Good day, ladies and gentlemen and welcome to the Carriage Services Year-End 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. I’d like to introduce your host for today’s conference Viki Blinderman. You may begin.

Thank you, and good morning, everyone. We are so glad you are able to join us today. We would like to welcome everyone to the Carriage Services conference call. Today, we will be discussing the Company's results after the full-year 2016 which was released yesterday after the market closed. Carriage Services has posted the press release, including supplemental financial tables and information on its Investor Page of our website. The audio conference is being recorded and an audio archive will be made available on our website. Additionally, later today, the audio archive will be made available and active through February 20. Replay information for the call can be found in the press release distributed yesterday. On the call today from management are Mel Payne, Chairman and Chief Executive Officer; and Ben Brink, Chief Financial Officer. Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note that during the call we will be making 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-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, we will reference certain non-GAAP financial performance measures. Management's opinion regarding the usefulness of such measures, together with the reconciliation of such measures to the most directly comparable GAAP measures for historical periods, are included in this press release and the Company's filings with the SEC. Now, I'd like to turn the call over to Mel.

Thank you, Vicki. In 2011 it became very apparent after several years of underperformance that we had to make a radical change. So we convened a group and figured out what to do, we did that on November 4, 2011. It was a radical management reorganization as well as Board. It became clear that if we didn't take those measures, someone else would see our Company as an opportunity to do better with it than we could and what is a wonderful industry. So we all agreed after that after reading the bookGood To Greatthat we would launch a Good To Great Journey starting January 1, 2012. I wrote a letter it was - the total letter was seven pages long. The short version of that letter is the good part of launching the Journey. The other six pages were explaining all the radical changes we had made including leadership. We sent that out on November 29, 2011 and it was explaining everything and asking our people to rise to the challenge of high and sustained performance beginning on January 1, but not just for 2012 continuing for the next five years in order that our Company would take a journey from a good company that was underperforming under the framework to one that was outperforming, everything else in the industry historically over that five-year timeframe. We went out on November 29; December was the weakest volume we had in years. As I recall the same-store volumes were down 6%. We have the highest field EBITDA margins we have had in five years. That trend continued, no matter what the variability quarter or month death rate flew for the next five years. It is been a journey unlike anything I've ever seen. And it just seems to keep getting better and better. But to put some color on the journey and the performance, I would like to turn it over to Ben Brink.

Thank you, Mel. 2016 marked a strong finish to the first five-year phase of Carriage’s Good To Great Journey that never ends. Over the past five years, Carriage has demonstrated the ability to leverage a revenue compound annual growth rate of 6.4% into an 8.7% growth rate in adjusted consolidated EBITDA and 20.4% compound annual growth rate of adjusted diluted earnings per share. We have increased our adjusted consolidated EBITDA margin by 310 basis points and increase the pro forma adjusted consolidated EBITDA margin by 550 basis points when you exclude our previously reported Withdrawable Trust Income. All of this extraordinary performance led to a total shareholder return of 417% over the past five years. At Carriage, we believe that qualitative factors always proceed quantitative results. In fact, our Third Guiding Principles states our belief in the power of people through individual initiative and teamwork. To that end, the quantitative results we have achieved during the first phase of our Good To Great Journey, our direct correlation to the 4E managing partners and their teams at each of our businesses who embody our high performance culture each and every day by providing high value personal service to each family we have the opportunity to serve. Underneath the Carriage covers over the past five years, we have seen an upgrade in entrepreneurial talent across our organization as evidenced by the continual improvement in field level profitability, improvements across all of our Houston support department that has allowed us to better leverage our consolidation platform and better alignment of our operations and strategic growth leadership team. These qualitative improvements will allow us to further accelerate our Good To Great Journey over the course of the next five years. Turning to our 2016 annual results which mark the eighth consecutive year of record…

Thank you, Ben. From the time we set off at the end of 03 then a different path, but different ideas and concepts about how to consolidate and operate this wonderful industry the funeral and cemetery industry. We have been called many names, most of them not repeatable on this call. We will continue to follow the path independent thinking and thought about how to do things differently, but always trying to get better experimenting and trying new ideas many of which come up from the bottom and bubble up to the top. We have a wonderful framework, it's very flat, it's very entrepreneurial are reporting of five-year trends is so transparent. You can't hide anywhere and neither do we want to hide. What it does is show off the performance of the leaders and employees and our operating businesses. It also shows the overhead in support of them. What we try to do is support them better and better over time. So that they can achieve more of what we call being the best standards not just annually, but over five-year periods now which we measure and reward and recognize. It has been quite a journey over the last thirteen years and especially over the last five years. Our people have responded in ways that I could not even have dreamed up it so good and we have precise winners that I'm about to announce but we also have a whole company full of winners that are yet to show up as winners and we seem to be attracting more and more talent that is competitive entrepreneurial and wants to win. So with that, I want to say what an honor it is to announce our first class of Good To Great high performance heroes over a full five-year…

[Operator Instructions] And our first question comes from the line of Scott Schneeberger from Oppenheimer. Your line is now open.

