well over the past year, since we began changing the security and asset allocation choices for our trust funds. We took advantage of the market chaos in the latter part of 2008 and the spring of 2009, and bought securities that we thought were very mispriced. And that worked out great for us. The result has been that we increased our yield on costs to approximately 7.7% as of 12/31/09. Our estimated annual income for our trust portfolios has increased from $5.4 million at December 31st, 2008, to $7.7 million at December 31, 2009. Our ability to meaningfully increase our estimated annual income, as well as realization of capital gains should progressively increase our margins over time.

As discussed in our earnings release, we have increased our estimates in our rolling four quarter outlook for the period ending December 31, 2010. The primary reasons for our increase in rolling full quarter expectations are, one, the acquisition of two small funeral home businesses in the fourth quarter of 2009, an increase in the average revenue per funeral service, and an increase in the income from our trust funds.

Some of the selected metrics in our new outlook include expectations that the revenues will be in the range of $180 million to $184 million, consolidated EBITDA will be in the range of $42.5 million to $43.5 million, and consolidated EBITDA margin will be somewhere around 23.5% to 23.7%. Our diluted earnings per share should be in the range of $0.42 to $0.45 a share, the ranges are indicative of the variable we cannot control, that being the number of deaths. Our expectations do not include the effects of any potential acquisitions, as we can't estimate the time when those may be completed during that period. This concludes my prepared remarks. I would like to turn the call over to Jay Dodds, Carriage's Chief Operating Officer for additional comments. Jay?

Thanks, Terry. Good morning everyone. Terry has taken a lot of my thunder, and covered a lot of ground in his prepared remarks, but I will add some additional color to the impressive achievements our dedicated employees have made in 2009, and strive to continue in 2010. As discussed on our previous conference calls, we have been focused on three areas. Better cost management, increasing service levels with our families that choose cremation, and increasing the number and quality of our cemetery sales staff. We continue to believe these are the key areas we can control. As a result, we believe we will be able to continually to make incremental gains in 2010, that will not only continue to produce solid results, but consistently solid results.

As highlighted on previous calls, we have been able to mitigate but not negate the negative impact of lower death rates on our business, which is a variable we cannot control, by focusing on the aspects of our business that we can control. These efforts have resulted in solid and consistent increases in our average revenue per funeral, led by strong increases in our average revenue per cremation contract. As Terry said in his remarks, our cremation rate increased 330 basis points in 2009 to 42.5% at the end of the fourth quarter. A rising cremation trend is a fact of life in our industry, or perhaps I should say a fact of death. And we have chosen not to ignore it, but to embrace that trend, and develop strategies to provide more options and better service for our client families that choose cremation.

In order to truly embrace the rising cremation trend, we rolled out a company-wide cremation strategy and paying program. This program is progressing well, and we are adding and expanding it as we develop Best Practices. By providing a higher level of service, we can increase our average revenue per cremation contract. Our philosophy and strategies enable us to provide better service options to our client families, and generate higher revenues and profitability to help offset the negative revenue impact of the rising cremation trend.

Our Cemetery operations had a record year and were a major contributor to Carriage's overall financial success. I want to extend my thanks to all of our employees in our cemetery properties for their hard work and excellent results in 2009, and also challenge them to continue to improve in 2010. As Terry mentioned, in 2009 Cemetery revenue increased 9.1%, Cemetery field EBITDA increased 24%, and Cemetery field EBITDA margin increased 350 basis points to 29.2%. These are impressive numbers on their own, and that brings me to our second focus area.

Facing a very difficult consumer spending environment, we added almost 100 additional sales counselors to offset the lower Preneed sales success rate. Fortunately, as part of this process, we found and hired some really talented sales people. We believe we are well-positioned to continue to generate more consistent and profitable results from our Cemetery operations going forward. The combined positive impact of the two focus areas I have just commented on, with our focus on our third focus area, expense management, has affected positive operating leverage on our financial results that has enabled our consolidated EBITDA to grow, consolidated EBITDA margin to expand and diluted earnings per share to grow at meaningful rates in 2009.

As we have highlighted in previous calls, the positive trends exhibited from our expense management efforts continues to be thorough, encompassing all areas of our expense structure. We believe our continued focus on expense management positions us well for when death rates normalize, or even tick up slightly, which should result further in further operating leverage gains that would logically have a favorable impact on our consolidated EBITDA, margins, cash flow, and diluted earnings per share growth. We continue to remain active in talking with quality funeral home and cemetery companies in our target markets. We have been getting to know leading owners of private businesses in our industry, and are telling them about Carriage's leadership and operating models, as well as our culture and the goals for the business. We believe these conversations have been well received and are resulting in great dialogue and relationships.

