Good day, ladies and gentlemen, and welcome to the Carriage Services 3Q 2015 earnings webcast. [Operator Instructions] I would like to introduce your host for today's conference, Mr. Chris Jones, representing Carriage Services. Sir, you may begin.

Thank you, Lauren, and good morning, everyone. We're glad you could join us. We'd like to welcome you to the Carriage Services conference call. Today we will be discussing the company's 2015 third quarter 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 www.carriageservices.com. This audio conference is being recorded and an archive will be made available on Carriage's website. Additionally, later today, a telephone replay of this call will be made available and active through November 8. Replay information for the call can be found in the press release, which was distributed yesterday. On the call today from management are Mel Payne, Chairman and Chief Executive Officer; Dave DeCarlo, President; and Ben Brink and Viki Blinderman, Co-Chief Financial Officers. 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 report filed on Form 10-Q 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 the morning's call, management will reference certain non-GAAP financial performance measures. Management's opinion regarding the usefulness of such measures, together with the reconciliation of those measures to the most directly comparable GAAP measures for historical periods, are included in the press release and 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 very much, Chris. I would like to apologize in advance to all of you on the call for the length of the call. As I know, many of you are busy with other calls, reports, et cetera, and must allocate your time wisely, as do we. But if you have to leave the call early, I highly encourage you to circle back and listen to the replay or get a printed copy of the call, which would be available on our website. There will be a lot of substance on this call, as we are considering it along with our press release as a new beginning for how we discuss, present and report the performance of our company. With me today are Dave DeCarlo, Vice Chairman and President, who will provide an update on our acquisition strategy and the industry landscape as well as Viki Blinderman and Ben Brink, Co-CFOs. Ben and Viki will be alternating our calls. So since Viki handled the last call, Ben will provide color on our record financial performance for the three and nine months ending September 30, 2015. Then we will cover the nine areas that we believe public investors would like to have clarified for the future, all of which we listed in our press release. To start off, I'll provide a historical perspective on Carriage's evolution to this plan. As such, historical knowledge is absolutely vital to understand, if you are a long-term investor, wondering whether for Carriage as a shareholder value creation platform, the best is yet to come. As the Co-Founder of Carriage in '91 and the only CEO we've ever had, my dream and vision for Carriage, which is captured in our mission statement and five guiding principles, was to build a high-performance culture company, populated by…

Thank you, Mel. Carriage's third quarter results continued the trend of broad-based high-performance by our managing partners and their teams. Here are the highlights. Our same-store funeral home businesses continue to demonstrate the operating leverage inherent within our portfolio. Year-to-date this group has increased the number of families they served by 1.4%, while increasing revenue by 3.8% and increasing Funeral Field EBITDA 8.1% or $2.8 million. That equates to 77% of incremental revenue fall into EBITDA leading to a 150 basis point increase in EBITDA margin year-to-date. In our 2014 Annual Report, we publicly stated that the only way to close the $5,400 GAAP in the average revenue per contract between the families we serve that choose a burial service versus a cremation is a continued focus on the quality of people and leadership within each business. Through that focus, we have seen a 6% increase in the average revenue per contract from families, choose incrimination as an option. This has been driven by improved engagement with our cremation families and by operating differentiating service and merchandise options. Our acquisition funeral home businesses had a tremendous third quarter and served as a perfect example of the financial and operating performance that can be achieved, when we acquire businesses through the disciplined execution of our strategic acquisition model. While we tend to focus on year-to-date numbers, I think it is appropriate to focus on the year-over-year comparisons of the third quarter, as it is the first quarter, where we have a full year-over-year comparison from the six businesses we acquired in the SCI Stewart divestiture process. For the quarter acquisition funeral home revenue increased 15.7%, while Funeral Field EBITDA increased 26.1%. Excluding the performance of the one acquisition we made in February this year, Funeral Field EBITDA increased 21% year-over-year. Field…