Good morning everyone. This is Greg on for Scott.

Good morning, Greg.

I was hoping you could elaborate on the reorganization of your corporate development function and how this evolved take advantage of an expected acceleration of an industry consolidation?

Yes, it's very difficult to explain the standards operating model and I've seen really smart people come into the Company and look at it. See a disguised, but really what we call here a concept of getting through the other side. They never get to the other side, where the rest of us poor and play and live on a daily basis. It's really difficult for people to comprehend the profoundly simple nature of the high performance standards like in the funeral business we own as eight. And in order to go out and explain this, concept to owners are really first class businesses, we finally got to a place where we needed to have operating people do that. Shawn Phillips has 10 years within our Company. He came from other companies. He earned unlearned what he had learned was the right way to do things in terms of operations and consolidation. It took him a while to get to the other side. He got to the other side and he is right. He ran our west. He ran our central as a regional partner. And so we asked him rather than to go outside to step into this position because we realized having him discuss with owners, how we operate and how this framework works will ring bells and when they hear it from an operator, they honestly don't believe it's true, but when he explains it, and then says you can call anybody here do it. We puts us in a competitive advantage where you have no competition because no one has ever done this before this way and it didn't work when we had other people out trying to explain it with other backgrounds. It just simply didn't work, no matter how much. They tried or the good intentions or their efforts. So we reorganized and put Shawn in-charge of it. Dave knows the support side of our Company, all parts of it. He's been in all parts of it. So if you have Shawn and Dave paired up as a team. Believe me they're already out there making ways. This is not going to take long and we're all shocked, how simple and how quick it happens now versus in the past and so we're very excited. We want to accelerate the growth, we don't want to just do deals, we want to be highly selective bigger better higher margins, we had a Board meeting yesterday we talked about some people they're talking too and it's an exciting time for our Company. How you model it out? Don't have [indiscernible].

Great. Thanks for that color Mel. I just wondering continued strong performance in trust portfolios could you touch upon your positioning them in 2017?

Yes, I think will be pretty consistent with what our strategy has been over the past couple years, we ended the year and we still have kind of a larger portion of cash and then we normally have which we've been selectively putting to work more so on the - in our core equity a new core equity positions versus high yield fixed income market that spreads or are pretty narrow right now. So we feel pretty good about the portfolio we think there will be opportunity we're excited about the investment landscape over the next four years and so yes.

Look he is off to a great start. He's beingveryimmodest. If you had to dream up a portfolio that was a Trump portfolio. I don’t know he was going to win or something. The thing took off and it's still taking off so far this year. So we're looking really good.

Great. Thanks for that. I’ll hop back in the queue.

Thank you. And our next question comes from the line Chris McGinnis from Sidoti & Company. Your line is open.

Good morning. Thanks for taking my questions and congrats on the first phase and if you look on the second here. Just a follow-up on the acquisition side of the business of consolidation, you mentioned living longer in cremation is kind of maybe spots where sellers might be inclined maybe a little more so now to sell are you seeing a bigger opportunity in the marketplace and that's why you kind of did the reorg?

