Viki Blinderman – Senior Vice President, Principal Financial Officer Ben Brink – Chief Financial Officer Mark Bruce – Chief Operating Officer Mel Payne – Chairman and Chief Executive Officer

Alex Paris – Barrington Research Chris McGinnis – Sidoti & Company Scott Macke – GLA

Good morning, ladies and gentlemen, and welcome to the Carriage Services Year-End 2017 Earnings Conference Call. All participants will be in listen mode only.

After today’s presentation, there will be an opportunity to ask questions. And please note that this event is being recorded.

Myself, Viki Blinderman, Senior Vice President, Principal Financial Officer; Mel Payne, Chairman and Chief Executive Officer; Mark Bruce, Chief Operating Officer; and Ben Brink, Chief Financial Officer will be on the call. Today, we’ll be discussing the Company’s results after our year-end 2017, which was released yesterday after the market closed.

We have posted the press release, including supplemental financial tables and information on its Investors page of our website. The audio conference is being recorded, and an archive will be made available on our website later today through February 19.

And replay information for the call can be found on the press release distributed yesterday. Today’s call again will begin with formal remarks from management followed by question-and-answer period.

Please note that during the call, we will make forward-looking statements in accordance with our 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 SEC.

Forward-looking statements, assumptions or factors stated or referred to on this conference call are based on the 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 a reconciliation of such measures to the most directly comparable GAAP measures for historical periods, are included in the press release and the Company’s filings with the SEC.

Now I’d like to turn the call over to Ben.

Thank you, Viki. Our 2017 reported consolidated results did not meet our own high-performance expectations as all of our key metrics declined versus 2016.

Overall, revenue increased 4% to $258.1 million, while adjusted net income declined 12.9% to $24.7 million, adjusted diluted EPS declined 14.2% to $1.39, adjusted consolidated EBITDA declined 6.8% to $68.7 million and adjusted consolidated EBITDA margins declined 310 basis points to 26.6%. The decline in our consolidated results can primarily be attributed to factors we discussed throughout the year.

The decline in preneed cemetery property sales at four of our largest cemeteries linked to cemetery sales leadership changes made during the first and second quarters, lower acquisition Funeral Field EBITDA margins due to higher operating expenses that businesses acquired in the later part of 2016 and increased overhead expenditures and investments in people, particularly, in our Corporate Development and Information Technology teams. Higher healthcare expenses related to series of large claims and reduced current income earned from our cemetery perpetual care trusts also negatively affected our financial and operating results in 2017.

While our 2017 consolidated results were disappointing, we experienced a number of positive operating trends in the second half of the year and we’ve seen those trends continue in the first part of 2018. These improving operating trends included the following.

On a pro forma basis, adjusting for two businesses we sold last year, our same-store Funeral segment grew contract volume by 3.2% and revenue by 2.6%. The growth in contract volume was the fastest rate of year-over-year growth and the increase in revenue was the second best year-over-year improvement since we introduced our innovative and transparent trend reporting in 2007.

In the fourth quarter, our acquisition Funeral Home Segment Field EBITDA margins were 42.3%, an improvement of 120 basis points from the fourth quarter of 2016 and a 940 basis point improvement versus the third quarter. This was accomplished while we integrated three new acquisition that included seven new Funeral Home businesses.

It’s also important to note that businesses we acquired between 2013 and 2015, and has therefore been part of Carriage for over two years, grew revenue over 4% and grew Field EBITDA by over 8% versus 2016. Also, in the fourth quarter, our cemetery segment return to growth with revenue growing 7% and Field EBITDA increasing 7.8% year-over-year.

Cemetery Field EBITDA margins were 31.4% in the fourth quarter, the highest in the last six quarters. Our record GAAP diluted earnings per share of $2.09 benefited from $17.2 million credit related to the recently passed Tax Cuts and Jobs Act.

Tax reform legislation is an important step forward for our country. Specifically to Carriage, it enhances our ability to execute on our 10-year vision to affiliate with the best remaining independent Funeral and Cemetery businesses.

The tax reform legislation also increases the number of value creation and investment opportunities that are available to us. The value created from these opportunities grew will directly to Carriage employees, the communities in which we share and to our shareholders.

Going forward we expect our effective tax rate to fall between 26% and 28%. For 2018, we currently expect to be at the high end of that range at approximately 27.5%.

And now I’ll turn the call over to Mark for further discussion of our operating results.

Thank you, Ben. As Ben shared, the consolidated results for the 3 months and 12 months ending December 31, 2017 did not meet our expectations for high performance.

However, we continue to be encouraged by the underlying trends throughout our same-store Funeral operations and continue progress in our Cemetery sales and acquired Funeral portfolios. Let me provide some color.

Same-store Funeral operations. The main focus for Standards Operating Model is to grow same-store Funeral contract volumes, which have a number of families served in a particular business in which we referred to as market share.

It is not market share in the technical sense of the percentage of a particular market. We have learned that it is an indicator whether businesses contract volumes are growing, stable or in decline.

The market share standard is determined by business and is the average of the number of families served in a particular business over the last three years. For example, for 2018, it is the average of the number of families served in a particular business in 2017, 2016 and 2015.

We place the most emphasis on the market share standard and it is weighted 30% out of the 100% of possible Standards achievement because volume growth positively drives operating leverage in leads to higher growth in Field EBITDA dollars and margin. We believe that market share performance is based on having the right crew people in every role in the business, and when well led, produces contract volume and revenue growth in high and sustainable operating margins.

For the three months ending December 31, 2017, we increased same-store Funeral Home contract volumes by 1.5% and revenue by 0.3%. For the 12 months ending December 31, 2017, we increased same-store Funeral contract volumes by 1.1% and revenue by 1.5%.

From a Standards perspective, which is how we look at our businesses, this performance was a result of strong execution of our mission statement, guiding principles and Standards Operating Model. Evidenced by 62% of our same-store Funeral businesses achieving our annual market share standard for 2017 compared to 47% of same-store Funeral businesses achieving our annual market share standard in 2016.

In 2016, we recall was a year of record performance. For the 12 months ending December 31, 2017, we did not convert the 1.5% same-store Funeral Home revenue increases into expected EBITDA margins.

In the short-term, increases to salary and benefits and general liability and other insurance expenses had an adverse impact on our same-store Funeral Field EBITDA margins. As you recall from previous discussions, we made strategic decisions to de-cluster same-store Funeral businesses in 10 markets, that is we added a managing partner into a business that may have been part of a group of two or more businesses and previously led by a single managing partner.

