Carriage Services, Inc. (CSV) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Carriage Services 2013 Full Year Earnings Webcast Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Chris Jones, representing Carriage Services. Please proceed, sir.

Thank you, and good morning, everyone. We're glad you could join us. We would like to welcome you to the Carriage Services' conference call. Today, we will be discussing the company's 2013 full year results, which were released yesterday after the market closed. Carriage Services has posted the press release, including supplemental financial tables and information on its website at carriageservices.com. This audio conference is being recorded and an archive will be made available on Carriage's website. Additionally, later today, a replay of this call will be made available and active through March 10. Replay information for the call can be found in the press release which was distributed yesterday. Speaking on the call today from management are Mel Payne, Chairman and Chief Executive Officer; and Bill Heiligbrodt, Vice Chairman. Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note that during the call, management will make forward-looking statements in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks associated with these statements, which are more fully described in the company's annual report filed on Form 10-K and other filings with the Securities and Exchange Commission. Forward-looking statements, assumptions or factors stated or referred to on this conference call are based on information available to Carriage Services as of today. Carriage Services expressly disclaims any duty to provide updates to these forward-looking statements, assumptions or other factors after the date of this call to reflect the occurrence of events, circumstances or changes in expectations. In addition, during the course of this morning's call, management will reference certain non-GAAP financial performance measures. Management's opinion regarding the usefulness of such measures, together with the reconciliations of such measures to the most directly comparable GAAP measures for historical periods, are included in the press release and in the company's filings with the Securities and Exchange Commission. Now I'd like to turn the call over to Mel Payne, Chairman and Chief Executive Officer.

Thank you, Chris. I'm honored to be here today with Bill to discuss this press release. I must say that I've seen a lot of press releases but this is the first one I've ever seen like this. And the fact that it's about our company and where it's been, where it's going was a lot of fun to write about. And with that, I'd like to turn it over to Bill.

Okay. Thank you, Mel. And I'm going to start here and kind of review financially where we are and where we were throughout 2013. And to start with, I'd like to say on behalf of all the dedicated employees of Carriage Services, it's certainly my pleasure to speak to these record 2013 results. It's truly a pleasure for me to be able to do this. Adjusted basic non-GAAP earnings per share for 2013 were $1 per share, a 24% increase over 2012. This doesn't totally tell the whole story, so let me add a couple of comments in that regard. Last year, 2012, benefited from a larger special items net of tax. If those numbers were comparable for each year, our earnings per share growth would have been much higher. That difference is more reflected in our basic GAAP earnings per share for 2013, which were $0.83 per share compared to $0.58 in 2012, and shows growth of more than 40%. Also, we successfully discontinued and sold certain non-strategic businesses during 2013. Those sales added over $10 million to our cash flow and would have added $0.02 earnings per share if included in 2013. There is a great deal of important information available in our earnings release that Mel reflected on that fully explains and highlights 2013. And I, therefore, won't simply repeat. However, I would like to comment on acquisitions, a major part of our business plan. After reviewing and considering a very large, and I want to emphasize a very large number of potential businesses in 2012, we selected, selected and completed only one. It was a very good strategic business and most important addition to our Chattanooga, Tennessee presence, Heritage Funeral Home. Also a first for Carriage, we began construction in 2013 of 2 new locations in Texas, one in College Station and the other in Katy, Texas. Two fantastic growth markets in our state. Both of these new locations should be completed in 2014. Our free cash flow for 2013 was over $33 million, a 60% increase. With that cash flow, the amount of extended on acquisitions at new locations in 2013, we were able to reduce our debt by almost $20 million. Of course, that improved our credit profile, enabled us to reduce our capital costs to an all-time low in 2013. Yesterday, our stock price closed at just under $21, $20.71 to be exact. We were as high as $21.63 per share during 2013. In November 2011, we began our Good To Great transition which Mel Payne has explained many times over the past few years. We officially launched our Good To Great Journey in January 1, 2012. Our stock price during the period November 2011 to January 2012 ranged between $5 and $6 per share. The growth from that level to where we are today is fully depicted in the chart on Page 2 of the press release, showing a total return of 949% to our shareholders from 2009 to year-to-date 2014. The obvious absolute growth from January 1, 2012 to yesterday in market value and stock price has been almost 4x. For me, personally, it's been a true pleasure to be part of the journey from Good To Great, as I am sure it has been for all the employees at Carriage. Our future is very bright, and we have only just begun this journey. There is more to come. Stay tuned. And with that, I'd like to turn it over to Mel Payne, our Chairman and Chief Executive Officer, to move us farther into our journey and into 2014. Mel.

