Service Corporation International (SCI) 2014 Q4 法說會逐字稿

Welcome to the Q4 2014 Service Corporation International earnings conference call. My name is Richard and I'll be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct an answer-and-question session. Please note that this conference is being recorded. I will now turn the call over to SCI management. You may begin.

Good morning, this is Aaron Foley with SCI investor relations and I hope everyone is doing well today. We appreciate you taking the time to join us as we discussed our results for the fourth quarter 2014.

As usual we will begin with our customary safe harbor language. The comments made by our management team will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website.

In today's comments we may also referred to certain non-GAAP measures such as normalized EPS adjusted operating cash flow and free cash flow. Reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday.

With that behind us let's begin with comments from Tom Ryan SCI's President and CEO.

Thanks Aaron and good morning everyone and thank you for joining us on the call today.

I'm going to begin my comments by giving you an overall perspective of what we've accomplished in the year 2014. Then I'll get into the details of the quarter and into some color on our outlook for the year 2015.

As it relates to the year 2014 I'll start by speaking directly to my SCI teammates and transition to my fellow shareholders. When we started off this year things were a little chaotic. We had closed the Stewart transaction a brief eight days earlier.

Since then we've on boarded over 3400 new teammates we've introduced Dignity products and services to the Stewart businesses, we transitioned them into a new set of systems and processes, we moved the entire organization to a new HR platform, we implemented a new customer relationship management system, and a new sales compensation system. We rolled out a new regional management structure we sold 90 businesses for over $400 million and we identified an additional $40 million of synergies further enhancing the value of the combination.

By the way, team, we grew earnings per Share some 21% to $1.11. We generated over $500 million in adjusted cash flow at a growth rate of 16%.

We did all of this by focusing on the customer and delivering to them what they wanted and what they needed. We continued to grow comparable pre need sales in the mid- to high single digit range of both in funeral and cemetery. We expanded the footprint not just through the Stewart transaction but through several other accretive acquisitions in addition to building new funeral homes as we continue to grow the network.

Finally we continue to leverage our scale to drive efficiencies and enhance productivity both of which provide our company with a strong competitive advantage. All I can say is thanks. You did it with style and humility, then you delivered over 20% growth. Way to go.

Now because of this, fellow shareholders, we were able to quickly de lever the balance sheet to the targeted 3.5 to 3.7 times range and return $314 million of capital to you in the form of share repurchases and dividends. Okay we've had our celebration, now let's get back to business.

Let's shift to an overview of the fourth quarter. We're pleased to report normalized earnings per share $0.37 for the quarter, which is an impressive 37% growth over the prior year quarter. Also adjusted operating cash flow grew a solid 16.5% to over $123 million.

These increases in earnings and cash flows were for the most part generated from three things. First and foremost was the contribution from the addition of the Stewart businesses and the associated synergies from the combination. Second we experienced growth in comparable funeral profits, primarily from increased case volume. And third we saw strong growth in comparable cemetery profits as higher pre need sales production of readily available cemetery property was aided by the high-margin increase of recognized perpetual care trust fund income. This perpetual care income was generated from expanding capital gain cash distributions to additional states, as well as anticipated distributions associated with a combination of the SCI and Stewart trust structures.

These positive operating results were somewhat reduced by higher interest expense related to the Stewart acquisition and higher general and administrative costs which reflects the increased costs associated with running a larger combined business. As well as the timing of increased long-term incentive and pension costs.

Now for a deeper dive into the funeral operations for the quarter. Overall our comparable funeral results, which excludes the Stewart businesses had modest growth for the quarter. Fourth quarter comparable funeral revenues grew by $9.1 million or 2.2%. The bulk of this growth, or $7.5 million of the $9.1 million was related to core revenue growth, or what we would describe as a traditional funeral service consumer.

Volume grew 1.8%, which was more than we expected. But the sales average grew only 0.2% which fell short of expectations. This was primarily due to a higher cremation rate and a negative foreign currency impact as the Canadian dollar weakened against the US dollar during the fourth quarter. Excluding the currency impact and higher trust fund income, we grew the sales average by approximately 1%.