In making these investments, we understood we may miss, in the short-term, salary and benefits and EBITDA standards as we work to grow contract volumes and revenues. We believe that the decision to de-cluster businesses that is to introduce the managing partner to more businesses had a significant impact on market share standard performance in 2017.

And we expected the EBITDA margin impairment to be short-term and trending overtime to be consistent with our expectations of high-performance in 2018. Acquired Funeral operations.

As we shared throughout the year, weakness in our acquired Funeral Home portfolio was highly concentrated in three businesses acquired in 2016 and not yet fully integrated under our being best Standards Operating Model. For the three months ending December 31, 2017, these businesses began to demonstrate the characteristics of being the best businesses and contributed to the 120 basis point improvement in acquired Funeral Field EBITDA margins of 42.3%.

There’s still much more work to do for these local leaders to internalize, practice and continuously improve as our performance is now being measured against high-performing peers, being the best standards performance. We’re encouraged by these improvements and expect continued performance in 2018.

Cemetery sales. For the three months ending December 31, 2017, same-store Cemetery revenue improved 6.7% and same-store Cemetery field EBITDA improved 7.4%.

Although, there’s much more work to do, we’re encouraged by recent performance improvements and expect continued performance in 2018. Ben?

Our total return for our discretionary trust portfolio was 13.1% for the year. Throughout the year, we slightly reduced the exposure to high-yield fixed income securities as we saw better relative value opportunities in individual equity securities.

These changes – this change in our asset allocation strategy negatively impacted our Cemetery financial revenue, particularly, from a reduction in income earn through our Cemetery perpetual care funds. Overall, the $1.1 million decline in financial revenue was also negatively impacted by our decision to not take certain withdrawals at the end of the year due to the strength of the financial markets and the performance of our own portfolio.

Total overhead costs increased 1.5% to $36.4 million during the year and overhead as a percentage of revenue declined 40 basis points to 14.1%. Overhead expenses were higher than our expectations coming into 2017.

We’ve made significant progress this year in improving our overall overhead structure and believe we have a great opportunity to continue to leverage our overhead platforms to that more organic revenue growth and acquire revenue accrue directly to our bottom line. We fully expect the long-term trend of a decline in overhead as a percentage of revenue to continue in 2018.

Our year-end pro forma leverage based on the calculation contained in our credit facility was 5 times, the very top of our previously discussed range for where we feel comfortable in operating the business. Our intention is to have leverage fall closer to mid-4 times over the next 18 months to 24 months, primarily through improved operating performance.

We have a necessary liquidity and financial flexibility to continue to execute on our strategic acquisition model. We are pleased to announce three acquisitions in the fourth quarter, which included seven Funeral Home businesses.

I would like to take this opportunity to welcome them to the Carriage family. Heath Carroll and his team at Carroll-Lewellen Funeral & Cremation in Longmont, Colorado.

Dave Viegut and the team at Viegut Funeral Home in Loveland, Colorado. Beth Dalton and Tim Dalton their teams at Thomas F.

Dalton Funeral Homes in Floral Park, New Hyde Park, Williston Park, Levittown and Hicksville, New York. We’re excited about our future partnerships with these first-class businesses.

We remain confident in the incredible opportunity for increased pace of industry consolidation over the next 10 years and in our ability to execute at a high level on our strategic acquisition model. We are increasing Roughly Right rolling four quarter adjusted diluted EPS outlook to $2 to $2.05, a 16% increase from our previous outlook.

The increase can be attributed to recently enacted tax reform legislation and current operating trends. This outlook does not include any acquisitions currently under letter of intent.

We have not closed on the fourth acquisition we had on our letter of intent and announced as part of a rolling four quarter outlook in the third quarter and currently do not have timeframe for when or if it will close. While our 2017 consolidated results were certainly disappointing, there’s been a lot of hard work and tough decisions made across our company to ensure we are true to our commitment to make 2018 the best year in Carriage’s’ 27-year history.

As evidenced by the operating results for the fourth quarter, we believe that many of the changes we made in 2017 has set us up to have great 2018. All of us here at Carriage remain excited for the year ahead and look forward to reporting our results throughout the year.

Mark?

Thank you, Ben. Now I’d like to direct my comments to our many managing partners on today’s call and talk about 10-year vision, 5-year strategy and 1-year plans.

As a company, we think in terms of 10-year visions, 5-year strategies and one-year plans. Starting in late 2017, the operating support leadership team began working with each managing partner on our 10-year vision, 5-year strategy and 1-year plan for their business.

Imagining without limit the possibility of high performance for each business, locally developed, locally led and locally executed. Consistent with our mission statement, guiding principals and supported by our three operating models, 4E Leadership, Standards Operating and Strategic Acquisitions.

These individual visions, strategies and plans will become the road map for each business and defining high performance locally against the high-performing peers Being The Best Standards performance across the company. It’s in keeping with this idea that I’m pleased to announce the theme for this year.

Carriage Services 2018: Our Guiding Principles and Shared ‘Being The Best’ Ten Year Vision and Execution of Each Business! Now as is our custom, it’s my honor to announce our High Performance Heroes.

For 2017 Being The Best Pinnacle Of Service Award. Curtis Ottinger, Heritage Funeral Home; Chattanooga, Tennessee.

Matt Simpson, Fry Memorial Chapel; Tracy, California. Michael Nicosia, Ouimet Brothers Concord Funeral Chapel; Concord, California.

Andy Shemwell, Maddux-Fuqua-Hinton Funeral Homes; Hopkinsville, Kentucky. Justin Luyben, Evans-Brown Mortuaries & Crematory; Sun City, California.

Verdo Werre, McNary-Moore Funeral Service; Colusa, California. Jim Terry, James J.

Terry Funeral Home; Downingtown, Pennsylvania. Tim Miller, Fuller Funeral Home Cremation Service East; Naples, Florida.

John Fitzpatrick, Donohue Cecere Funeral Directors; Westbury, New York. Tim Hauck, Harvey-Engelhardt/Fuller Metz; Ft.

Myers, Florida. David Rogers, Garden of Memories Funeral Home; Metairie, Louisiana.

Alan Kerrick, Dakan Funeral Chapel; Caldwell, Idaho. Bill Martinez, Stanfill Funeral Home; Miami, Florida.

Wayne Lovelace, Lotz Funeral Home; Vinton, Virgina. Brad Shemwell, Latham Funeral Home; Elkton, Kentucky.

Brian Binion, Steen Funeral Homes; Ashland, Kentucky. Steven Mora, Conejo Mountain Funeral Home and Memorial Park; Camarillo, California.