I mean I just explained at a minute ago. We repositioned so that we could have better explanations of who we are, when we get in front of people, but it's not like we just said 50 candidates show up on a lists, willing to sell their business, so we reorganized. That’s not it. We're much more strategic in that we're looking at 10 years. And we hear this from independents I've been around at different conferences been on the speaking circuit, which I won't do anymore because it didn't make a difference. We got no deals out of me going to conferences and speaking and but we've been up one on one and we've been having key industry owners come here to look under our covers. And frankly, what we see is the industry itself is struggling with revenue challenges. And I don't care who you talk about you know people are living longer that's not a secret and when I started the company 25 plus years ago everybody was talking about the baby boomers beginning to die the next year or two. Thank god that didn't happen and so we had to learn how to be great operating company and produce performance without the benefit of those demographic baby boomers dying and even with cremation mix changes, all the bad stuff you could have dreamt up has already happened. And when you look at our Company, you see we don't talk about that stuff and our performance is what it is. Now the independents talk about it. They talk about it and they're out of ideas about what to do about it. We have lots of ideas here. One way to think about it and one way we're explaining it to independents is Carriage is a laboratory, an experimental lab of ideas how to deal with these trends creatively and innovatively, but most of all looking at the people in your business their mindset and their skill. The industry is notorious and not dealing with the brutal honesty of people. We don't have that issue here and we think that is the solution, and we have lots of ideas and lots of people working on all the ideas all the time. It's not tied down, it's across the board and it's a brain trust and of the best. And it is what it is that's what being produced, that's why I call these names out. So we reorganized because we see the industry struggling while our Carriage is thriving, that’s why.

Great. I appreciate that. Second question just on the Roughly Right Scenario, the increase in the EBITDA margin at least in the model itself, is that driven more off SG&A leverage or benefits on the gross margin line and I appreciate it.

So it's really two parts. Continued improvement in our existing portfolio of businesses incrementally over the next five years along with like I said leveraging the consolidation platform, so that we had acquired EBITDA and revenue at a faster rate than increases in overhead and that's where the leverage comes in on the consolidation platform.

I would suggest a very comprehensive study of our Company and investment profile. That’s what I would suggest. I would study it.

Thank you very much. Have a good day. Appreciated.

You bet.

Thank you. [Operator Instructions] And your next question comes from the line of Alex Paris from Barrington Research. Your line is now open.

Good morning, everyone.

Good morning, Alex.

So I have a number of smaller questions to follow-up with Ben and Viki, but I’ll stick to the longer term here. Following on the last question, the next five years building on the success of the last five years you're looking for 7.5% growth in revenues that differs from the rolling four quarters because that includes acquisition. I'm just wondering do you have a target for organic revenue growth within that revenue number excluding acquisitions, what would it be?

Yes. I think as we've historically said the - in the long-term scenarios we put out publicly 60% to 70% of the topline growth comes from acquisition activity. So you're at 30% to 40% of any growth is going to come from organic and that's kind of how we look at it.

On that point Alex that is - 7.5% is the midpoint of what we consider a roughly right range over a full five years, it’s not a target and it's not an estimate, it's not a specific plan. It is a roughly right range midpoint now, if the market gets in a black swan mood and goes way south and our stock goes with it and the Company's getting better in producing more pretty cash flow. We won't do any growth other than grow our value per share about buying shares in. So we're not stuck like some companies seem to be with some specific scene. They have to do to get bigger. We want the thing to gets bigger to be the intrinsic value per share. How we get there might vary at different points because of our capital allocation decisions. We will always make capital allocation decisions with intrinsic share maximization in mind. That's how we look at the long-term and the short-term.

Makes sense, thank you. And then within an organic growth, in the last few years, you've opened up several new locations in particularly strong market. So I think we had opportunities from time-to-time to expand existing funeral homes. What your thoughts on that going forward do opportunities like that exist today where you have certain really strong markets, where you're at or near capacity opportunities to Greenfield do operations in existing territories?

Yes, we're opening two of those this year. Right two - and we expect both of those to show good organic growth. One is a completely new business and in a different sub market of a major city. And we always bet on the winning horses. Those are the managing partners that have shown that they are where we should allocate more capital if the opportunity is good enough and in this case it's good enough in both cases there is one more that might be something to seriously consider along those lines in one of the newer businesses where you acquired. So we were always looking for opportunities to the easiest investments to make or with the people locally, who know their markets and have ideas about where to deploy capital and high rates of return because they already have the brand. They have the community knowledge. You know where the demographics are moving, these are the easiest investment decisions to make.

Make sense well, thank you much. I appreciate that congratulations on the last five years and we're looking forward to more good things for me going forward and I'll follow-up with Ben and Viki on some of the smaller questions that I had?

Thanks, Alex.

Thank you, Alex.

Thank you. And I’m showing no further questions at this time. I would like to turn the call back Mel Payne, CEO for closing remarks.

Thank you very much. It's been quite a ride over the last five years. It's been the most fun I've ever had in my career. My I speak for my team as well and to see the excitement around the company and in our managing partners and our sales managers and our employees is really enjoyable and I thank you all.

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