The remaining revenue growth for the quarter of $1.6 million was related to an increase in recognized pre need revenue and higher general agency revenue. From a profitability standpoint comparable funeral gross profits grew $6.4 million or 8.1% and the gross margin percentage improved 110 basis points to 20.6%. We managed our costs well as the natural leveraging of the overhead support costs from the anticipated synergies were accelerated versus our original expectations.

The Stewart funeral businesses performed slightly below our expectations from a profitability standpoint as moderate declines in case volume were offset by increased average revenue per case. On a pre need basis comparable pre need funeral sales production excluding terminally imminent transactions in both periods grew a very strong 11.7%. For the year pre need funeral sales production grew 6.1%, in line with annual guidance of mid- single digits.

Now for a closer look at cemetery operations for the quarter. Overall comparable cemetery results, which exclude the Stewart businesses performed extremely well and ahead of our expectations. Comparable cemetery revenue grew $38.4 million, or 17% compared to the prior-year quarter.

Our sales team had an outstanding performance. Comparable pre need sales production grew a strong 10.2% in the quarter and a significant portion of that sales production growth was recognized as revenue as we had abundant property inventory available from recently completed construction projects.

For the full year 2014, pre need cemetery sales production grew approximately 7%, or $37 million within the guidance ranges we initially communicated. Also during the fourth quarter at need cemetery revenue grew some $5.6 million, or 10% as increased activity drove increases in property, merchandise, and service revenues.

Lastly, and as I mentioned earlier included in this revenue growth was approximately $15 million of perpetual care trust fund income that was recognized in the quarter as a result of the capital gains cash distributions received from the trust. This cemetery revenue growth in the quarter drove cemetery profits higher by $34 million and the margins increased to 36% from 27.3% in the prior year quarter. Excluding the high-margin $15 million of perpetual care trust fund income recognized in the quarter our margins would still have grown a healthy 480 basis points to 32%, reflecting the high margins associated with increased sales production in revenue and the accelerated recognition of the Stewart cost synergies.

Now shifting to our 2015 outlook. As we disclosed in our press release we are pleased to confirm our 2015 normalized earnings per share guidance range of $1.16 to $1.28 per share. This is despite a continued weakening of the Canadian Dollar, which has reduced our original forecast by approximately two pennies in the last 3 months.

When you look at our guidance for 2015, remember that in 2014 we benefited from an $0.08 per share contribution related to the Federal Trade Commission mandated divested businesses, which will impact us approximately $0.03 per share in the first quarter alone. Normalized 2014 earnings per share of $1.11 for this $0.08 gets you to an adjusted base in 2014 of $1.03. The midpoint of our 2015 guidance for earnings per Share of $1.22 represents an increase of $0.19, or an 18% growth in this adjusted 2014 base.

You can think of the 19% growth as roughly half related to Stewart synergies and the other half related to base business growth. Remember that the midpoint of our earnings guidance, it assumes minimal benefit from 2015 share repurchases on earnings per share.

Now just to refresh the broad assumptions regarding our 2015 outlook and first for funeral. We believe comparable funeral revenues will be slightly higher reflecting some modest growth opportunities from our Stewart businesses. We expect to continue to grow the sales average in the low single-digit percentage range absent currency impacts, which will help to offset our expectations of 1% to 2% comparable funeral volume declines.

Additionally we would expect higher recognized pre need revenues in the mid-single digits as our non-funeral home direct cremation businesses continue to grow. We will continue to focus on growing our pre need backlog, which we believe is the most advantageous approach to expanding market share over the long-term. Our pre need growth expectation for 2015 is in the low- to mid- single digit percentage range, excluding terminally imminent contracts.

On the cemetery side we anticipate revenues will continue to increase, led by pre need production growth in the mid - to high single digit percentage range. This growth is impressive on a substantially higher base of business due to the significant growth over the last few years, and therefore equates to a much higher absolute dollar growth in sales production.

And finally recall that we are modeling corporate G&A to be about $30 million to $32 million per quarter excluding any one-time costs. The higher corporate G&A cost reflects the permanent costs associated with the increased scale of the combined SCI and Stewart entities.

So to wrap it up, as we close the chapter on 2014 and to look ahead to 2015 we believe we have good momentum. Our strategy remains the same. Demographics will provide a natural tailwind for us and our improved and expanded footprint positions us well for the future.