Jason Cox, Lane Funeral Home South Crest; Rossville, Georgia. Kim Borselli, Fuller Funeral Home Cremation Service, Pine Ridge; Naples, Florida.

Charlie Eagan, Greenwood Funeral Home; New Orleans, Louisiana. Sue Keenan, Byron Keenan Funeral Home & Cremation; Springfield, Massachusetts.

James Bass, Emerald Coast/McLaughlin Mortuary; Ft. Walton Beach, Florida; McLaughlin Twin Cities Funeral Home; Niceville, Florida.

Ben?

The managing partners will achieve the Being The Best 100% of Standards Award for the year. Jeff Seaman, Dwayne R.

Spence Funeral Home; Canal Winchester, Ohio. Courtney Charvet, North Brevard Funeral Home; Titusville, Florida.

David DeRubeis, Cody-White Funeral Service; Milford, Connecticut. Joseph Newkirk, West Contra Costa Group; Richmond, California.

And Jeff Hardwick, Bryan & Hardwick Funeral Home; Zanesville, Ohio. Now for managing partners to achieve the both "Being The Best" Pinnacle of Service Award & 100% of Standards Award.

Ken Summers, P.L. Fry & Son Funeral Home; Manteca, California.

Nicholas Welzenbach, Darling & Fischer Funeral Homes; Los Gatos, California. Jeff Moore, Sterling-White Funeral Home; Crosby, Texas.

Bob Pollard, Lotz Funeral Home; Salem, Virginia. Patrick Schoen, Jacob Schoen & Son Funeral Home; New Orleans, Louisiana.

Scott Griffith, Woodtick/Frigon Funeral Homes; Wolcott, Connecticut. And Scott Sanderford, Everly-Wheatley Funeral Home; Alexandria, Virginia.

We’d also like to take the opportunity to recognize our three Good To Great Award winners for the year. These individuals and their teams grew their businesses above 2% revenue for the full five years.

Our Good to Great Award recognizes individuals who were able to grow their business and prosper over the long-term time frame. The winners this year.

Cindy Hoots, Schmidt Funeral Homes; Katy, Texas. Jim Terry, James J.

Terry Funeral Home; Downingtown, Pennsylvania. And finally, Michael Nicosia, Chapel of San Ramon Valley; Danville, California.

Congratulations to all the winners this year. And with that I’ll turn it over to Mel.

Thank you, Ben. Thank you, Mark.

Thank you, Viki. It is indeed an honor to lead this company and to be at this place and in the evolution of our learning journey, what we call a Good to Great Journey that never ends.

It has been very difficult for me over the last 13 or 14 years to explain the high-performance ideas and concepts that comprise the Carriage culture. But just, for an example, I was told years ago, we were wasting way too much time calling out these High Performance Heroes on these calls.

But I got important investors out there that want to know number stuff. Well, what we have learned are two things.

Recognition is the highest form of motivation and because of the Standards Operating Model, we have no budgets, nowhere, no time. So we have learned that if you want unleash the power in each of these businesses, you have to recognize and reward the best and over the last 13 years, we’ve learned how to define the best and recruit the best and reward the best and recognize the best.

It’s not easy to grow business like they grow. But they do.

And all these names that you heard today on this call are for managing partners of a single business. This press release and calling out their name was the first they learn of their winning the award, their employees now know it, they know it, they’re probably celebrating listing to the call when we get a list of people who called in, it’s mostly Carriage people.

And they’re just calling in from everywhere. This is how you get people to stretch.

How you get people to think bigger than just themselves, how to perform at the high level than they thought was possible and it is a very exciting thing to witness. I’ll close by simply saying on January 6, I celebrated my 75 birthday party.

It was an unbelievable occasion and milestone event. We had the top leadership from Carriage from all over the country attend.

We had each member of our standards council, all the people that I acknowledged in my 2016 shareholder letter that were still alive came, and it was a real honor and humbling experience for me to see what this company has meant to so many people. The theme of the party was not just to celebrate 75 years of history.

The theme of the party was the next chapter, the next chapter you can think of us beginning on January 1, 2018. This will be our most exciting chapter.

It is so exciting we had a board meeting yesterday. It was the best board meeting we’ve had in the history of our company.

I invited a former owner from Panama City to join our board as an adviser Director yesterday. His name is Greg Brudnicki.

He is now in his third term as mayor of Panama City. He joined our company in November 1997, right close to the peak of the market for the crash.

The big combination business at Panama City, but he also started a venture in Fort Walton. He had two of the Good to Great winners over five years that we celebrated last year and they were two of the top winners.

And their Good to Great awards were in one case, closer to $1 million and then $0.5 million, in another case closer to $0.5 million, and then a couple hundred thousand. These are life-changing awards for these managing partners.

And the word spreads, so you attract world top talent to a company like ours. It is an awesome thing to witness the transformation in people’s lives that you can make by just supporting their winning in their market and their winning teams of employees.

It just incredible to watch. And at the end of the meeting yesterday, we recruited a managing partner for Greg’s business both in Panama City and Fort Walton long time ago.

And he is still involved, but he wanted to run for Mayor’s office. Now he gets elected every time he runs.

And I ask him to tell the entire board and management team what he thought at the end of yesterday’s meeting. He shook his head in complete off.

He said this is inconceivable what I have heard today. Inconceivable, it couldn’t have been imagined or dreamed back when I was on the Board.

With that, I invite everyone along for the ride because the inconceivable and the dream will become a reality over the next 5 or 10 years. With that I’d like to open it up for questions.

Good morning, everyone.

Good morning, Alex.

Big happy birthday to Mel, it’s a milestone. Congratulations, it’s been great covering the company over the last few years.

And your presence is a – the best quarter of the year and it looks like you set a very well for 2018 at this point.

I’d say that’s an understatement.

Well, I’m just being conservative.

I understand.

Moving on I got a couple of specifics. I guess, I’ll start with M&A.

Congratulations on the fourth quarter success closing these three acquisition. These seven Funeral Homes and it was particularly noteworthy, the size of these acquisition that you’ve made, especially, the Thomas F.

Dalton with five chapels and 900 calls per year. I’m just wondering about pricing, what has been the trend in pricing acquisition slightly, I would assume you pay a little bit for bigger acquisition in a strategic market?

And then related to that, what affect, if any, will tax reform have on consolidation within the industry and then potentially pricing return on investment as you contemplate future acquisition?

Yes, this is Ben. I would say pricing for acquisition activity has been pretty consistent from what we’ve been talking previously.

