Welcome to the Q3 2015 Service Corporation International Earnings Conference Call. My name is Ethan and I will be your operator for today’s call. At this time, all participants are in a listen-only mode, later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to the SCI management team, you may begin.

Good morning, this is Debbie Young from Investor Relations at SCI. We hope everyone is doing well this morning. We have a lot of material recovery today, so I’ll quickly begin with the Safe Harbor statement. The comments made by our management team today 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 refer to certain non-GAAP measurements 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. So let’s now begin with comments from Tom Ryan, SCI’s President and CEO.

Thank you, Debbie. Good morning everyone and thank you for joining us on the call today. I’m going to begin my comments by giving you the highlights of the quarter and then a deeper dive into both funeral and cemetery operations. And finally, I’ll give you some color on our updated outlook for the fourth quarter of 2015 as well as our preliminary outlook for 2016. Beginning with an overview of the quarter, we’ve reported normalized earnings per share of $0.23, which was consistent with the prior year period and slightly below our internal expectations. Recall that in 2014, we benefited from the Federal Trade Commission divestiture businesses that we didn’t have in 2015. From the third quarter this headwind was about a penny, so on a normalized basis, we actually grew earnings per share by a penny. Higher preneed cemetery sales production, the impact of our share repurchase program and the lower tax rate at the anticipated effect of improving our earnings performance. Unfortunately, something did not go on our way, the approximate 17% devaluation of the Canadian dollar versus the U.S. had a one penny negative effect on the quarter impacting both funeral and cemetery margins. Additionally, the 530 basis point negative swing in our trust fund performance during the quarter reduced our earnings per share by another penny, impacting both the funeral and cemetery segments. Finally, as we had anticipated our strong first half funeral volume appear to normalize and third quarter core volume was 2.2% lower versus 2014 putting pressure on comparable funeral margins. On the cash flow front, working capital improvements from higher cash receipts tied to our success in preneed cemetery sales production in the timing of a payroll funding more than offset a $25 million increase in normalized cash taxes paid, allowing us…

Good morning, everybody. I would like to start this morning by summarizing some key financial points that I think are important for everybody to understand before I get too much into the details of the quarter. So cash flow continues to be very strong with the third quarter well ahead of our expectations and slightly higher than prior year. Cash flow was primarily bolstered by the favorable trends, increased cemetery working capital that I will touch upon in a few minutes, when I get into the details. We also have a new expectation of lower normalized cash tax payments for the full-year of 2015 and as a result of this, coupled with the strong preneed cemetery working capital that I just mentioned, we are once again raising our full-year 2015 guidance for adjusted operating cash flow to a range of $500 million to $525 million. This cash flow stream coupled with our favorable liquidity profile has enabled us to execute a robust capital deployment program during the quarter, which included returning an impressive $177 million to our shareholders to both dividends and share repurchases. Finally, our outlook for 2016 cash flow is in the range of $475 million to $525 million, which continues to demonstrate the consistency and predictability of our cash flow stream at SCI. So with that let’s begin with the third quarter in terms of cash flow, and as you saw on our press release as the adjusted operating cash flow grew $1.7 million in the third-quarter to $125 million, as lower payroll funding and better working capital, basically offset the expected increase we had in normalized cash taxes. So a little bit more color on this cash flow in the third-quarter, similar to what we disclosed last quarter, cash flow from operations increased, despite contributions from…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from Chris Rigg from Susquehanna Financial. Chris please go ahead.

Hi, this is Frank Lee on for Chris, thanks for taking my question. Share repurchases is well above the target for the year and acquisition seems to be inline. Could you provide some more color on how we should think about capital deployment in the fourth quarter and in 2016, specifically the mix of repurchases and acquisition?