Thank you, Bill. It is an amazing journey in this dynamic ever-changing, the only constant around here is change. And we embrace it and try to make the most opportunity of it. Over the last 6 months, beginning in mid-August 2013, underneath the covers of a little public company, we have undergone yet another rapidly transformative phase based on a broader and deeper understanding among our executive and senior leaders and board members of the high-performance ideas and concepts that define Carriage as an operating and consolidating company. Culminating an announcement of the 5 milestone events in the press release, and I'll touch on them briefly. The record year, Bill has already covered that, but the one part that is kind of special warms my heart is when we finally hit $1 a share. I've known forever that we have a lot of earning power in flat form and within the people and businesses and it's been unleashed over the last 2 years and it's been a miracle and a wonderful thing to witness. So I thank all of them. The second highlight in the press release is our agreement, reached this week, to acquire 6 businesses from SCI that are being divested because of their acquisition of Stewart Enterprises. We will enter 2 large strategic markets: one in New Orleans, which was the home of Stewart; and Washington, D.C. area, both large, very attractive for Carriage and where we had no presence. Their full business is in New Orleans and 2 in Virginia, which I'll mention more about in a minute. It is subject to FTC approval. However, we've been through such approval 4 other times, so we know this path well. And we think we will -- our goal is to be the first buyer of these divested properties to get FTC approval based on our track record, our financial standing and our ability to compete against SCI, historically. So we're looking forward to an early approval and to an acquisition sometime in the second quarter, hopefully sooner in the second quarter than later. The financing strategy and execution timeframe has been planned out. Bill could cover that more in Q&A if you have any questions about it, but I think it's pretty clear. The fourth milestone of that was to announce 2 full years of outlook, '14 and '15. We've never done that before. And I want to take just a minute to explain why we would do that now. After 23 years of building Carriage into a platform, that is a platform to support operations in the funeral operations across America, funeral homes and cemeteries so that they get better, and also to consolidate those highly fragmented industry by affiliating only with the best remaining independents. We have built something that, in my view, cannot be duplicated because the ideas and concepts are so unique. And we are at a sweet spot in the evolution because now when we increase operating performance, just modestly, it has a compounding impact on our free cash flow and our earnings, adjusted earnings per share. So we don't eat up of that which we create through hard work in our field businesses by lots of new overhead and lots of stupid stuff because we're very flat and very entrepreneurial and our people are very motivated to achieve, and you'll hear me talk about that a little more in a minute. So we felt like with this acquisition from SCI and the change in the landscape in the industry, it was a good time for us to put out a little bolder outlook because this is what we expect to happen. But what I want to make sure everyone understands is that we don't do quarterly estimates here, we don't even do annual estimates. What we do is roll in 4 quarters and it's a roughly right range of what we expect the company to look like, operationally and financially, over time. Always being updated by quarter, always looking out 4 quarters. In this case, we looked out 2 years. So if we want the public to see a full year of the acquisitions that we will be making from SCI, as well as acquisitions that are not signed up yet. But the pipeline that we have is getting bigger, quality, more visible and I'll touch on that next. So we don't want it to be construed that there's a forecast, but roughly right ranges over time. But the last major milestone of that I'm thrilled about is -- as is Bill. Dave DeCarlo, who joined our board of May of '11, is now joining the company full time. Just as Bill joined the company full time, September of '11, after joining our board in '09. So with Dave coming in, Bill and I have taken a fresh look at the organization. What we've also taken a fresh look at how we've been working as a cohesive team across the platform regardless of formal reporting structures over the last 3, 4, 5 months, and it's really a wonderful thing to witness and a lot of fun to be here on a daily basis and be part of. We have a young senior leadership team that is on fire. Bill, Dave and I in addition to the duties we have primarily, which I outlined in the press release. Our duty also is to grow and develop this young leadership team because they are good. And they're getting better at an accelerating rate. It's a lot of fun for us to mentor them. And it keeps us energized. And as Bill said, we can't wait to get to work everyday, because they will be all over what's going on. It's a lot of fun. So these are the 5 milestone things. And one of the traditions we have been doing over the last 2 years is calling out by name the managing partners and businesses that had been, what we call, high-performance heroes each quarter. Today, I will name the funeral home managing partners and businesses that achieved our annual Being The Best Pinnacle Award by achieving over a 3-year period ending in 2013, an average standards achievement of 70%. Now when we invented the Standards Model, we knew it wouldn't be easy. These are performance standards, drivers of what makes a high and sustainable performance in a funeral home or cemetery over many years. This is not like going to school and getting 100%, and that's an A. If you could achieve 70% over a 3-year period, that's unbelievable in this business. And so we celebrate these people because they are winning leaders and winning teams of employees across America, and I'm honored to call out their name. We call this the Being The Best Pinnacle of Service Award and these are our winners, we'll go on a rewards trip with each winner and their partner, spouse. In April 24, at a beautiful place in California. Can't wait. Because we view this is like getting together with a family of winners. Let me call out their names. Ken Pearce, Alameda Group in Oakland, California and Alameda, California. Two chapels. Ken is unusual because this is the third year he has achieved 100% of standards in a row. He is a 3-peat. He's also got a goal of running a marathon in every state, he's up passed 40, he's competitive, he wins, he won't settle for less. This is what being a managing partner and high performance in our company is all about. Brian Dutton, Stan [ph] Funeral Home in Ashland, Kentucky. Patty Drake, James E. Drake, Whaley-McCarty Funeral Home in Cynthiana, Kentucky. Patty is also 