We are in that 6.5 times to 7.5 times EBITDA range. And like you said, the largest acquisition, the more attractive the market.

And our confidence in the future growth of that business will drive where that multiple will be, we have an innovative system where we rank our businesses on 10 criteria. The 10 criteria will be the best indicator we have at future revenue growth.

The score of that is a large driver of those multiples. We think tax reform can only help industry consolidation from this standpoint.

If you look at the long term history of our industry, they really haven’t been a lot of consolidation over the last 18 years really since the gogo days of the late ‘90s. We believe a lot of people are going to be looking more seriously and making a large decision about their business, and tax reform may play a role in it.

Now obviously, you lower the tax rate, it does affect the returns we have on these in a positive way. We don’t believe it should or will affect what we’re going to pay for these businesses as we move forward.

We want to remain disciplined. That’s core to us.

We’re not in any position where we have to make acquisitions. We want to make sure we make the right ones at the right time with the right partners for the long-term.

This is Mel, Alex. We got away from what we did in the 90s, where we’d look at a business, we come up with a pro forma Field EBITDA, I would put a multiple on it and then you kind of went with whatever the trend in multiple was, so you got the deals.

And the trend accelerated north and then we didn’t get what we paid for too many cases. So you rise up, and you have to come up with better ideas.

The key in making acquisitions is how it will perform over a long period of time in the future. We want to buy businesses, much like Berkshire Hathaway describes, that will grow and have more opportunity to deploy capital in the future, in their markets.

By definition, that means you’re going to stay away from small markets because you’re limited in terms of the population, the opportunity, maneuver within the market, add on other businesses. And so these 10 strategic criteria are not financial criteria.

These are things that will help us to find, based on experience, with our own portfolio over 27 years, the likely range of revenue growth in the future, based on competitive standing in the market, demographics, the history of volume growth as the best indicator of future volume growth. They’re just simple commonsense things with boots on the ground.

You cannot figure this out back in an Ivory Tower in Houston. And so we’ve gotten better and better at ranking.

We now rank these 10 criteria each weighted differently. And it’s not to say we won’t reduce it in the future if we say, look, these two overlap, let’s reduce it to seven or eight, let’s increase the weightings.

We are continuously learning and innovating and trying something new that will give us a better handle on what this thing will do if we can define the future revenue growth within a range. We know what the normalized Field EBITDA is going to be under the Standards Operating Model once integrated and you got a managing partner in place.

So it’s – actually, we don’t even need a financial statement to figure this out. This blows the mind of financial people.

Now I’m a financial person, but that’s what we look at, so the multiple is going to be determined by the strategic ranking. We also want to pay a fair price for a good business.

That doesn’t mean a low price because if it’s high on the strategic ranking criteria by definition, it’s going to be a higher multiple, higher revenue growth in the future. And if the revenue is growing, the EBITDA margins will be growing faster in compounding and creating value creation for our shareholders.

So we know what we’re doing.

Great, I really appreciate that color that was very helpful. Just a couple of follow-ups.

Do you think there is any pent-up demand from – individuals awaiting tax reform that could be resolved, now that there’s more certainty there? And just generally, what is the – carried to the pipeline, I think, the language in the press release was pretty optimistic for consolidation activity in 2018.

Yeah, it’s hard to say, Alex, about pent-up demand. It’s – that’s a tough one to pinpoint.

What I would say is what we’ve experienced in the real change over the last 9 to 12 months, as Shawn and the Corporate Development Team are out there, developing relationships, identifying attractive targets and markets is that we have more people leaning in and wanting to know more about the Carriage story, wanting to know more about how we differentiate ourselves within this industry and are really asking great questions about what their business can look like into the future under an ownership structure with Carriage. More so in the past, people are turning us away or saying hey come back to us in a few years.

So that’s been encouraging. I think the work that Shawn and his team are doing and what we see and who we’re talking to and who we’re evaluating, the quality continues to improve and continues to make us excited to say the things we say on the call and in the press release about our future acquisition activity.

I will say this Alex. I have been out with the team.

I have been out with the Shawn and his team. I like being out on the playing field in the hunt so to speak.

And I do sense that, whether it’s been a catalyst to tax reform or it’s just been a very long time since the late 90s particularly the last consolidation mania, there hasn’t been nearly as much consolidation on the independent owner side as there has been since then up other consolidators, the Alderwoods, the Stewart and others. So I do think based on our feedback that Shawn has been giving me that more people are taking a look and interested and what their options are.

The businesses have the good ones, I mean, have certainly not gone down in value and people know what they’ve got. The key with us is that we look at the motivations of the seller and we look for alignment.

If you don’t have alignment, we won’t have a good integration and we won’t have a good partnership and that’s what we’re looking for as good partnerships of good businesses where we would pay a fair price, not a low prices and both sides win. Over time, the word is getting out about Carriage that if you want to think about Carriage and the succession planning solution, you’re not selling out, you’re joining in with another huge group of elite businesses across the country that are supported, but not managed from above and it’s decentralized to get high performance standards.

So when they learn about this and talked to our other former owners and key people the likes start to come on and then they begin to look at it differently and I think Shawn and his team have done a great job. It’s so different from anything else prior teams were doing that we’re all excited about.

Great. Just shifting gears in the press release, the momentum shown in these segments in the fourth quarter has accelerated in 2018.

You’re referring to the cemetery that was under pressure, preneed sales at four locations I think primarily and the acquisition Funeral Home Field EBITDA. What’s the tone of the rest of the business in general?

I am wondering we see on the news every night how horrible the cold and flu season is this year across the country. Are we seeing strong and perhaps accelerating momentum across the same stores as well?

Alex, I promised myself a long time, I wouldn’t try to bank seasonality even really when it’s just kind of crazy. It has been a little crazy on the death rate.

Looking at January, it’s a little crazy. I mean it mirrors what you hear on the news.

And all I would say is I saw this happened in January of 1994 with my first group. And I looked at January’s numbers and said, oh my God, I’m rich.

By the end of the year, I was poor again. So, we believe that it will settle out during the year, but the real point is that we see broad high performance in the alignment of what Mark said about each company having a ten year – business having a ten year vision of five year strategy, one year plan.

I can tell you, the one year plan right now is looking pretty good.

Yeah. I get it and cold and flu really just pull forward a death that would have normally occurred.

So if you have a strong first half because of cold and flu, there would be some normalization one would assume in the second half.

We’re not assuming this is the beginning of that baby bubble moving through the pipeline that was told about 27 years ago.

And we’re still waiting for.

I just don’t want to be part of it.