Frank, this is Tom, thank you for the question and I think specifically, as it relates to 2014 I know that we have a transaction that we believe will close in the fourth quarter and so I also think we are going to have a healthy amount of money that we are going deploy towards share repurchase. So think of the acquisitions spend being kind of in the mid to – I guess kind of high single-digit million dollars and then spending money on share repurchase and otherwise. As you think about 16, my thoughts are again this changes from time to time, I’d see the pipelines are not as robust as it once was and so as I think about the mix at this point in time 16 maybe little heavier on the share repurchases versus opportunities to deploy cash for acquisition. Having said that I think we are building more funeral homes that are again on a plan for 2016, so we will continue to grow future revenues through growing the businesses that we operate.

Okay, thanks. And then if I can, not sure if I missed this, but had you quantified what you are expecting as far as trust fund and currency impact in the fourth quarter and then in 2016 EPS guidance?

Yes, I think when you think about the fourth quarter because we lost close to a penny of currency in the fourth quarter and so if you assume the Canadian rates stayed the same, they began to slightly dip in the fourth quarter last year. So it probably won’t be quite a penny, but it will be somewhere between a half penny and a penny and we are really forecasting the Canadian currency for next year to be stay where it is if you will and again that can change up and down. From a trust income perspective, clearly, we reset the bar in the third quarter by having the bad third quarter, but the markets of 9% in October so we’ve got a little bit back and your guess is as good as mine on what is going to happen in 2016, but we generally project for returns in the year to be kind of in the low-to-mid single digits as far as market returns and again those adjusted based upon the realities of what the fluctuates of the market do, so that’s the way we think about it and that’s the way we modeled it when you think about 16.

Okay, that’s helpful, thanks a lot.

Okay.

And our next question comes from the A.J. Rice from UBS Financial Services. please go ahead.

Thanks, hi everybody, just maybe a follow-up on a couple of those earlier points, on the buybacks for 2016 is there. I’m assuming you factored in or in the EPS guidance for 2016, I am assuming you factored in the buybacks from 2015, if you assumed any level of buyback in your guidance for next year?

A.J I think you know, again we’ve got a range, so we’ve got kind of a low and a high thought on what’s going to happen on buybacks. So I think the way to think about it is we’ve got a, we have some buyback activity in there but I would say not a historical trend that you have seen us do. So, I do think there is some upside potential if and when we execute the buyback strategy, but again remember it will have a half year’s effect if you will on 2016 and probably really flat to see for more earnings per share and cash flow per share growth in 2017, so not a lot in there but some.

Okay. And then just on the working capital benefit you are seeing from the better payout to the installment sales on the cemetery side. Is that sort of the results of an initiative, is that the result of different consumer behavior and if you realize the full benefit of that, is where you are at now sustainable or is there potential for more room, give us a little more flavor on that?

A.J this is Eric. I mean, what you‘ve seen is I try to describe in my notes, it’s really good healthy increase in our cemetery sales production especially what we call heritage or cemetery property. And as you know with accounting is for recognizing that revenue, but a lot of that was done at the time under installment contracts. And what you are really seeing is an increase of cash flows coming from those installment contracts which are higher because of that sales production. So, it’s really a function of you know what do we think of the levels of sales production, I will dictate the installment contracts and the cash receipts coming in later. You have seen some really healthy increases in cemetery sales production in the first half of the year, they were up mid double digit high teen percentages and no way of we project in that type of increase to continue. So I think it will kind of moderate, but it was very nice in terms of a tailwind for us for cash flow for this quarter and probably into the fourth quarter as well.

A.J this is Tom, I just add to piggyback to what Eric saying, when you think about the sales production growth we get some of it for lack of a better way [indiscernible] to the external world from internal sale. If you think about an internal sale that customer that used to come in the cemetery they generally paid more upfront cash, they generally weren’t extending as much payment term. And as we have been able to grow our cemetery through the outside sales force, that outside sales forces bring a customer that may or may not have come in before and they tend to finance over a period of time, so I think that mix of people that are utilizing that financing tool continue to increase and so Eric’s point and I think those receivables are out there and we’ll continue to grow that aspect of our business.