100% Standards Achievement winner and it's not her first time. And the thing to remember is if you find a managing partner with red hair, hire them because they won't take any prisoners. They want to win the market share in their market, and Patty has been doing it for a long time for us. Thank you, Patty. Ken Summers, P.L. Fry & Son Funeral Home in Manteca, California. Awesome business and he has been a Pinnacle winner many times over the years. Mark Cooper, Seaside Funeral Homes in Corpus Christi, Texas. Mark is an amazing managing partner. This is one of our biggest and best businesses in Corpus. It's a combo and then another separate funeral home in small cemetery that's run like a combo. Mark's done miracle with this businesses since we bought it January 1, '07. And he's been a consistent winner. Thank you, Mark. Dorn Rademacher, really a funeral home in Cremation Society of Idaho in Boise. Dorn also has been a consistent winner over many years. Kyle Incardona, Hillier Funeral Home, Bryan, Texas. Now Kyle is another 100% Standards Achievement winner for 2013, but we are building Kyle because when he joined the company from Stewart 5 or 6 or 7 years ago, after he adjusted to our model, he just began to take this business and crush all the market competition and grow it. So we are building him a huge, wonderful, state-of-the-art funeral home in College Station, which will be probably on the filing of an Annual Report one of these days, Bill. And it looks like Texas A&M, I hope we don't owe them money because of that but it's going to be an awesome place, and Kyle has been an unbelievable leader for us. Nicholas Welzenbach, Higgins Mortuary, Antioch, California. Matthew Simpson, Deegan Funeral Chapels, Ripon and Escalon, California. Two chapels. Bob Pollard, Lotz Funeral Home, Roanoke, Virginia. Scott Griffith, Oregon Lyons Funeral Homes, Waterbury, Connecticut. Did you get your kitchen fixed up, Scott, because of the stock price? I hope your wife is satisfied with that. Scott's been a consistent winner. Michael Page, Allison Funeral Home, Liberty, Texas. Same, consistent. Randy Valentine, Dieterle Memorial Home, Aurora, Illinois. The same. Tom O'Brien, O'Brien Funeral Home, Bristol, Connecticut. Tom is one of the original partners of Carriage. He and Ron Duhaime joined the company before we went public, took stock in the company and has been one of my great friends and partners. And when I did something wrong, he always told me and I tried to do better so that the next time I wouldn't be quite as a -- he wouldn't be quite as tough on me. It's a wonderful business. Andy Shemwell, Maddux-Fuqua-Hinton Funeral Homes, Hopkinsville, Kentucky. Andy's father, Jimmy, was one of the early partners. And his brother now are running these 2 businesses. Steven Mora, Conejo Mountain Funeral Home in Camarillo, California. This is a business we bought out of the Elderwoods divestitures in '07, and Steven has done a wonderful job. He's been a constant Pinnacle winner. Chris Duhaime, Funk Funeral Home, Bristol, Connecticut. Again, Chris was a managing partner. His father, Ron, is on our Standards Council and along with Tom O'Brien, who was one of our early partners. And Chris is a chip off of Dad's block and a wonderful managing partner and leader. Geof [ph] Morris, Sterling-White Funeral Home, Highlands, Texas; Robert Maclary, Kent-Forest Lawn and Funeral Home in Panama City, Florida. Robert is another 100% Standards Achievement winner, Panama City. A great business. Greg Brudnicki, the former owner is now the mayor of Panama City and it's a fabulous business and he's been a fabulous partner. Frank Forastiere, Central Springfield Group, Springfield, Massachusetts. Frank was an original Standards Council member and bobbed in designing the standards format and has been a wonderful partner, and what's happened up there is something to behold. David Henney, Henney Funeral Home in Ridgewood, New Jersey. Again, across the Manhattan, a long time winner of Pinnacle and a dear friend. We also have -- those are the Pinnacle winners. We also have 3 people who haven't -- all of these winners had to be in those businesses for the 3 years. We have 3 people who all achieved 100% of their standards in 2013, who haven't been here 3 years. But we like to celebrate them because we know next year will be the third year for at least 2 of them. And there's no doubt because they're just the winners in their markets. That's James Jim Terry, James J. Terry Funeral Home, Downingtown, Pennsylvania; Cesar Gutierrez, Heritage Dilday Memorial Services, Huntington Beach, California; and David Williams of Rader Funeral Homes in Daleville, Virginia. Those are our winners for 2013. Those were the performance heroes. There are many more but these are the ones who are truly outstanding. And now I want to get something done that is very special to me and Bill and Dave DeCarlo, who is coming into the company and is listening to this call. Dave will be here full time starting Monday. And as we looked at the divestitures SCI was making, we looked at a lot of businesses across the country. At the end of the day, we settled on these 2 markets, New Orleans and Washington, D.C., because we not only like the markets, and weren't there. We like the individual businesses that were there. And we like the potential of what we could do with these businesses in the future. So I want to now welcome the businesses, and the leaders and employees of the 6 businesses we will be buying. And those are: Everly Community Funeral Care in Falls Church, Virginia; Everly-Wheatley Funeral Home, Alexandria, Virginia; Garden of Memory Cemetery and Funeral Home in Nedery [ph] Louisiana; Greenwood Funeral Home, which is a large funeral home on Greenwood Cemetery, which is a historic cemetery in New Orleans re-leased this property from the cemetery and we view our partnership with this cemetery as critically important to our success in New Orleans. And we've made contact and friendship with Judge McCay, [ph] who is the President of the Board, and we look forward to working with him and his team; Shane [ph] Funeral Home in New Orleans; and then Sunheimer [ph] Park Funeral Home in Meadory [ph]. These are the 6 businesses. I can see up on our screen that many of the employees in these businesses are listening into this call. I am speaking to you. We are going to inject into your businesses a sense of entrepreneurial life and optimistic support that will make you highly successful against the competition in these markets. We are thrilled to be affiliating with you and we cannot wait for approval of this transaction so we can go to work. We will not wait until then to actually be in touch with you, planning and developing a strategy that when executed over time, will grow your business at sustainable, high-level of profit margins, which is what we're all about. Our company has turned consolidation upside down and made you and your teams at the business the most important element in our company. I welcome you to the Carriage family. And with that, I'd like to turn it over for questions.