We also believe we will capture more than our share of this growth as we expand our network through continued specific market acquisitions and more importantly by continuing to grow our pre need backlog. In the meantime with the help of our tremendous scale we expect to continue to generate strong cash flow that we intend to use in returning capital to our shareholders.

Last, but certainly not least, as we close the year and particularly in light of the successful Stewart integration I would like to acknowledge the contributions and hard work of every team member at our Company who made these successes possible. To all of our Associates you have my heartfelt thanks and appreciation for all that you do.

This concludes my prepared comments and I will now turn the call over to Eric.

Good morning everybody. This morning I'm going to start in my usual way by commenting on our cash flow results for the fourth quarter and the full-year of 2014. Then I'm going to shift and update you on our capital deployment. Then as Tom just mentioned I would like to talk about the trust structural change that we completed in the fourth quarter and then end by discussing our forward-looking cash flow outlook for next year.

So first a summary of 2014, we finished 2014 on a high note. And I'd like to echo Tom's earlier' s remarks. I am extremely proud of our nearly 24,000 dedicated and talented Associates that drove our outstanding 2014 performance. I want to personally thank each of our Associates for their hard work, dedication, and most of all their perseverance during the integration of the Stewart businesses in 2014.

So now let's talk about the financial results. Free cash flow generated in 2014 grew $40 million, or 12% over 2013. This double-digit percentage growth was due to higher earnings and higher cash receipts that were primarily associated with strong pre need funeral and cemetery sales. This growth was particularly meaningful in light of having approximately $60 million higher combined cash interest and cash tax payments during 2014 compared to the prior-year. Our deployment of this free cash flow in 2014 was also impressive and I will touch on that in just a moment.

So in the fourth quarter, adjusted operating cash flow, which again is normalized to exclude the Stewart transition and other costs, which are defined and reconciled in our press release, this grew $17.5 million or 16.5% to total $123 million. While our cash flow was slightly higher than our internal expectations, it did grow at a slower rate than our normalized EPS, as the higher earnings related to increase cemetery sales production resulted in timing differences in which cash receipts are received over time due to the use of customer installment contracts.

Our maintenance in cemetery development CapEx for the quarter came in at approximately $48 million or $17 million higher than the prior-year quarter, reflecting the addition of the Stewart businesses and resulting from higher cemetery development CapEx that occurred during the quarter. Deducting these recurring CapEx items, we calculate our free cash flow for the fourth quarter to be $76 million.

Now let's shift and talk about our capital deployment and then our financial position. Returning capital to our shareholders remained a priority for us during 2014. The strong cash flow that I just described coupled with the proceeds from our FTC mandated divestitures that were not required to pay down the term loan allowed us to return a significant amount of capital to our shareholders.

First the dividend payments in 2014 totaled $72 million. And recall that we had 2 dividend increases in 2014 increase in our quarterly dividend rate 30% in 2014 compared to 2013. Additionally I am very pleased to reiterate that yesterday our Board of Directors approved a quarterly dividend of $0.10 per share, which represents an increase in our quarterly dividend of 11%. In total we have raised our dividend by approximately 43% since January 1 2014.

During the fourth quarter we repurchased 5.1 million shares for a total investment of almost $113 million. The total shares repurchased for the full year of 2014 amounted to 11.4 million shares, for a total investment of nearly $242 million. Additionally, subsequent to the end of 2014, we are continuing our momentum and have repurchased an additional 1.8 million shares for a total investment of about $42 million.

Currently we have approximately 203 million shares outstanding and 196 million of remaining share repurchase authorization, which gives us a substantial amount of capital deployment flexibility as we move into 2015. Additionally as it relates to capital deployment, we completed 2 acquisitions for a total investment of approximately $6 million during the fourth quarter.

And let's continue for a moment on acquisitions. We are excited about the pipeline for potential acquisition opportunities as we move into 2015. We believe we are seeing an uptick in activity coming off a year where most of our focus was on divestitures. And I feel confident that will be able to invest $50 million to $100 million in 2015 on new tuck-in acquisition opportunities.

Shifting in terms of our financial position, we finished the year with robust liquidity of approximately $410 million consisting of $177 million of cash on hand and $233 million of availability on our credit facility. Today we have approximately $200 million of cash on hand as a result of strong free cash flow during the month of January.