To that end, in the fourth quarter, we acquired two smaller funeral businesses, with a total of four properties, two in Florida, and two in Connecticut. These properties were great tuck-in properties to our existing businesses. We remain in various stages of discussion with other high quality companies that we believe would be a great addition to the Carriage family of companies. We believe selectively acquiring quality companies like the ones we are talking to is an excellent use of capital, which will generate near and long-term growth and profit opportunities, while delevering the Company over time. We believe successfully executing our measured acquisition strategy will generate superior shareholder value over time as a result. We will update you on our progress with respect to the acquisitions as developments warrant.

In summary, we are very pleased with the progress and success we have made over this first full calendar year of implementing our strategies in our three focus areas. As our results prove, these changes have been well-executed by our employees. The credit needs to go to them. In my 15 years with the Company, I have not witnessed this level of quality and sense of mission within our employees. I thank them for their commitment.

With that, I would like to turn the call over to Mel Payne, Chairman and Chief Executive Officer. Mel?

Thank you, Jay. I came last today for a reason. I wanted Terry and Jay to explain to the people on this call about our Company and about our people, and the results they produced during 2009. I do want to cover some areas that they didn't cover, put a little more color on some they did cover. And this section will relate almost entirely to shareholders and shareholder value. It relates to the investment side of our Company. I will talk about three different angles.

First, I want to talk about our trust funds. Starting in 2003, we consolidated management of our trust funds under a single investment advisor, Salient Partners, located in Houston. Our performance after that was steady and reliable each year. For the next five years ending in 2007, averaging over 8% annually in our two cemetery trusts, and about 6% annually in our Preneed funeral trust.

However, our performance with everybody's performance in 2008 began to break down during the third quarter of the 2008 crisis, and all asset classes other than cash, US Treasury, and agency securities. Fortunately, and skillfully, Salient had grown cautious prior to the third quarter of 2008, which was reflected in a heavy allocation of cash and cash equivalent securities.

In other words, we entered the shock and panic phase of the market meltdown with substantial dry powder. But we are not sure about whether or how to deploy it. Our repositioning strategy began to crystallize in mid-October of 2008, after the US government formalized and then began to coordinate with the G20 group of countries, the too-big-to-fail policy to restore trust and confidence not only in the domestic US financial system, but in the international and world system.

Together with Salient, we developed a repositioning strategy and then began to execute it, focused on directly-owned positions in the fixed income and equity securities of mostly iconic US companies. The strategy in both fixed income and equity securities became more and more concentrated. Through the market bottom in March 2009 and thereafter, as we used the credit and liquidation of leveraged nature of the crisis to our advantage.

We now have a much larger portfolio of fixed income securities, concentrated in preferred stocks of large systemically critical banks, life insurance, and financial service companies that are the core of the US economy. Our core equity portfolio is comprised of 40 mostly-US companies that are dominant sector leaders, and a small group of large mostly Chinese sector leaders for the international exposure. We are confident that our repositioned portfolio will produce future trust returns for our local funeral and cemetery businesses, well in excess of historical norms.

The most satisfying part of this exceptional trust fund performance during 2009 is that our managing partners will know that we are supporting them in the one area of their business that they don't control, the Preneed investment area. Our trust funds and their results directly impact the standards achievement of every managing partner, at every business, which affects their incentive bonuses, and the reward and recognition they get in this Company. It is one of those things that we care a lot about, but they don't control. And after the record performance in 2009 by our managing partners, I am sure that you would agree with me that they deserve nothing less than the highest sustainable investment returns we can safely deliver.

The results speak for themselves, and positions Carriage for a higher incremental level of EPS in future years, compared to the pre-crisis level of EPS from our trust funds. The results ranked at the top of any published benchmark by a balanced fund that you can find. And were achieved by a small project team from Salient and Carriage, who literally worked this strategy as it evolved on a 24/7 basis for 10 to 11 months through the third quarter of 2009. When we were finally able to exit our last legacy loss position, by harvesting offsetting gains in our new positions. In total, we realized about $10 million to $11 million in gains during the second and third quarter of 2009 that were used to offset realized losses and the proceeds were then used to build more concentrated positions within our fixed income and equity core portfolios.