Thank you, Ben. I would like to discuss today two items. First, providing you with a perspective on our activity in the acquisition landscape of our industry, and then in conjunction with that, the status of our new marketing plan we rolled out this past May. We, which includes Mel and our corporate development team, have visited or met hundreds of funeral homes and cemetery owners over the past two years. As a result, our potential candidate list of owners, we would like to partner with, has grown to 98. And one way we measure our performance in the corporate development department is to see how many non-binding confidentiality, as we call them CAs, we mutually sign to share information with these candidates, which indicates we are both serious about partnering. Of the current 98 on the list, we have received 35 signed CAs or 35%. Although these CAs are a critical first step that will hopefully lead us to a letter of intent, LOI, each candidate always has unique factors that can prevent us from achieving an LOI. Such as conflicts among family members, the dynamics of competition in the markets, declining market shares, non-alignment with our Carriage model, higher price expectations, demographics trends, et cetera, all factors at which we analyze to determinate a fair and reasonable valuation of the business. Now, let's talk about how we obtain these CAs. Basically CAs come to us through two channels, either brokers or through our own initiative. Of these 35, I want to give you a breakdown of where they originated in their status. First, from the brokers. We received only 11 in this time period. And our level of interest, two for sure, one maybe. We had no interest in the other eight. The current status of those three…

Thank you, Dave. I'll end the formal comments by accumulating what Dave said. What he's created for the independent landscape out there is nothing that's ever been done before. And someone in the business can take a virtual tour and be like talking to our individual managing partners across the country with testimonials and how they view the company, former owners and et cetera, so that they get comfortable believing that what we say we are, we actually really are. And that breaks down a lot of barriers and perceptions that have been out there for a long time. If you want to think about how we're viewing Carriage over the next five or 10 years as far as the M&A side, we would like to get in a position, and I think we're closer than ever, of never having to go through broker. The businesses were too small to involve investment bankers. Some times they have lawyers, financial advisors. But what we would prefer is to have the Berkshire Hathaway model, where we're going to pay as Charlie Munger said, a fair price for a good business. Now, good business, we know how to qualify and quantify what that looks like now, based on our 10 strategic criteria each weighted to come out with a final ranking, which determines in a large part the valuation. Our valuation methodology is not cookie cutter. It's very specific to each business and the unique characteristics of the business and the market and the competitive standing, and it's not complicated. We don't need very complex, precise things to show us the way. So what we want to do is pay a fair price that means a good price for a good business. That will become a better business, when it joins Carriage and…

[Operator Instructions] Our first question comes from Alex Paris from Barrington Research.

This is Chris Howe sitting in for Alex Paris. A few questions, I guess, now that you're excluding acquisitions from guidance unless there is a signed of letter of intent, I wanted to see if you'd be able to provide any color around the recently signed LOI. Was this an average size deal? When do you expect to close on this?

It's a nice business, really nice business, dominant, growing market. I'd say, it's not a huge business, but it's our sweet spot. It's going to be additive. And I am sure you want to know how much, right?

That would be helpful.

I think you're going to have to wait and see. It's a fantastic business, fantastic family, and they're going to be great partners.

And I guess, just to piggyback on some of Dave's comments about the acquisition strategy that's laid out, I guess the confidence still remains very high in the aggregate value left in the immediate acquisition pipeline?

Look, Dave and I are joined at the hip and been out with him, we've traveled the country. We're in a very unique spot here. I'm sorry not everybody knows the landscape out there, but there are still a lot of great independent businesses. But we don't just go out trying to buy them and try to use our low cost to capital to pay up, so that they sell for money. We want to be paying a fair price when the alignment is there for them to be a motivated transfer of their ownership to Carriage, but still feel the ownership because of their involvement. We're a succession planning solution, not an acquisition company looking for deals. That's what we did in the '90s and it was a train wreck at the end of the day. So we're going to be patient. We're going to be disciplined. We're going to build these relationships only with the best remaining independents in America. And we're going to be selective, because they all know who the other great businesses are. And if you start diluting a quality of who you are and become something else, then you're not who you say you are. We want to be the best succession planning solution there ever has been and make a good business better, because they join us. And that's the kind of feedback we get all the time from our existing owners. You can go on the website and look at the videos that Dave has now produced. If anybody wants to get excited about what we are and also understand what we're not, it's easy to check us out. We'll give you names of people to call anywhere in the country anytime. All you got to do is call. They will tell you what they think. And they will tell other independents what they think. There is no shortage of acquisition candidates over the next five or 10 years to grow this company. It's just a shortage, and we're not going to do it, so someone can model it over a quarter or two. I decided that, but that was a bad practice and we've stopped it.