[Operator Instructions] Our first question will come from the line of Alex Paris from Barrington Research.

I have a number of questions. Let's see, try to give you some sort of order here. So historical financials have been restated to reflect the -- to exclude the operations that are sold, correct?

That's correct.

Yes, so the dollar and basic adjusted EPS would have been $1.02 hedging that divested those?

That's correct.

So again, that's right in line with my estimate of $1.03. In the 10-Q -- or I'll come back to that. So you started off the year within the funeral operations with really, really strong same store revenue growth, unsustainably high. I know this is not a quarterly business and over the long run, I think we can sort of expect somewhere between 0% and 1% growth on a same-store basis. The second half must have been down to finish the year at roughly flat, is that the case?

Yes. The second half -- and I told Bill, in the first half, I'm going "Okay, this is too good to be true," and having been following this kind of thing for 23 years, it won't stay that way. So sure enough, the volumes weakened because they were so strong in the first half. But we did have weakening averages, funeral averages. And one of the challenges for the industry is, of course, cremation. And direct cremation within that category. One of the things that Dave DeCarlo is going to focus on, I mention it generally in the press release, is the cremation trends, and what we're doing in terms of training and the quality of the staff and the mindset required to deal with these trends. And I'm very -- and the products that go along with it. So I'm excited that Dave's got a focus on this, as well as the rest of our team. But your analysis is correct.

And to that point, you had a nice increase in etneed [ph] contracts for the year after several years of flat, I think you're up over 1%. But the revenues were below that, and that's reflective of cremation also of the economy, or no?

No, I wouldn't. I'd -- look, we were improving during the recession, the panic, the crisis in '09, when we bought in 15% of the stock at an average of $3 a share. The economy didn't affect us, and it won't affect us now. This is all about execution locally with quality of leadership and staff. So what we're going to do -- what we do is controllable by us. It really is not a function of external circumstances other than the secular trend towards cremation. So we're going to focus on that this year like never before. It's not easy, I promise you we will get better at it. Can't tell you what exactly which month, but I don't like that trend in the second half, and neither does anybody else in our company. So we're going to do something about it.

Now to that point, your selection of the 2 new markets through the SCI acquisitions, the New Orleans area and the D.C. area, I'm assuming those are attractive to you based on demographics, but also the ratio of cremation to traditional burial?

Yes.

And then what was -- with regard to the SCI acquisitions, I think it's that you paid $54 million for 6 businesses. Are you willing to give aggregate revenue for those businesses, or the average margin for those businesses, or the contribution that you expect from those businesses in the next 12 months? And is that included in guidance?