Okay, and may be last, I know you said in the prior remarks that you mentioned on that first question the [Indiscernible] activity may be sound little bit of an upswing as well as – it’s been a long time, so I think I’ve heard you are buying cemetery land, could you just give us flavor for – is that a one off or is that something that we are likely to see more out?

Yeah, I think on the cemetery its generally one off because we just don’t have a lot of those situations, I think what you will see going forward and I think during the pipeline as we have got approvals to build funeral homes sometimes on the accommodation facilities in cemetery, sometimes on process of real estate and we believe demographically are the right place to be. So we get quite a few of those on the drawing board and their plan and prior to the 209 to 210 and I’m aware of that again increased activity relative to the past. So I think you can see more of that, but more related to the funeral side of business versus cemetery.

Okay, alright.

Thanks A.J.

And our next question comes from John Ransom from Raymond James. John, please go ahead.

Hi good morning and I’m sorry I was pinging back and forth on a couple of calls, so I apologies if I miss those, but did you say last year was obviously a big flu season, if flu is a more normal season this year, do you have just a ballpark estimate of what that might [indiscernible] funeral volumes?

Hi John, this is Tom and.

Good morning.

Yeah, I think again it’s hard John to project that, I would just tell you this, that in my mind if you model 1% to 2% down for the year, the way I would expect it to roll in is that you could see a call it a 3% or 4% decline in the first quarter may be into the first half of the year which again you would make back a lot of that with flat to slightly up in the back half. Again I think [indiscernible] tells us that’s probably a trend line, the truth is we don’t know.

Okay.

I think the way we are looking at it is you could have a pretty tough comp particularly in the first quarter, less so in the second and then I will see the third what you’d expect to be a little more favorable comp – you saw here.

Okay, great. And do you think we have got into a new plateau with respect to your preneed business and the lack of cash burn that we saw so far is that the new role?

I think again – I think we really some good traction and some of the stuff we have done in the preneed role in terms of good production getting down payments and then seeing a tailwind that will last, as I said 3 to 5 years for that, but I think it was a little bit more than what we expected John is what I said and so.

Yeah.

I’m going to wait a quarter or so to fully alpine if this is the new normal, what I got is we are starting to see some traction, but probably not as good as we saw this quarter.

Is your mix of trust versus third party insurance still kind of consistent with what it has been?

Yes.

Okay, thanks a lot. That’s all I had.

Thanks.

[Operator Instructions] And our next question comes from Duncan Brown from Wells Fargo. Duncan, please go ahead.

Hey, good morning. When you think about 2016 guidance are there any additional may be the Stewart opportunities or is that most of that or all that been realized?

Hey Duncan this is Tom. I think what we’ve got in place almost, again we are always trying to find new ways that [indiscernible] cost structure and our efficiency, but I would say from a Stewart synergy perspective they are all in place and there should not be a real incremental piece in 2016. Having said that on the revenue side as you think about cemetery development we constantly looking at cemetery plan and develop a new levels of inventory new tiers of inventory, we have not got around to every Stewart cemetery and develop the right levels of inventory, the right the tiers of inventory. So think we believe there is opportunity to create value and create synergies for the Stewart cemetery that probably gets into $16 million and even into $17 million, but again these numbers are probably in the low single digit million dollar opportunities as the years go on. So we are excited there is much more do and we are constantly looking at ways to enhance value for [indiscernible] and drive profitability for our shareholders.

Okay, that’s fair I appreciate that color then also on the 16 guidance, would love to get any thoughts that you have on wage inflation, pressure that you are seeing on that and just any, you’ve seen any changes on that front or expect anything?

Nothing outside the normal, I think again we are people oriented business and it’s important for us to, for our employees to be engaged in what we are doing and doing the right thing, but I would say we are not seeing anything that trend wise, we had seen in the last 2 or 3 years.

Okay, great. Thank you.

Thanks Duncan.

Okay and we have no further questions at this time. I would like to turn the call back over the SCI management team.

I want to thank everybody for being on the call today. And we look forward to reporting back to you guys in February for our fourth quarter and final 2015 numbers. Thanks again for being on the call.