Our leverage, which is calculated as net debt to EBITDA in accordance with our credit facility was just below 3.7 times as of December 31. This is within our current targeted range of 3.5 to 3.7 times, and again strategically positions us well as we move forward in 2015.

Now I'd like to just take a moment and briefly shift to discuss changes in our trust funds. As we integrated Stewart's trust assets with ours we reorganized our trust structure to primarily increase the efficiency of our back office support. It is important to note that this efficiency strategy we have been working on with our trustees for a couple of years now. To make this change we had to liquidate the underlying securities, which obviously triggered the realization of net capital gains.

As a reminder for our cemetery perpetual care trust, we recognize revenue to the extent funds are distributed to us from these trustees to offset our ongoing cemetery maintenance expenses. So in the fourth quarter our normal cash distributions from our perpetual care trust funds increased by $15 million as the distributions in certain states contain these realized capital gains along with the normal interest and dividends. Because we have been working on this transition for a while we anticipated some of these gains and so therefore, so that you know about half of this amount was included in our annual guidance for 2014.

So now let's shift to talk about 2015 and let's start with cash taxes. First you may have seen in our press release that we revised our financial statements to adjust certain tax-related balance sheet items primarily related to older periods prior to 2010. These non-cash adjustments had no material impact on our consolidated financial results of any currently reported period.

So now for the good news related to this, with this revision we have identified additional net operating losses to help offset 2015 cash tax payments. Our cash tax estimate for 2015 has now decreased by $25 million, from approximately $150 million, to approximately $125 million for the full year. This compares to our 2014 normalized cash tax payments of about $42 million or an increase of about $83 million year-over-year.

Accordingly though we have increased our 2015 guidance for adjusted cash flow from operations by this $25 million to arrange now from $450 million from to $500 million. Our guidance for capital spending in 2015 for maintenance and cemetery development remains unchanged. And that's a range of $130 million to $140 million.

When you deduct this re occurring CapEx from our 2015 cash flow from operations expectations, this will result in free cash flow in 2015 ranging from $310 million to $370 million or $340 million at the midpoint of this guidance range. When you normalize for the impact of cash taxes by excluding them in both periods free cash flow before cash taxes is growing with the base business approximately $50 million or an impressive 12% in 2015.

As we move forward we do recognize that these higher cash taxes in 2015 are temporarily limiting our impressive historical growth in cash flow. But looking forward to 2016 we remain confident that we will be able to resume our pattern of delivering growth in free cash flow that our shareholders have come to expect.

So in conclusion we are excited about 2015. We remain focused on growing our base business, achieving the remaining synergies from Stewart, and deploying capital to enhance shareholder value. We have significant liquidity to continue to grow through acquisitions and also return excess capital to our shareholders.

Ultimately we will employ a balanced approach to enhance shareholder value by focusing on deploying capital to the highest relative value opportunities. This has been our track record and you can expect us to continue this value enhancement approach well into the future.

So with that operator that concludes Tom and I's prepared remarks and now we would like to turn it over for questions.

Thank you, we will now begin the question and answer session.

(Operator Instructions)

We are standing by for questions. Chris Rigg from Susquehanna Financial.

Good morning. Just wanted to better understand sort of the capital deployment. I understand the high-level message, but I know you're not specifically giving EBITDA for this year, but if we think the consensus is somewhere close to correct, is the right way to think about it that you're actually going to take up your absolute debt outstanding to maintain a 3.7 times leverage multiple.

Chris, this is definitely a possibility. I think we said that -- tried to say it somewhat clearly. We do not think that we are going to continue to de lever with the increase of EBITDA expected from the growth of the base business as well as the additional synergies during 2015. So that EBITDA grows, as I said, you're already in the range of 3.5% to 3.7%. So yes, it's a good assumption that over time we will do appropriate actions to essentially keep ourselves within that, that leverage range.

Okay. And then on the volumes in the quarter, I know at times in the past when you've had good interior volumes you would say that hey maybe that was a pull forward of some volumes that you would have expected later in the year because of the nature of the volumes, i.e. flu or frail elderly. Is that sort of the dynamic you saw in the quarter, or do you actually think these were market share gains and you really didn't see that much from the flu.

Chris this is Tom.