Alex, I mean, that's all in the guidance and it's not just dollars and cents per deal, it's a combination of the whole effort and the combination -- that's why, I think it's important for you to look at the projections, or not projections, at the estimates that are in our financials. We've had a wonderful history of earnings per share growth as a result of this same plan. And I think that's what Mel's saying. So it's not just what those revenues were and such. Obviously, we're not interested in markets that aren't strategically good demographically. And included in that analysis are markets that will be able to, we think, provide above average growth in this industry. And that's certainly the case here. And I will say, for someone that's done a lot of these acquisitions over the last 50 years from my business career, I think the work done by our team here to ensure that, on these acquisitions, is nothing less than spectacular. And I think it is very special, taking into account that we are taking these businesses and putting them into a Carriage culture from another consolidator. And when I've looked at that work personally, I am very pleased with where we are and where this goes. And if I want to say something -- this is a secret and you're going to have to kill me to get it. But when you look at those results, you're going to start seeing it, okay? Thank you.

One just additional point there, Alex. Take the acquisition we made in Chattanooga at the end of the year, Heritage. Two wonderful submarkets in the overall Chattanooga market, we already had 3 locations. But these were growth corridors that we didn't have a good presence on. And we bought a wonderful business, Russell Freeberg, the former owner. But now we have 2 chapels and they're very traditional compared to the average of our portfolio. So the average revenue and the cremation rate, very attractive. And when we look at new businesses in strategic markets, that's what we're looking for. And in this case, although it was one business, you had 2 separate submarkets, with 2 separate managers, Curtis Adenger is our Managing Partner in the East Brainer Chapel, which is the larger, older chapel, doing a great business. And then Ben Freeberg is the Managing Partner in the newer chapel in Fort Oglethorpe, Georgia, one in East Chattanooga, Tennessee, the other in South of Chattanooga, but a growth community. So this is the kind of profile we're looking for in an acquisition. And we're finding that the remaining large independents like this find Carriage, and how we operate with our framework, including Curtis and Ben, they love it. They really love it. And you're going to see a lot of performance not only out of them. You're going to see that out of these businesses in New Orleans and Washington.

Good. Then can you comment on multiples paid, are they in line with historical averages?

I would say on multiples, we don't really want to talk about that. I don't know. The multiple we want to pay in the way I look at this is 5 years from now, is going to look like we paid a low multiple.

Alex, these businesses are accretive based on all of our projections to earnings per share, just like all the acquisitions have been. In addition to this acquisition, we do have another acquisition under contract that we're continuing to work to close, okay? So as always, anything we do is we take the shareholder's interest into consideration at the first level, and we are all making these acquisitions accretive. So that's our plan, that's the projection. So...

Just to add to what Bill said about the process of how we went about this. We had a team of 6 operating and operating support go into these markets and businesses, spend time 3 different visits with the people and the history -- I mean, the deep history of the business. And then Dave DeCarlo and I, we're the outside team, traveling around the market, looking at the bigger picture trends. As well as possibility of increasing in those deep strategic markets by affiliating with other independents. These are both highly consolidated large markets over the last 34 years. So to have Carriage in there provides a different element. A more entrepreneurial element for other independents to affiliate with in the future and we fully expect that to happen.

Our next question will come from the line of Clint Fendley from NewBridge Group.

Good news there on Dave. And I know he has a lot of expertise on the cemetery segment, and I guess given your acquisition here in New Orleans, does that represent any kind of increased focus on that segment for you guys going forward?

Well, that's a good question. You notice I didn't call out any cemeteries on the Pinnacle Award winners, that's because we suspended -- we're revisiting our Standards Operating Model on the cemetery. We didn't have enough high-performance, because our portfolio is a lot smaller to really properly define high-performing operating standards that would separate the winners from not-so-good performers. We do want to grow in the cemetery business with combinations. We like the combination business. And the one in New Orleans is a nice combination we can grow. So Dave has an entrée to not just the cemetery owners, but many, many owners around in the country. And he and I will devote time to what we call some of the larger owners and transactions, because I think we have a framework now that is attractive. So we're going to focus on combos. But funeral homes are still our sweet spot, and that will continue to be the case.

That's helpful, Mel. And I'm sorry, I joined the call a little bit late. I was wondering if Bill, when we look at some of the operational responsibilities that you guys have, is Bill still going to be -- or, Bill, are you still going to be responsible for the M&A activities there at Carriage?

The way we're going to do that, Clint, is like I've said before, you probably missed it, the last 6 months have been unbelievable. And when Bill first joined the company he and I sort of split things up by 2 different groups and said, I'll focus on this, you focus on that. We'll stay out of each other's way, except when we can help each other. With Dave coming in, we've taken a fresh look at how this works. And now, it's a much more dynamic, cohesive team where Bill, Dave and I now comprising what is called the Operations and Strategic Growth Executive Committee. So operations and acquisitions will report up to the 3 of us as a team, and it will be much more collaborative and dynamic on a daily basis than in the past.