Yeah, I get it and I appreciate it. Last question and then I will turn it over.

You talked about your pro forma leverage at five times top of the comfort range. You have dry powder on your balance sheet to make more acquisitions.

What could you do to increase that liquidity? And is it possible that we’ll see net leverage increase before we see it go down due to acquisitions?

Alex, I would say on a pro forma basis as we acquire because we fund the majority of our acquisition activity through internally and generated free cash flow that will be leverage accretive as we move forward. Our goal is to bring it down and really it will – the biggest contributor of that will be improved EBITDA performance not only from our existing businesses, but from the acquisitions we have made here recently.

What I would say is we’re constantly looking at opportunities around – our broader discussion around our capital structure. We have been pretty open in the past that in particularly the convertible note that we have outstanding is not the most ideal piece of paper for us within our capital structure.

I can tell you we have done a lot of work around different options we have around our capital structure and any changes around that were really be driven by current market conditions and our overall level of acquisition activity hence the need for capital. But leverage, we’ve heard the concerns from investors loud and clear about leverage.

And we do have the very intention of bringing it down into the lower – the mid to lower end of that range.

Yeah, I hear that a lot too although it is fairly common within this industry to carry high levels of leverage given the predictability of cash flows.

No, absolutely, we believe that at this current level that we’re at, we are comfortable in running the business, it doesn’t hinder us from executing on our plans and the underlying strength of this business and industry certainly support that.

Just a final word on that Alex. I call myself inside the company as the chief mistake maker.

I have earned that over and over, over 27 years. I made a huge mistake allowing that convert to be done.

It wasn’t my idea, but I allowed it to be done as my watch, I’m the boss. I regret that more than anyone can possibly no.

And so, we will deal with that because it has to be dealt with. I think it’s holding our stock down.

We have got a lot of shorts in the stock. We never had shorts before.

And the next thing we do from a capital structure point of view will be smart, not dumb.

And simple…

And simple.

I like that. All right, well thank you very much and congratulations on a great quarter and even better outlook.

Thanks for your support, Alex.

Thank you.

Good morning. Thanks for taking my questions.

And thanks for the commentary around the quarter and just one of your experience – it always helps to think about the call and what’s happening in the Carriage and additionally, congratulations on your recent milestone Mel. Just a couple questions, one, just on the improving trends in Cemetery.

Is that one market related or is that really related or directly tied to the change in the sales or the recent investments you made around Cemetery? Thanks.

Yes Chris it isn’t entirely related to the changes we made in Cemetery sales leadership during the course of the year. At Carriage, we believe strongly in first few than what and getting that right sales leader in place for those businesses, these very large operating businesses within our Cemetery portfolio.

Getting that right does take time. We feel like we’ve gotten those people in place and then the teams around them to be successful and we certainly seeing those results.

To your point about making investments, we’ve, over the last three, four years, we’ve made significant investments in differentiated inventory at our very best largest parts within our portfolio. And we continue to see those investments pay off.

One of the great things about the Cemetery business is there is ample opportunity to invest capital in those assets at a very, very attractive rates of return. And we continue to look for those opportunities.

Chris, I know this is not easy to model out. So I feel your frustration, perhaps.

But when we have our budgets, it’s ended about three. That was what we are not managed to high and sustainable performance, whether it’s in the Funeral business, Cemetery businesses, or whatever.

Since then as the company have evolved, we just get more and more educated on the who being the driver and quit working on the what, pieces of the what. And if you get the who right and this is hard and it never ends.

The calibration for the leadership, cultural fit, risk taking, driving hungry market-share driven, mission driven, this is not easy to find. But when you find it, you turn it loose and how to manage it and you don’t have to work on the pieces of what.

Because the high performance of what will follow the right who every time so much so, in some cases, and this blows our mind, it looks like you made a new acquisition, which you did.

And I had my other questions kind of revolve around that as well. I guess, one, maybe just on success of the de-clustering, are there more regions, I guess, that you could bring that to and would that be helpful overall?

And then secondly, and separately, just around, I guess, talent. Just can you maybe just update us where you’re at in thinking about the organization, are there more places to kind of increase the talent level and it sounded like you are always looking, but maybe just some update around that?

Thanks.

This is Mark. The answer to that is yes.

We have more opportunities, we have business is currently, we have more than one operating business managed by single managing partners. Yes, as an operating support leadership team, we have more opportunities to do that.

It is entirely driven around the who. We engage in talent acquisition fairly every day.

And we’re certainly – we have more opportunity to do that. We’re in the process of doing that now.

So the answer to that is yes.

Chris, Mel. The first group I bought was in July 9, 1993 it was in Chattanooga.

And there was a group I bought from SCI, they’ve bought another group called StoneMor Group so they had at the best. So they had the cluster of three, came with the cluster manager.

And one business was in North-west Chattanooga, so quite really wasn’t not in the city. One was within the city, but these where distinct little communities, Red Bank, Soddy Daisy and then you had one down in Chattanooga that overlaps in the North Georgia.

So I went met all the managers and I said, look, who is this cluster guy? He said we don’t know.

He’s not from here. And we don’t like him and we’re forced to do all this stuff, it’s pretty stupid.

We had different licensing agreements in Georgia and Tennessee, and so that creates all kinds of centralized scheduling problems and this and that. So I said, well, let me go meet that guy and have lunch with him.

I wanted to have lunch with him and he was the dumbest guy I met. So I went back to him and I said, hey, I think we’re going to leave the cluster manager with the seller.

And if we turn you guys lose, what will you do? I said we’ll be free, but we’ll still help each other when the other one needs help.

Well, this is not complicated. Every place would be clustered.

The performance is taken off. We did it in Roanoke; we did it in Naples, Florida; we did it big time in Springfield, Massachusetts; we’ve done it here; we’ve done it there, we’ve done it here, we wish we could do it everywhere.

In the article in Harvard business review March of 2003, there was an article. I’ve referenced it many times, who needs budgets.

It talks about this very concept that if you get rid of budgets, you will find that over time the enterprise will break into smaller, more entrepreneurial units. And it will lead over time to more organic growth and revenue and profits, which is the opposite of maximizing efficiencies.

We have learned that’s not the best way for our company to do it and it leads to performance that otherwise could never be achieved in these businesses.

That makes sense. I think obviously looks like it’s obviously showing up in your numbers.

So I understand. And may be just a little bit just on – I guess, just looking across the organization, can you talk about, obviously, the sue is very important.