I would like to personally thank Haag Sherman and James Maida from Salient, especially related to our equity portfolio execution, and the overall strategy and asset allocation. Peter Badger from Madison Williams, who was simply a champion at finding fixed income values that seemed almost too good to be true, but turned out were true in every case. And our in-house team of Terry Sanford, Dan Medina, and Ben Brink. This group acted as a world-class team and got a world-class result. One of the notable achievements in the repositioning process is that we were able to successfully exit well over $100 million in legacy positions, some with large losses, without ever violating regulatory compliance rules that would have caused us to make whole realized losses from an operating free cash flow. This allowed us and gave us the financial flexibility to use our free cash flow, to finalize the repurchase of 15% of our fully diluted shares outstanding during the year.

So the second area of investment I want to talk about is capital allocation of our free cash flow and our stock repurchase program. I wrote one year ago in our Annual Shareholder letter for 2008 that we have positioned Carriage for a much better 2009 performance than 2008, not withstanding the extraordinary challenges of a market crash and a very deep recession. But even as an optimistic glass half-full kind of guy, who people who know me would say I am, I could not have foreseen that our operating leaders would have more than risen to the challenge and reached the level of achievement that enabled Carriage to have a record-setting year.

Yet this performance was not an overnight success story. It has been years in the making. To have a high performance culture that produces such results in such a climate, each person holds themselves accountable for achieving high standards whether in our Field operations or our Support departments in Houston. And I will tell you that our Legal, HR, IT, Accounting, Trust Administration departments, just to name a few, are second to none. We are doing great things every day in support of our Field operations. They too share in our record performance.

The greatest surprise, however, of 2009, was not the record performance. It was that our stock price stayed well below $4 per share for most of the year hitting a low of $1.10 on February 26th, 2009, my wife's birthday. This meant that with $0.80 per share of free cash flow for the full year 2009, our stock actually sold for a multiple of 1.38 times free cash flow at its low.

It didn't take a lot of analysis to see that the highest and best use of our precious, internally generated capital was to buy funeral and cemetery businesses on the New York Stock Exchange with the symbol CSV, that had been fully-integrated into a high performance culture framework. During a period when most companies were hoarding cash, paying down debt, many were cutting dividends, and almost all ceased their stock repurchase programs, we were focused on allocation of our capital to repurchase our shares cheaply, so that the remaining shareholders would own more of a company that was getting better at an accelerating rate. We also believe that we would not likely have such a shareholder value creation opportunity again, because of the unique confluence of events, and the favorable industry landscape for acquisitions in 2010 and beyond.

And that brings me to my last area of investment, which is acquisitions. We have worked hard to position the Company for success. Our balance sheet is strong. Our liabilities are low fixed rate. We have strong free cash flow, and our operations are performing, being the best way. 2010, 2011, 2012, 2013, 2014 is the new five-year forecast period for our Company, around which we develop long-term goals that are in our press release.

We believe the Company has reached a place where we can produce revenue growth over this five-year period, in the mid single-digit range, consolidated EBITDA growth in the high-single digit range, and EPS growth in the mid-teen range over the next five years, by executing a very selective and very smart acquisition program, that will increase the size of our Company over time, but increase the earnings of our Company over time at a much faster rate. We can do this because Carriage is at the right place, and we are the right size, so that we don't have to do too much, like we did in the '90s, we don't want to take too much risk. We have worked too hard to position the Company to get it to this place. So we are going to be careful stewards of the capital, and focused on shareholder value creation. We appreciate very much the support of those who stuck with us, and we look forward to reporting our success, not only over the next few quarters, but over the next five years.

With that, I would like to open it up for questions. Mitch?

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. (Operator Instructions). Our first question comes from the line of Clint Fendley with Davenport & Company. Go ahead, please.

Good morning. This is actually Drew in for Clint this morning. Hi. Just a couple questions. Terry, looking at volume trends in the first couple of months of Q1, could you provide us any color on volumes in the early weeks here, given that we saw such a depressed level in early 2009?

Yes. It is a little early in the quarter to be trying to forecast what our volumes may be for the first quarter. Through the end of January, we are not seeing any significant deviations from the volumes that we saw in January of 2009. They are very flat. We continue to experience some increases in our revenue, simply because of the average increase. But the volumes through January were flat.

Okay, I got you. When we look at Cemetery Preneed sales, I think you guys said in the press release those were up 25% year-over-year on an annual basis, could you give us a little bit more color on how those sales developed during the fourth quarter, specifically?