Okay. A question then of the guidance, too. I wanted to understand, do you guys intend to give a rolling 4 quarter outlook for 2 years now going forward, or was this just sort of a preliminary type look at 2015?

There were so many things going on. And with SCI buying Stewart in the landscape in the industry changing, and this being a big deal for us with some other independents coming down the pipeline, we thought it would be worthwhile putting up 2 years. But this will not be a normal thing we do. We'll still do the rolling 4 quarters, updated every quarter.

Okay. And when I looked at the numbers this morning and sort of squeezed out the fourth quarter results from the annual that you provided. I just noticed, the total overhead looked significantly lower here for the fourth quarter. And I'm wondering, is that a realistic run rate going forward? I know obviously we'll have the acquisitions and all folded in there. But could you maybe just kind of quantify that some of the improved results that you guys have had there?

Yes. The answer's yes, Clint. Everything you said the -- we saw -- we had some increase in overhead as we call it early in 2013. And we moved quickly to relook at that to make sure we had a return on that overhead. And just as Mel mentioned, the work done on the acquisitions, our overall operating departments in the company met and strategically worked together, there is a plan to make sure that any expenses of overhead are looked at exactly the same as an acquisition that they add value to the company. And that was done. It was a great exercise for us. And the results, you're seeing. And I expect that to start leveling out more. And I think that procedure going forward is going to be an extremely worthwhile occurrence for the company as a whole.

What's interesting, Clint, is that, that exercise was part of what I said was transformative over the last 6 months. Because now, in this crew with Bill and I and Dave, as well as all the senior leaders, we have developed a theme for this year called Carriage Services 2014: Being The Best - One Team, One Vision!. And the idea behind this, is that we all own the performance of the company and we all own everybody else's overhead for their region or their lack of performance, we own it. Everybody is encouraged now to look at their overhead, and own it, and make sure we get a return on it. If we are not getting return on it, we expect them to do something about it. And if they don't, the other members of the senior team and -- they let them know. So it's a very, very healthy thing that people have to get a return on their overhead, as well as their operating businesses and everybody owns it.

Okay. And last question here. I guess we saw last year, you guys divest some properties. And Bill, obviously, some new locations for the first time in a while. Should we expect more of that.

Ever that I know of. We divested a couple of properties that honestly didn't fit the strategy going forward. And we've got good offers for them. So if that happens, it won't be probably to that degree all the time.

I was speaking to new locations. Especially of the kind we're doing here. Usually, very quality locations.

It sounds like a nice location there in College Station. Though are you sure that you're going to do business with someone from UT?

We'll take to that opportunity. I'm half maroon. His loyalties are shifting. But yes, I do want to say we have -- this is an unusual, I am going to say something about that just quickly, from an operational standpoint we have an excellent operational person there. We have a lot of excess land there as well, it was interesting in a recent meeting that's we don't even have anything but steel and concrete on the ground. And he's already being approached on pre-need sales for that location. That's pretty strong, okay?

Our next question will come from the line of Bryan Engler from Great Lakes Advisors.

Can you help me out with the estimates you guys put out into the future. How much of the revenue growth is coming from acquisitions? Not just the SCI, but just in general?

Most of the growth is coming from acquisitions in new locations. As we talked about in our planning, obviously, we're looking more in the neighborhood of something in the 1% -- in the 0% to 1.5% growth range in same-store sales volume.

And what about down into the profits. How much of the incremental EBITDA that comes close down is coming from the acquisitions versus improvement in the business that you already own?

Well it's a combination when we get into there. Because the 1.5%, depending upon how it flows through has a very large compounding effect. And that amount could actually produce double-digit earnings per share growth. So it's like a building block and we've talked about this before as a matter of just a model. If you say 1.5% -- or 1 to -- let's say 0% to 1.5% same-store, and then if you could turn that into, let's say, overall, including cemeteries in our particular business and financial, and that turns out 8% revenue growth, we get a leveraging off of that somewhere in the 15% to 20% range. You look this year, our revenue growth overall was slightly over 7% and our earnings per share on a basic basis was 24%, so we did better. So I think that's the wonders of this business. It's that small revenue growth makes big changes at the bottom line. And that's what we try to explain. And I know we talked to you about this.

This is Mel, what we do here internally is educate the managing partners in charge of each business that through their Standards Achievement, which includes the profitability of the business, but especially the revenue growth doesn't take a lot. Because when you have 1% to 2% revenue growth in one of these businesses and you've maintained your costs, manage your costs, your EBITDA margin goes up. And it only takes $300,000 of EBITDA to equal $0.01 a share from our existing portfolio. So literally, every single person can move the EPS meter across the portfolio. And they all know that.