May be can you just comment on where you’re at throughout the company, then also how hard is to bring in new talent at a level that you want finding them. I don’t know you referenced that at some of the reasons why you announced the names at the beginning to give the recognition.

Can you may be just comment on that a little bit as well? Thank you.

Mark. Around the who, we attract high performers.

So we high performers that are attracted to mission statement, our guiding principles and then the three operating models that I shared, which are for the leadership, standards operating and strategic acquisitions. What we find is while that’s attractive to many not everyone can do that.

This is highly entrepreneurial, very competitive, we’re very selective. The expectation of those people whose names were called out today is that only the best join Carriage.

They want to compete against the very best peer operators in the country. We spent every day engaged on talent discussion, talent acquisition and it isn’t that we have shortages of candidates so we can find it is – we’re very selective in matching the right who talent for the right opportunity that we have within the organization.

Because when we get that right, as Mel said, it’s a kin to a new acquisition in the same-store business.

Yes. Like I said earlier, we’ve evolved.

So we are constantly evolving the standards and let’s just say the Funeral side, we are 75% Funeral. We have eight high-performance Funeral standards.

And these are not easy to achieve and there is not like you’re supposed to 100%. That’s not success.

We want sustained success over here because grow the volumes. If you can grow the volumes, that’s the leading indicators that you’re growing market share.

It’s proxy. You have to grow the average revenue per contract.

So that means your revenue is 45%, 35% for the volumes, 15% for the average revenue. If somebody says mix change is happening, oh man that’s a personal problem.

That’s not our problem. Either they make it or they’re don’t, got to go up 2% per year.

Now, in 2010, starting in 2011, I always wondered do the employees know about these standards? Because the managing partner could earn up to 6% of EBITDA, you got a 100%, and we do have some 100%.

So there’s some big bonuses paid. You’re in-the-money if you go over 50%.

So it goes from 50% to 100%, you share in the Field EBITDA, higher the standard achievement, the higher your percentage of the EBITDA. So we’ve got the employees in on it, starting in 2011 up to 2%.

So the managing partner and the employees get up to 8% at 85% to 100% of standards. You take the percentages times that, and we have a formula.

And then that caused everyone in the company to have a reason, educate every employee about being the best standards. And because this is not purely financial, they take great pride in it and even come up with ideas of how to schedule better, how to do better with your cremation families, all the best ideas are mostly hatched in this laboratory within our Field businesses of experimentation, always trying to get better.

They don’t come from centralized initiatives back at the Pentagon. Those are the dumbest ideas.

In 2012, we went ahead and said, look, if somebody can do 70% of these standards over five years, that’s really unbelievable. So they’re creating a lot of value for themselves, their employees and our shareholders.

So why don’t we do a five year value-creation award, half in stock, half in cash. We did that first payout last year.

And you just won’t believe what this has done for our company, Chris. Because when people see this as real, not easy, but real, and only the best have a shot of doing it, then everybody else wants to do it.

And our job is to support them, just like Mark said, 10-year vision, five year strategy, one year plan. It is all around a vision of growth and success for them and their local winning teams of employees.

This is the most incredible thing, and very few people understand it.

I appreciate that, that is very helpful. Well thank you for the time today.

Appreciate it, and good luck in 2018.

We’ll take it, but we are not counting on it.

Thanks Chris.

Hey good morning everybody. First I want to say thank you and appreciate all hard work.

Just a quick question. I’m a newer shareholder, so I’m coming up the learning curve as fast as I can.

But if you guys could talk a little bit about the funeral homes that were struggling and the changes that were made, which is obviously kicking in, but if you could tell me a little bit more about what that looks like at the ground floor level and level or more.

It is what Mel was just speaking of it. It is continuously assessing and looking for the right leader in each and every business.

And taking opportunities to decluster businesses, put more leaders in more businesses, that absolutely is the right thing to do.

You talked about the three businesses that were in our acquisition portfolio, that so this is just a thing. You know I mentioned the ten strategic criteria.

Well this business is all fit, the have the right characteristics for long-term sustained performance, once fully integrated. Now this is a misperception.

Just because you have a strong franchise and a market doesn’t mean you’re going to be able to operate under these high-performance standards that Carriage has developed and innovated and evolved. And sometimes it’s like, wow.

So we’re looking for a good franchise. And you don’t want to mess up the franchise by trying to rush to a finish line to get where you know you will get given the passage of time.

It has to be slower. These are sensitive businesses, and you don’t want to stress them with too rapid change, especially in the people.

And so sometimes it takes a while, sometimes they’re very well run. We’ve had some just hit the ground like bank.

Seems like they’re integrated the day before they joined us and fit right in. Others take a year or two.

And they will happen. I was commenting yesterday on this trip; we’ve been out together.

Some of the businesses that we bought four, five years ago, they increased revenue over five years, say, maybe 1.5%, but they didn’t make the 2% compounded. Let’s just say, they increased revenue of $300,000 over five years.

for Funeral business. That’s not bad.

We increased EBITDA $600,000. That’s $0.02 cents a share.

And yes, they didn’t make the Good to Great. This is what we’re looking for.

And we have to insert in that pretty big business some new support managing partner like an assistant. It was big enough to handle that, who had been with us somewhere else and knew the ropes.

So it’s case-by-case and you have to be a good observer of what it is and not try to cookie-cutter some solution and mess it up. We did that in the 1990’s, and we’re not in the business of destroying the value if some of these great franchises would join us.

Hey man, that is great, I am all for doing it the right way even if it takes a little time. But I just want to understand a little better.

So thank you very much.

None of our people Andrew, everybody in our company understands, there is nothing in the company that is short term. They have no clue about any expectations that anybody has anywhere in this world or the universe about a quarter.

That is great, we are all for that.

Hey good morning everyone, how am I doing this time.

Hey Scott.

I apologize for that and thank you for taking my question. I am a little worried, that was warning shot from the conference call gods.

I fear I’m set myself up for a reprimand. I want to ask some questions about the guide that maybe seem a little bit short term in nature, but I hope that you understand they’re not – the forecast range encouragingly so implies a nice rebound.

And I just want to unpack some of the underlying assumptions just to tease out how much of that is a rebound from some of the issues last year and how much of this is emblematic of perhaps what can happen over the next – the execution of the next five year strategy and beyond. And maybe the starting point, if you could just kind of let us know from the acquisitions that you made following the third quarter, how much revenue and EBITDA is implied in this rolling four quarter guide.

That is little bit of detail that we don’t like to give out. What I will say, in general, Scott, okay, so there is – in pretty much, I guess, in three a third, a third is improved operating performance, right, giving back to what we – what Carriage is and what our history has been from an operating performance side; a third of it is the improvement in the – or the additional acquisitions that we’ve made in the fourth quarter; and a third of it was related to tax reform.