I think it is more the former. It generally is driven by flu. So I'd say the biggest driver of this we think is flu. It has a bigger impact on the elderly. I think this flu strain quite honestly was, I heard that it was 23% effective the flu shot this year which is very, very low. And the flu that went through was very harmful to the elderly particularly.

I think we do think the 1.8 is driven by the flu. Having said that we are continuing to see that into January. We saw volumes up for the month of January and so I'd expect that to continue and then again if history tells us we'd expect the summer months to probably be a little light.

Right. Okay. And then last one and I apologize if I missed this, but just on the decline in taxes in 2015 relative to earlier guidance, should we expect that to step back up in 2016, or is this sort of a permanent, or at least a multi-year improvement in the tax outlook. Thanks and I'll leave it at that.

No, no Chris.

I think the way to think of it is it a one-time event. Guidance that I said in October was about $150 million of cash taxes for the level of income that we are expecting in 2015, based on our models and your models as well. This was something that we dug into that's -- that goes way back in time relating to some tax claim strategies with Alderwoods, and we are able to take this $25 million NOL benefit during 2015,but it is a one-time event is how you should think about it.

Thanks a lot.

Sure.

A.J. Rice UBS.

Hello, thanks. Sorry for the maybe little background noise. First of all the pickup and construction revenues in the quarter obviously helped the cemetery business in the margins. Would you say that's an underlying market pickup, would you say -- how would you describe what is happening there, and is that, I doubt it sustains at the same level, but should we expect some of that to continue into 2015.

Yes I think so AJ, this is Tom. The way to think about it, it is somewhat confusing I'll admit. I think we're trying to make it more clear.

Historically we've had quarters where our GAAP revenues for instance might be way up but our productions down. Use an example of GAAP revenues up 10% production up 3%. And so we have to talk about the fact that, hey we constructed a lot of stuff that was sold in prior periods that got recognized now.

What you're beginning to see now because we've probably done a good job of building readily available inventory you'll notice this time that our sales growth was around 9% or 10%, and our GAAP revenues were about 9% or 10%. So what's really happening is, because we're good at getting things constructed on time we're able to sell it and recognize it pretty efficiently.

This quarter, I think the thing to really focus on is that the sales growth was commensurate with the GAAP revenue growth and we'd expect that to continue because we have completed a lot of construction projects that have readily available deliverable property and as long as were getting 10% down we're going to record that in the income statement. So to your point we feel good about our ability to sell into the next year and I think the recognition will be strong because again we've got a wide array of products to deliver upon those sales.

Okay, last quarter there was quite a bit of discussion about the restructuring of the pre-need selling effort in the funeral business to not pay commissions anymore on these terminally imminent contracts. Can you just give us a flavor of how that's played out in the quarter? It looks like your core pre-need funeral sale volume was pretty good. Maybe salespeople responded to maintain their commission levels and stepped up, but give us your flavor on what you saw.

Sure A.J. I think you hit the nail on the head. It is a process change and again you will recall from last time to give credit where credit's due. This is something Stewart; did a best practice that we adopted. And the concept being when we have these situations which are tough ones, we're going to instead of writing a contract that's going to go into the backlog and turn around and come out we're going to effectively make those arrangements and treat it more as a near at need transaction.

You'll notice that we still have some contracts that go into the backlog. It is not 100% implemented, because, again, every situation is going to be slightly different. But I think that's going very well and your observation is true: to the extent that is in a commissionable sale our salespeople are good and they're going to get out there and radiate and drive new sales that are true pre-needs. They're going in the backlog and stay there for some period of time.

We think that's going really well. It's a lowering a cost a little bit as it relates to our funeral margins. But I think more importantly allowing our sales force to really go out and radiate and drive future market shares for the Company. So far so good and I think that will really lap itself next year and be less of an item we need to talk about.

Okay. My last question will be around the Stewart synergies. It sounds like you have run ahead of your original expectations, both, obviously, you raised the synergy guidance a couple of times but you also may be in timing realized some sooner. If you could, what do you think the run rate of synergies you're exiting 2014 is and what is left to capture as you move into 2015?

I think from a run rate perspective, if you go back to our guidance, we got about $80 million in cost I think and $20 million in revenue synergies Eric is that correct? So I think for the most part the $80 million's in the run rate. How much got recognized in 2014 I don't have in front of me. Probably about $50 million.