That's helpful. One last question on the guidance. You guys had a fabulous year in 2013 with the investment portfolio, I think adding -- it was up some 14% or so. What are you assuming the contribution would be in your guidance going through the next 2 years?

Well, we did have a fabulous year and we're off to another fabulous year. Our portfolio is designed specifically to report higher recurring financial revenue and earnings over time. And all I can tell you is that it's an unusual portfolio, high fixed income. There's a ratio of total assets. But we have a lot of hedges in there on the fixed income, if the rates were to go up. But the hedges really are warrants on the too big to fail banks that came out of the crisis and we -- what's turning out is that we'll get huge unrealized gains in that warrant portfolio, along with 8 or 10 core equities that we like to fix stocks here and spend a lot of time on finding those. And so I expect that to continue. How much of that will translate into reported revenue and earnings, it's hard to say at this point.

The actual numbers in the projections are modest. Should be attainable type situations to the extent that we performed in the past, it would be a benefit to those numbers that you're looking at.

So I guess, are you saying that the investment income that will -- that is in your earnings per share range -- forecast range, the investment income will be about the same as it was this year?

It's up slightly. Just because we are physically bigger. And so any real performance change will be a benefit to those numbers.

We haven't changed the profile of that portfolio that much since August of '11 towards the end of '11. And we just added a little bit more equity to the portfolio over the last couple months. But it will still look the same and I agree with Bill, it should incrementally improve year-over-year.

Okay. Even I guess, I am struggling just a little bit, even if the S&P is not up 32%, if it's a more average year of 10% or 12%, you're comfortable that your forecast is a fair one?

Absolutely.

Okay, that's helpful. Bill, help me out a little bit. I'm not very good with this stock comp expense calculations. Your -- the shares that the company repurchased in January, was there a stock comp expense in Q4 associated with that, that would not be there going forward?

No, no. Very small. Those were performance options that had to have huge performance to obtain them.

I understand. Okay. And is there -- so there's not much of an impact in Q4 and there's not much of an impact going forward, is what you're saying?

Yes. No impact going forward [indiscernible] related to those stock options.

Right. Now that makes the absence of an expense?

That -- right. That's correct. Obviously, we'll be awarding new options some time during this year.

Sure. Okay. And the -- when you talk about basic shares versus diluted, were -- are those -- were those options in the diluted share count in Q4?

I don't believe they were. What we were worried about, and what we talked about was the potential dilution if they were exercised. That's why we wanted to keep the share count as flat as we could for the shareholders. And that's one of the things we try to do here. So to the extent we're dealing with potential share increases from employees, we like to hope that we will have the opportunity through repurchases of some kind to keep that flat. In this particular case, we chose to try to buy those stock options back from the employees, which we accomplished at a very reasonable price to the company, which ended up saving the company money, plus share count. And we did not want all of those shares to get into our earnings per share calculation.

And, okay. And Bill, just refresh my memory because I don't recall. How many shares in aggregate were repurchased?

1.6 million.

Yes.

Okay. And you've funded that with your bank debt?

We funded it -- well we funded it with our free cash flow, our bank debt and our financing mechanisms, okay?

Our next question will come from the line of David [indiscernible] from QE [ph] Asset Management.

Could you comment on what the possibilities might be for additional acquisitions from service corp? And also comment on the current state of your acquisition pipeline outside of service corp?

I can do that quickly. We looked at all the acquisitions at service corp, and we ended on the markets that Mel mentioned. We considered all in terms of both our normal requirements plus price, and this is where we came out. We feel this is the best place for us to be right now with our shareholders absorbing these fixed businesses, we want to do it correctly as our next task. We don't know right now of any future divestitures. I guess you'd have to ask the FBI that, not me. Obviously, anything that comes into this market we're going to look at if it's a benefit to us. As far as our regular pipeline, last year, I've never done as many analyses as we did last year. We're trying to be sure that we're improving our overall business, businesses and our business composition through our acquisition program. We're trying to be selective, we're also being selective as it relates to price and other matters. So out of that, we did not accomplish everything we wanted to. There were some acquisitions that people frankly felt they just couldn't part with at the time, even though we were the choice acquirer. This year, we have -- again we have one really good basic acquisition that's out there. Plus we have a pretty full pipeline and we have some really good strategic businesses across the country that we're focusing on. But, David, we're not changing anything we've done since 2011. We're still in the same mode, still doing the same thing. I think our ability and our position to accomplish more there is probably greater. We have one competitor out of the market in Stewart. And so we have a pretty clear definition now of have how the SEC is going to look at others' position in the market. So I think Mel mentioned this and called it a sweet spot. I think there's certainly a sweet spot for people that want to divest their business, and we should be the acquirer of choice there. That's what I believe. That's why I'm working hard, and it shouldn't come into work here, so it's a really good position to be in.