So if you want to build that bridge from our 2017 results to our rolling four quarter outlook we’ve put in there, I would think about it in thirds like that. Does that help?

Yes. That’s very helpful.

I can work through those numbers from there.

And I will give you a little hand on how to back into this. We have been a little forward with these acquisitions about number of calls and the size of these businesses.

I would say on average, they – our acquisition activities are going to fit with our current portfolio looks like in terms of averages and these businesses.

So, as I think about contract volume per home and EBITDA, underlying EBITDA margins in those homes, so it’s not going to deviate significantly from overall company average?

Yeah, correct.

Thank you that is very helpful. I can unpack what you just said.

But maybe thinking, going forward, over a five-year time horizon, with what happened in Cemetery in the preneed sales, and it seems like there were a big boosts maybe 2015, 2016 and then a hiccup in 2017. How do you think about what that business should be over the next five years?

I mean, it seems like it’s a smaller portion of the business, but at the extremes, it can certainly move the needle?

You’re absolutely right. So the way we – when we think about long-term forecasting and thinking about our business, our Funeral business, our same-store, that 1% range, the acquired business is higher than that in terms of revenue growth just based on us executing our strategic acquisition model.

In Cemetery, historically, until this year, we’ve grown over the last five, six years mid-single digits. So 4%, 5% compound annual revenue growth.

In our long-term planning, we’re a little below that, but above what we are on the Funeral Home side. Obviously, with Cemeteries, you have more levers to pull versus the Funeral business.

It’s a much more sales-oriented businesses. We have individual sales team at each of our locations that can drive that revenue growth higher.

It’s a capital-intensive business. We’re constantly looking at investing and developing inventories to push that growth rate higher.

And what’s been – what I will say and comment about our Cemetery business in 2017, the weakness we experienced really forced us to go and take a deep dive into our entire Cemetery portfolio, look at our long-term planning around development, look at our sales teams, look at our compensation structures to ensure that we weren’t missing anything and that this wasn’t – this was out more than just normal course of business type of things that all happen at the same time. What we are encouraged to find is that, overall, things aren’t broken.

The feedback that we got from our Cemetery sales outsource and leadership was that compensation structures, the support they’re giving, the inventory we developed is exactly what they need to be successful. And then we got even more encouraged by the opportunities that we saw.

We’ve brought in new leadership on our regional partners side that have experience around cemeteries, deep – and knowledge base around cemeteries. And as we go around and take deep dive in our part, we get excited about the opportunities that we have moving forward.

So that’s how we think about it.

I’ll just add to what Ben said. Mark brought in a new regional partner with a lot of cemetery experience at a high level, broad level and a long history of excelling in that.

Because he knew we needed that. And he’s been with us six, seven, eight months now.

And he was in the meeting yesterday at the board, all my team was, and I went around at the end and asked everybody. And we – he knows he’s got a come through on our cemeteries.

And he can do that. And he is committed, and he’s not worried about it.

But when I asked them, what he thought? I asked everybody what they thought.

His response was, here’s what I think, I just wish I’d made this career change five years ago, as I can’t believe the opportunity that we have now. I said, what, hey, wait a minute, that’s what everybody says.

Not just about this five years, someone else is going to join us in five years, so I just wish I’d come five years ago. So we’re counting on this guy big time, Scott.

And I have a lot of faith in Mark’s judgment about what he can do for us.

Okay. Great.

And maybe I get my hand as I look at the fourth quarter. But I take all that to me.

And if I’m thinking about a starting point for the next five years, then 2015, 2016, that was a 30%-plus EBITDA margin business. It declined in 2017.

But as I think about 2018 and beyond, then that 30%-plus EBITDA number is probably a better starting point?

We feel confident in that, yes.

Absolutely.

Okay, thank you. That’s very helpful.

I want to ask a similar question on the Funeral Field EBITDA margin, which, you guys know the numbers better than I, ticked down a little bit. You talked a little bit about some of the Acquired Funeral Home EBITDA margins.

If you can give us an idea in 2018 what you have embedded and what that says about how much is the rebound from some of the issues last year. And as we think about the Standards Operating Model, what should we expect in terms of incremental margins in that business?

Yes. So what I would say in terms of same-store Funeral Home EBITDA margin, I think you can take a look at the last three or four years and even with a little decline this year.

And that will remain fairly consistent as we move forward and probably tick up a little higher. The way we look at it is, in our same-store business or our Funeral business, each dollar of organic incremental revenue growth, approximately 60% of that is going to fall down to Field level EBITDA and then that can vary.

But it’s really about average at 60%. On the Acquisition Funeral Home side, over the past several years, we’ve had higher margins, about 200 basis points margin higher than our same-store portfolio.

That’s just a reflection of the type of the business we’re buying, larger businesses in larger strategic markets that have a higher revenue profile out of the single facility versus the average of our current same-store portfolio. Our expectation is that, that will continue, although probably moderate as we acquire.

The idea is we acquire at a faster pace. We’re adding more businesses in that acquired portfolio at a more consistent pace.

So you’re going to have margin, say, probably around where we’ve been over the past 18, 24 months. And then as these roll in after five years into our same-store portfolio, you start to have a same-store portfolio with higher margins, higher relative growth rate than we have currently today.

Got it, makes sense. Thank you.

And then you touched on this with that answer, the acquisition activity picks up, and we see some of the changes that had on the corporate expense line item in 2017. If I think about 2018 and beyond, how should I think about that overhead expense as a percent of revenue?

And what sort of corporate expense growth should I expect in 2018?

Right. I think in terms of expenses, we should be flat to a little down this year overall.

I think we’re going to view it on a higher revenue base. So you’re going to have overheard as a percentage of revenue, which is the metric we’re really keen on about how efficiently we’re managing our overhead.

That should continue to trend down. The idea about Carriage is that we are able to have a – we’re able to leverage our corporate overhead support platform and grow that at a much slower pace than our revenue growth going forward.

And so that more of that acquired EBITDA or organic EBITDA growth in our same-store business is, more that will fall to the bottom line as we move forward.

Scott. It’s Mel.

I just want to add a little bit color. Back when we did the initial trend reporting innovation in 2007, we then began to publish this company investment profile and think of the company over five and 10 year time frames and how that would look roughly right range of outcomes.