$50 million, $55 million, yes.

We start of the year with the $80 million running for us and the $20 million is really still something we have got to implement and execute on. Again remember that's going to be around getting the average revenue per case on the funeral side up a bit from the packages and the presentations that we do around that. The additional products and services, like catering, that again we have initiated but really haven't gone full bore yet on the Stewart locations.

And then on the cemetery side a little bit of a longer opportunity. Because remember really our benefit there is going to be around the fact that we're going to offer a wider array of products and services in those cemeteries, so it is going to take building the inventory that we need and then applying our pricing model to that. And so, with more choices, raising the satisfaction scores of our customers along with the profitability and how we run those cemeteries. That's probably a late 2015 into 2016 type of impact rolling in.

Robert Willoughby Bank of America.

Hey, Tom or Eric, can you, and you may have touched on it briefly, Eric, in your comment. Just the need and timing of the trust restructuring is something you started a couple of years ago, what drove that? Was there any kind of regulatory or tax pressures to do so, or was it just an efficiency situation? And if it is just efficiency what kind of savings can we glean from the going forward?

It's something Robert that was not regulatory. It's something that the trust structure that we had was somewhat convoluted as we grew through acquisitions for 40 years, and it is something we are working with our trustees to make it very simple. So we have one trustee now over prearranged funeral, one trustee over pre-need cemetery, and one trustee over the eternal care funds.

It does have some tax advantages, but that's not primarily why we did it. We really did it for -- this made our back office a lot more efficient as well. We ultimately, most of those synergies are included in the Stewart synergies related to this back office, because while this project started a couple of years ago we wrapped it in and did it with the Stewart integration, as well.

Okay. Are there any other similar good guys out there remaining that we just can't see that clearly from the outside looking in?

From a cash tax perspective, or synergies?

You have always surprises either with a low cash tax rate or in initiatives such as this, that we did not know was ongoing. Are there other projects underway where we could see something of comparable size, or have you pretty much exhausted that pipeline of internal opportunities.

I think on that Robert, we always are looking and I think the way to think about it is this, until we tell you differently were probably a full cash taxpayer. Around the edge I think my guess is we're going to find limited opportunities to lower that a bit. I think of the size and significance you have seen us in the past the big rocks have been chiseled. Now it's a little rocks that we are continuing to whittle down. We hope to surprise you a little bit, but I wouldn't get, I don't believe it would be a material amount.

Okay. And Tom could you give a general update on Neptune? I know you've kind of consolidated the numbers, but how should we think about the performance there?

Neptune continues to perform really well Robert. We're excited about it. As you think about the quarter from a GAAP perspective, we've grown that the revenues I think in the quarter about, almost 7%. So we'd expect to be able to continue to grow that in the mid-to high- single digit range on the revenue side.

And from a margin perspective for the quarter, again, I think we're up to 16% for the quarter. The fourth quarter is typically lighter I think because of the selling opportunities around the holidays are more difficult. For the year now our margins are approaching 18% and as you'll recall when we bought Neptune, I think from our perspective it was high-single digit 8%, 9% margins. Continue to up the margin and this component, albeit it is not a big piece, it's about 6% of our funeral revenue, but it is growing at a mid- to high- single-digit range. Very pleased; want to thank Marco and his team are continuing to drive success there.

That's great. And you.

(Operator Instructions)

John Ransom, Raymond James.

Good morning, one kind of picky end question. What was the year-ending versus the average share count for 4Q?

Did you say share count? You broke up John.

Yes year end share count versus quarter share count.

Yes, exactly.

We ended the year what was the weighted average for quarter, or weighted average for the year?

No what I meant was what was the ending share count as of 12-31 versus what we get --

230 --

230 million shares John.

I'm sorry.

(technical difficulties) 5 was the end of the year and 203 is where we exist today, because subsequent to the year, as I said on the call, we probably are just under another 2 million shares that we repurchase after year-end.

Okay. Thank you.

Secondly you are doing your first analyst day next week. Just a little bit of a teaser of what you might be talking about, number one, and number two what was the motivation to do it?

Let me answer the first one. John you have to show up to see what is going to happen, buddy, this is going to be, it's a big show.

I'm coming, I'll be there, I'll be there.