Just one last quick question. Just a bookkeeping question, what type of tax rate is expected in Q4 and I guess moving forward from there?

I think our tax rate will be consistent with what it has been in the past couple of quarters at approximately 40%.

Our next question comes from Bilal Yehia from Raymond James.

Just had a few quick ones that you kind of touch on, I was hoping you would elaborate. Concerning the CapEx spend kind of slowing down and the split going 50-50 in '16. Can you explain why the delta between your maintenance and your kind of actual CapEx number is what it is and how you guys are thinking about that benefit in out years?

On the maintenance CapEx side, we've kind of always been in the range of that $7.5 million to $9 million. And I think we'll be in that range again next year. The growth in CapEx this year was kind of a one-time event, where we had a number of projects that have been in the works for a couple of years, that kind of all came to end during the middle of this year, so we're getting through that. We have identified a few other larger strategic growth projects that we'll wrap up next year. And we expect CapEx to kind of normalize even after 2016.

We added all to do it all over again with less growth CapEx. We had some concern by some investors that we were spending too much on growth CapEx, but these are unusual situations in really wonderful markets growing great businesses, great leadership. If you don't get out in front it, someone else will come in and take advantage of it. So we know it was the right thing to do. We don't have a whole bunch more of those, so the growth side will diminish on the funeral homes and be more normalized, so we'll have a lot more free cash flow without that internal build available to create value for shareholders.

And then kind of just comparing your rolling outlook in 2Q versus where it stands today, obviously now you only have the one deal in there, previously you had deals. And I guess your EPS number does not include incremental share repos, if I have it correctly. So can you just kind of walk through the moving parts there of the delta, primarily on the consolidated EBITDA line and the EPS line?

It's really driven by the performance of the operating business, as we continue to see the momentum and the trends moving forward. The addition of the acquisition we intend to make in the next 90 days, and in the respect of our share repurchase program, where we've already done the $1.2 million year-to-date. Those are kind of the three drivers of it. I can't speak to the specifics of it.

I'll mention one more thing on the overhead. It's been amazing really to see what's happened in this company. You never know how the future will lay out when you launch a big theme, a big idea theme like Good To Great over five years, and you populate the leadership with a lot of young leaders come in, But over the last three years and nine months, we started that operations and strategic growth leadership team at the beginning of '12, we've had 23 people come on that team, now we have nine left. And I will tell you, the company is like so much better with the nine we got who are all going to be here for the rest of the journey and after, because we're ready to find another five year theme at the end of next year. It never ends. But this team is the real team and it's the reason Dave and I don't have to worry about a succession plan. The future of the company is within this team and within the company. We're both younger and energized because of them. And we're not going anywhere. We're having the time of our lives. This thing is going to be a value creation machine over the next 10 years as we affiliate with the best remaining independents and we get better operationally. You can see it in the numbers. The data don't lie. And this is not an accident. This has been in the making we've written about it, it's just come to fruition and has become very clear this year, especially over the last six months. And the trend, is our friend, I don't see any rain or storms in our landscape. I only see it just continuing to get better. So that's where I am personally with it. Capital allocation, we're going to be opportunistic, just like we been with the share repurchases. It makes no sense to me, for the company reselling in 21 and chain, so we've bought in the shares, I hope we can buy them more. If you got any out there, sell them to us, we'll buy them. Makes no sense, the company is getting too good too fast. This is not complicated. I don't need rocket science to figure this out. So we just want people to understand where we're going with a long-term. We're not in it for a quarter or two. We're in it for a very long time, and so is this team and so is the rest -- the thing about Carriage is, this is not just here. If you are interested in a long-term investment, call around the company and talk to the people in the company, in the businesses. We'll give you their numbers or you can find them on our website, call them, ask them. Any more questions?