And as a financial guy, historically, it was easy to see that when we broke it down to trend reports, if you’ve got the – what people control locally with no allocations, we own all the overhead other than G&A of the local business, which isn’t a big deal. So we eat all the overhead, which made us all at their home office over time get better, smarter, more productive and better able to support each business with these port services.

Even as we upgraded teams, changed leadership, got better systems and model box. So now here we are headed into 2018.

And I think a lot of the changes over the last year done by the support team leaders in Houston with their teams have given us a lot of upside on the overhead leverage. So I would think we’ll be able to grow faster because of Shawn and his group, bigger, better businesses and then leverage more of that through the platform.

First, we’re buying businesses that have real good chance of growing revenues and generating the operating leverage, so they have more Field EBITDA and then that Field EBITDA falls down through the overhead platform to the consolidated EBITDA and that’s where the value as created in the free cash flow becomes available for capital allocation. So that’s what we see over the next five or 10 years.

Probably what I missed because of my optimistic nature was, I thought too soon we were big enough to really have this leveraging dynamic kick in. I do think we’re close.

We’re very close to getting the critical mass so that this thing really gets to be a value-creation machine. That’s what I think.

Thank you. Really appreciate that context.

And just a final one for me. I’m never going to be smart enough to figure out exactly what’s going on in the financial segment.

But I want to at least ask about what’s happened in the last two years, so I conceptually understand and kind of anticipate what’s going forward. The financial income is down in the last two years.

I know some of that has to do with the longer-term nature of the investment returns flowing through the contracts. But if maybe you can talk a little bit about what happened in the last two years in the financial income line and broadly what we’d expect over the next five years?

Yes. So there are a few moving pieces in there.

So really the biggest key drivers have been this, and it’s really been around the Cemetery financial revenue, particularly in our perpetual care trust funds. As we’ve continued to manage our portfolio, we’ve found better relative value opportunities in equities, even with equity markets all-time highs versus the high-yield fixed income market, high-yield preferreds, all-time historic lows, and we don’t really feel like we’re getting paid appropriately for some of the risk that we would take to allocate capital there.

So as we’ve had bonds that have been called or as we made decision to sell them, those proceeds have either been held in cash or invested in equity securities. So our current annual income in that portfolio has fallen a little bit, nothing dramatic, right.

So that has declined the cemetery – the income earned through our cemetery perpetual care funds. We’ve also – historically, in the past, we’ve had opportunities to take onetime capital gains out and count them as income in a few certain states.

Some of that has been – through regulatory changes has been taken away from us. And also, just given the way the financial markets have been performing and how we feel about our portfolio, we felt that there is better opportunity to leave that capital within our portfolio to grow and appreciate versus taking it out for booking short-term current income in Carriage.

So those have really been the drivers of the decline in financial revenue. I think overall what you would see is that, that line can be very consistent.

We’ve built a portfolio that is reoccurring in nature. And we would have every thought that at some point in the future, we’re going to have an opportunity to build back our fixed income exposure.

We just seem to get those opportunities once every couple years.

Can you – please, Mel.

It’s Mel. If you go back to when we took over trust funds on October 14, 2008, we had an unbelievable run through that period.

We had another unbelievable run after the S&P downgraded the U.S. I’m talking about fixed income.

So we rotated into fixed income big time during the crisis and then again after August 5th of 2011, all the way through the first half of 2012. So a lot of equities, went into fixed income, it – price is much lower than par, which then went way up again.

Good credits, good credits. And then we got another buy that got Apple early part of 2016 February 11, I think, was when oil prices hit $26.

And so we – we’ve taken real focused opportunities to reallocate where the opportunity we knew was good and that gave us a lot of recurring income, while the prices on the fixed income went to par. You might remember on the call, I think you asked me or somebody, I think it was you, asked what are you all buying, and we just bought $4 million of depot at a discount at, I don’t know, what we’d paid for that, Ben.

$0.55.

$0.55. So we’ve made millions of dollars on that.

And then we took the gains, we had recurring income. But now we see equity.

And unless there’s another fixed income mess up, we’re not back to a bigger allocation to equity, especially as we exit some of the top warrant portfolio that matures, let’s say, PNC in October of this year, Wells Fargo in October of this year, we’ll still keep the AIG and the Zion. We’ve got huge portfolio of those warrants because they go out to 2021.

And those have been big, huge winners for us, and they were actually intended to be a hedge. But they’ve been huge profit producers.

So we’ll have to take some gain, and we’ll have cash to allocate where we deem. So the best is yet to come.

Mel, you’re right, that was me who asked about the investment portfolio a few conference calls back, and I’ve learned a lesson from that. I’m asking for investment tips, but I’m going to do it offline from now on.

Could you refresh my memory, I just want to make sure I understand how it works. So the interest income on the cemetery trust portfolio is immediately recognized into income.

Is that correct?

Yes. So here’s the difference, right.

So on cemetery perpetual care, we earned income off the investments. In the current period, counted that as income in our financial statements.

And it’s used to offset the care and maintenance expenses in the Cemetery. These are regulatory requirements.

It’s typically 10% of every preneed property sale that we make at our cemeteries. This is, obviously, different versus the preneed Funeral and Cemetery trusts, where it’s all deferred revenue.

We don’t recognize any of it until the contract is delivered, somebody has passed away and we deliver on the service and merchandise. So as you can see, there’s a bit of a disconnect.

Over the last two years our total – our total performance and total return in the portfolio has been 35%. And our financial revenue, you see, has declined over those two years.

That 35%, those gains and those price appreciations show up in future years as you recognize – as you take in realized gains, allocate that down to the contract level and those contracts begin to mature. So that’s a bit of a timing disconnect that you’ll see there.

Got it. And then last one, I promise.

So if I wrap all that up and I think about 2018 and beyond, did I hear you say that maybe a little more of the portfolio tilted to fixed income and, therefore, I might expect a little more interest income to directly flow through due to the maintenance requirements? And is that impacted by some of the turfs rolling off?

I think you just combined a bunch of things you said into one thing. But what I would say is –

Well, I told, yes, I was only going to ask one more question, so I had to kind of frame them all together.

What I would say is because we’ve allocated less to high-yield income in our portfolio, we should see earnings and income from those cemetery perpetual care trust level-off here, we feel, this year. And so when we look at financial revenue for the year, it’s up slightly from where we were this past year.

Okay, thank you. I really appreciate you baring with me and taking my questions.

Thank you so much.

Thank you very much. We really appreciate all the good questions today.

Sounds like somebody is as excited about what we’re doing here as we are. So we appreciate that and are honored by that.

And we look forward to reporting our progress as we go through the year. Stay tuned.