I think in the fourth quarter we had a very good December, as we have talked about before, the second quarter always is our biggest Cemetery sales quarter, with the third and the fourth with the first usually the slowest. And in the fourth quarter, I was happy with the results in the fourth quarter, because we weren't doing any special type of incentive programs, we weren't doing any type of special interest programs, we just went back to executing on a normalized type basis, and we still were able to maintain our sales numbers, so we are real positive with what we saw in the fourth quarter.

And just to add a little color to that, it was primarily the number of sales that we made in the fourth quarter, compared to the fourth quarter of 2008. Jay really began the process of hiring additional sales counselors during the fourth quarter of 2008, we didn't get a lot of pop from that, so the fact that we had significantly more sales counselors boots on the ground in the fourth quarter of 2009 versus 2008, brought about the approximate 20% growth in the number of sales that we made of Preneed property.

Alright. Thank you. That is helpful. Maybe just one more two-part question here. Jay, maybe you could talk a little bit about how traditional pricing was during the quarter versus the cremation pricing, which obviously continues to be strong? And could you also remind us, Jay, just where do you expect kind of cremations with services to peak? We are at 42.5% now. Where can we get that number over a three to five year timeframe?

My three to five year goal is 60%. And if we continue to see the speed of the increases through this year, I will move that to 70%. Because it was really tough this last year, because we were not only convincing consumers, we were convincing our own people. And as we continued to add services and move our cremation families into services, we will get that immediate effect upon our average as well. But I think, as I've mentioned on a previous call, Canada is 80% of their families that choose cremation have a service. So we are coming from a history of not having as many families, so over time, like I said, three to five years, my goal is 60%.

With respect to the traditional funeral contracts and non-Cremation contracts, the typical burial ones, those were up 2% in the fourth quarter year-over-year.

All right. Thank you. Just a clarification, Terry, in the press release, I think you guys said you expected $0.02 to $0.03 benefit from the excess funding and the trust funds, the returns that you guys saw during the year. That $0.02 to $0.03, is that something we could expect going forward beyond 2010 correct, as these contracts roll out, or should we view that as more of a one-time 2010 event?

No, that is very much a continuous growth pattern that we expect to see in our trust funds. What we are looking at simply is a, and what we are talking about primarily there is the interest in dividends that are coming off of the fixed income securities, as well as the dividend paying stocks that we own. Now a lot of that will not, most of that will not actually be withdrawn and recognized as revenue in 2010. It will continue to accumulate roughly in total, roughly say 60% of our total trust fund revenue won't be recognized, but will continue to accumulate over the future. So it should continue to grow year-over-year by that rate, at least $0.02 to $0.03.

Got you. Thanks, Terry. Thank you all. Nice quarter.

Thank you.

Thank you. (Operator Instructions). Our next question comes from the line of Alan Weber with Robotti & Company. Go ahead, please.

Good morning.

Hi, Alan.

Hi.

Mel, I have a question about the acquisitions. When you look at the acquisitions, how do you kind of factor in the trend in cremation?

We do a contract analysis in our due diligence. And we look at three years of contracts, so that we actually can see the data behind the consolidated revenue of that business. We can match that business in terms of size and mix, what we call mix, cremation mix, with other businesses in our portfolio, and typically we have a business somewhere nearby. So we have the trends in our own portfolio that we can marry up to a trend in a business we are buying. And do a pretty good job of forecasting future revenue.

And just curious, my understanding is that the cremation rate is clearly not universal across the country, by religious differences, et cetera. Do you have a bias whether it is going to be moving towards high cremation or you believe low cremation, or do you just view that as kind of all in the numbers, in a sense?

We want to buy great franchises, no matter what the nature of their business, and we use six criteria to size up the attractiveness of a business. Mix is not one of those. We look at much longer term factors in the market, that tell us we can grow that business organically over time, no matter what their current mix

Okay. Great. Then totally unrelated, Terry, when you had the rolling four quarter projection for December 2010, you had income taxes of $5 million to $5.4 million. Is that cash taxes that you will be paying?

No. That is going to be substantially deferred. We still have federal NOL that should cover the projected earnings for 2010.

Okay. Great. Thank you very much. Great quarter.

Thank you Alan.

Thank you. We have no further questions at this time. I would like to turn the conference back over to management for any closing statements.

Thank you very much for listening in. We look forward to reporting the 2010 year.

Ladies and gentlemen, this concludes the Carriage Services fourth quarter earnings conference call. If you would like to listen to a replay of today's conference, please dial 303-590-3030, with the passcode 4206545. ACT would like to thank you for your participation, and you may now disconnect.