This is Mel, David. The landscape out there is paying attention to the consolidation of the consolidators. They are paying a lot of attention to Carriage. Dave DeCarlo is joining us full time, because we see the quality and the size of the acquisition landscape really improving at a rapid rate. And we want to be able to focus on that and take full advantage of it. So one of the reasons for putting out the 2 full years even though it has some acquisition, a lot of acquisition activity beyond the SCI divestitures, is because we see visibly individual businesses and owners being interested at this particular time, and especially being interested in how we do it.

Our next question, our final question will come from the line of Shikai Haries [ph] from Honeygold Capital.

I was just wondering for -- as you look forward in the M&A market. How much capacity do you have from a leverage standpoint, at this point?

We have a lot of capacity, enough to do more than the 2 years on a -- unless we come up with something very significant out of the ordinary like these that we just talked about. In terms of what we did in 2012, in terms of that, you can get a pretty good feel for what that did for our earnings per share. We have the ability to easily do and we're planning, and are planning in terms of our new capital structure, which I'm going to say is not complete yet. We don't have to pay for these acquisitions as yet. So we have plenty of capacity even if we wanted to just fund these acquisitions under our existing credit. What we're doing is taking that to the next step. We don't know exactly how that's going to unwind. That's what when in the press release, it mentions plan. That's what it is right now. There's many opportunities there to -- what we are fairly certain of, there won't be any increase in capital cost. We don't think in what the future brings, the immediate future. And we're planning on coming out of this plan with enough capacity to the more than fund the next 2 years. And one of the benefits of that is not only what we come up with financially, but the fact that we have so much increased new free cash flow. So all of that together spells a lot of opportunity for everyone as we look forward.

Great. And I was also wondering for the outlook that you've given for 2014 and 2015, I was trying to understand the level of M&A activity that's been embedded in that. So I know that you have the $55 million acquisition from SCI that's embedded in that. And historically you've talked about wanting to acquire $40 million businesses per year. So in that 2014 and 2015 outlook, just from acquisition value perspective, what is embedded in that beyond SCI?

It has approximately -- I'm not going to give you exact amounts on that, because I'd have to go back and look exactly at the details. But it would be roughly a half a year of normal acquisitions of benefits, which we had planned on around fix businesses, somewhere in the $6 million to $7 million price range. So something less than $40 million for a half over the year.

I think if you look at the 2 full years, you probably got another $25 million in revenue from acquisitions, but that's annualized revenue. And we bought $25 million of revenue in 2007 alone. So I mean, we're looking at nice quality sized businesses out there. I don't think that's a stretch.

And sorry, that's $25 million annualized revenue outside of this guide that you're referring to?

Yes.

That's correct.

And outside of SCI, we have a transaction currently for probably another $2 million right now that's pending in revenue. So that would be typical.

Okay, okay. And then my last question was just on the refinancing of the [indiscernible] If I assume that, that refinancing is completed mid-2Q, let's say. I mean, it seems like you'll get roughly $0.06 to $0.07 of EPS accretion for 2014. So when I look at the guidance, the EPS guidance that you gave on the 3Q call versus the EPS guidance that was given on 4Q 2014, I was a little bit surprised that, that kind of [indiscernible] accretion was not reflected in EPS guidance. So I was hoping -- I was wondering if you help me understand...

Well the reason is -- look, we are planning the financing as it relates to the acquisition, not to the exact specific type of financing that this has. We are still considering those plans. So we haven't finished that part of our transition here. So obviously, you can -- you know the market, and obviously there is a possibility of a lot of accretion coming into Carriage from a replacement in the convertible issue. There are other considerations that we have to take into effect, so we're considering all of that. The acquisition that we did, again, I'm going to emphasize, was of a range that we could close it under our existing credit. Therefore we'd have the benefit of doing the job properly to make sure we're doing the right thing here.

Let me see if I can give you a point that we didn't give -- I don't like the word estimate personally. I have a huge negative reaction to it. And that's why in this particular press release, I emphasized what we try to do is rolling outlooks that are roughly right most of the time, not precisely wrong all the time, because managements who do that tend to do stupid things to make sure they are right precisely. I don't like that, never have liked it, and I won't get on that treadmill. The reason we didn't put any accretion in there from refinancing the TIDES is we wanted to wait and see the visibility of the acquisition landscape in the amount of financing that we would actually need rather than put a refinancing of the TIDES in there prematurely. We wanted to cover the big picture when we finally did see the visibility. Now we see it clearly. Now is the time to have a plan. Now is the time to execute a plan, and we think that'll happen in the very near term. All right that's been a -- thank you very much. It's been a great call. A lot of great questions. And we look forward to reporting good to great earnings as it continues. Thank you very much.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.