I actually just had one last one, and that was a very thorough answer. It's impressive to see with that M&A kind of the long full quarter move along in such a positive trajectory. Kind of just quickly, when you guys begin to include deals and you're talking about the 35 signed CAs you have out there, do you only kind of look for the next 90 days?

Say that again now?

So when you guys are talking about the 35 signed CAs that you have out there on your 98 potential candidates [multiple speakers] M&A. Are you guys only including deals you think will close in the next 90 days?

No, no, no. That's a pipeline. We're only including in the outlook, deals that have an LOI that we are certain will close within 90 days. The other CAs are outside, being reviewed, being analyzed. They are not in any outlook, it won't be, unless they get signed and we're going to closer them within 90 days.

Our next question comes from Adam Bilko from Aakon Capital.

I was just wondering if you could talk about the industry structure and its profitability. I mean, isn't the market structure in a way that basically 20% of the funeral houses make 80% of the profit? And then I have a follow-up.

So Adam, I read your piece yesterday, man, and you need to come here and spend some time. That concept you put out there is about the opposite of what we see. Sorry to give you the bad news. But we don't need -- well, I don't even know what industry structure even means. We have no idea about the industry. We are here getting better and playing our course, just like we've got course. I don't care what the rest of the industry is doing. It has nothing to do with Carriage. What we do is try to find the best businesses in the best markets. That's not easy. But when you find them, you will be able to grow future revenues at 4% or higher. If you can do that, we know what they will make under our standards operating model within a range, you will be able to grow the field EBITDA at a higher rate of growth than the 4% revenue growth. If you look at the acquisition portfolio we have right now today, everything we bought in '11, '12, '13, '14 and one this year, they are growing at much higher rates of growth, both revenue and field EBITDA than our same-store portfolio, which we bought mostly in the 90s. However, even the same-store portfolios are growing at good rates of revenue and higher rates of EBITDA. So I don't know what it means. We don't get 80% of our profits from 20% of our businesses, that's some other industry or some other company I know nothing about. We're getting a lot of profit across the portfolio from all of our businesses or we would know them.

I was just wondering to what extent do you think that basically Carriage Services revenue can grow organically in the future. I mean, if you don't include any acquisitions in, I don't know, next five years?

Well, we are going to include acquisitions. I mean that's a theoretical question, it just won't be true. I mean, our same-store revenues are up. If you look at the nine months, same-store funeral revenue up 3.8%, our same-store funeral EBITDA up 8.1%, our same-store cemetery revenue up 5.3%, our same-store cemetery field EBITDA up, what, Ben, 15-16%?

Yes.

Yes. And the acquisition portfolio is even better. Now, this is all spelled out in the press release. This is easy.

At this time I am showing no further questions. I would now turn the call back over to Mr. Mel Payne. End of Q&A

The way you have a great quarter is you have a great company. We're not great yet, but it was a really good quarter by a really good company, getting better fast. That will not continue -- I mean that will not change. All of us here want to grow the per share in-transit value overtime. We want to do that in three ways. Being the best operating company of what we got, buying really good businesses at fair prices, having them become better overtime to join our others, controlling our overhead; getting smart and efficient at better supporting these businesses overtime; but most of all being smart investors with our capital. We are all in this for the equity value growth over the next 10 years, every single one of us. We are spending a lot of time in our company, teaching valuation methodologies and value creation strategies in everything we do and every job we have. It's working. It's going to just keep getting better and better. We want to create value per share like Berkshire Hathaway over the next 10 years, that's what our goal is. And we want to have companies join us and not want to join anybody else, but only the good ones. If we keep doing what we're doing, these kinds of ideas, then vision of our company will come true just like night follows day. We hope you join in the journey. It's getting to be a lot of fun, more fun than we've ever had before. And I don't expect it to cease anytime soon. Thank you for calling.

Ladies and gentlemen, thank for your participation in today's conference. This concludes the program. You may now disconnect. Everyone, have a great day.