No. I don't want to give you too much of a teaser. I think one of the things we want to do we are going to give a more comprehensive deep dive into some of the operations as a Company. Talk specifically to our strategy and how that's occurring, but it's really going to be a bigger deep dive, and also allow you to have access to more of our management team.

We are going to have I believe five presenters, but even better we are going to have a larger group of executive managements there to mingle with you, talk about what we're doing, and give you a real comfort about the people that are doing the work in this Company and not just Eric and I. Which, I know Eric doesn't do very much work at all, so it's important for you to see that.

You have to defend me John.

Anyway. The reason for it is we did a survey of you, and when I say you, I mean all our investors; some of our bigger ones on both the sell side and on the buy side. The feedback was, can we see a deeper bench? Can we interact with more of management? Can you take us through some things about cremation and how you think about it? So all of that we are going to try answer all your questions.

And we're pretty excited again, about the opportunity to talk about it. That's a great cue in, for its February 17. It is by invitation only, but it will be webcast. And again you will find all the relevant information on the website while are going through it.

Please do show up if you are invited. Go on the webcast even if you not.

Great. And then the last question.

I think we had talked in the past in a very small way you were doing some de novos in addition to your $50 million to $100 million of M&A. Is that anything that could be more sizable than where we are now?

I think it can be a little more sizable. Again we may go from historically building two or three a year to four or five, and I can see a day when that number gets and the high single digits a year.

Probably better to think along those lines John. Again things can change. As an example there still states out there that don't allow you to be in the funeral business and the cemetery business.

If that were to ever change, as an example, it may open up some opportunities for us to build locations on cemeteries where we are restricted from doing so today. I think that type of thing would probably launch a little more aggressive opportunity to invest in capital. But even without that I think it's not a huge part of what we will do, but we will begin to look at how we can grow. And I think it's important were going to talk about this in investor day, the changing consumer environment.

There's a lot of people that want some of the same traditions, but there's a lot of people that want something different. So as you think about the funeral home of the future, we may begin to delve into that and try some things in different markets. So yes, think of it as a growth, but not a tremendous growth opportunity.

Okay. Thank you.

(Operator Instructions)

Duncan Brown, Wells Fargo

Good morning. Maybe just going back to volumes, I think you said that Stewart Legacy funeral volumes were down slightly versus SCI being up a little bit. Anything you can maybe highlight to explain the difference and maybe some concerns around Stewart market share loss or just local market issues?

I think a lot of it is the geographic footprint. They are not in all the markets that we were in. So if you go into regions or certain states you will see that we had tremendous volume growth in one state and might have been off in another. And again a lot of that is probably tied to what is going on with the flu.

No. There was no discernible issue as it relates to market share. I think, because again they were just slightly down, as you saw we were up 1.8%. I think it's just a function of geography

That's helpful. Thanks.

My last question is more of a high-level question, maybe something will learn more about on the 17th. But it seems like the game plan for you all is pretty straightforward run the business, keep the leverage in 3.6%, 3.7% range and do some M&A. Where does that leave you with some of your thoughts regarding potential strategic initiatives? Obviously the read option has been thrown out there before. Are there still under consideration or are those potential options tabled for now?

I think the one that we said we'd always continue to look at the opportunity would potentially be the REIT. There are reasons why the REIT doesn't work as well, some of which are tax, cash cost as it relates to tax, as it relates to capital structure and moving out of there. But there is some, obviously, tax shield in converting to a REIT.

The other thing that I think we feel is that as long as we believe our stock is not fully valued it make sense for us to continue to shrink that equity base. Once you made a conclusion that your stock is fairly valued and your opportunities are limited and now we've got to go to a very high yielding dividend payout a REIT might make a lot more sense. I'd tell you right now it doesn't make sense, but it is something we will continually monitor as we get through the strategy of the Company. That isn't something that's on front of mind for us today.

Great. Things a lot.

At this time I see we have no further questions. I would like to turn the call over to SCI management for closing remarks.

Thank you again for being on the call. As John already mentioned, we had the investor day on the 17th, next week. We look forward to seeing a lot of you there and getting to join us and take a deeper dive into our Business, as well as our strategies that we are going to be executing over the coming years. Thanks again and have a great week and we will see some of you next week.

Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect. [End of transcript]