Oct 30, 2014
Executives
Debbie Young - Director, Investor Relations Thomas L. Ryan - President and CEO Eric D.
Tanzberger - SVP, CFO and Treasurer
Analysts
A.J. Rice - UBS Chris Rigg - Susquehanna Financial Group Robert Willoughby - Bank of America Merrill Lynch
Operator
Good morning and welcome to the Third Quarter 2014 Service Corporation International Earnings Conference Call. My name is Brandon and I will be your operator for today.
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. And I will now turn it over to SCI management.
You may now begin.
Debbie Young
Good morning. Thank you for taking time to join us today as we discuss our results for the third quarter.
This is Debbie Young from Investor Relations at SCI. As usual, I'll begin the call with our customary Safe Harbor language.
The comments made by our management team 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 Web-site. 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 Web-site and in our press release and 8-K that were filed yesterday. Alright, so let's get started now with comments from Tom Ryan, SCI's President and CEO.
Thomas L. Ryan
Thank you, Debbie, and good morning everyone. Thanks for joining us on the call today.
I'm going to begin my comments by giving you the overview of the quarter followed by a preliminary outlook for 2015. So beginning with an overview of the quarter, we're very pleased to report normalized earnings per share of $0.23 for the quarter, which is an impressive 28% growth over the prior year and in line with our internal expectations.
Adjusted operating cash flow exceeded our expectations by growing a solid 21% to $123.2 million. Our comparable funeral business performed extremely well during the quarter, delivering a 16.8% increase in profit which exceeded our expectations.
Our comparable cemetery business also performed well during the quarter, delivering an 8.3% increase in profit, but fell slightly below our expectations. Additionally, we benefited from the contribution of the Stewart business which performed slightly below our expectations.
However, we did accelerate the impact of feed deal synergies beyond what we had anticipated for the quarter. Also during the quarter, we continued with our share repurchase program, investing approximately $70 million to repurchase 3.2 million shares.
And finally, we are pleased to report that our Federal Trade Commission divestiture process associated with the Stewart acquisition is substantially complete and the proceeds were in line with our expectations. Eric will talk more about this shortly.
Now to an overview of funeral operations for the quarter. Overall our comparable funeral segment, which excludes Stewart, performed very well and ended the quarter ahead of our expectations.
When compared to the prior year, third quarter funeral revenues grew by $9.3 million or 2.4%. $6.1 million of the $9.3 million was core revenue growth which is driven by the slight increase in same-store funeral services performed and a 1.5% increase in the sales average.
We also recognized a $2.2 million or 11.5% growth in recognized preneed revenue, primarily from our SCI direct business. Recall that this represents preneed sale of products that are delivered concurrently with the preneed sales.
From a profitability standpoint, we managed our cost well during the quarter, leading to a growth in comparable funeral gross profits of $10.9 million or 16.8%. The gross margin percentage improved 240 basis points to 19.1% in the current quarter.
The natural leveraging of the overhead support cost as well as lower selling cost associated with the new sales compensation policy for terminally imminent preneed sales also improved gross margins. The Stewart funeral businesses performed in line with our expectation from a profitability standpoint, as moderate declines in case volume were essentially offset by average revenue per case increases, which bring the average to approximately $4,800, within $500 of our SCI comparable average.
As you'll recall from our last discussion, preneed funeral sales production is undergoing numerous changes including a realignment of sales territories to best match our new geographic footprint, introduction of a modified sales compensation plan, implementation of a new CRM system and renewal of an enhanced American Memorial Life Insurance general agency agreement. One of the most significant changes from negotiating the renewal of the American Memorial Life agreement was the policy for handling terminally imminent client situations.
A terminally imminent contract is where family chooses to make arrangements several weeks or a few months in advance of need, and until late May of this year these arrangements were conducted exclusively by a preneed counsellor. We paid our sales counsellors for making these arrangements although at a reduced rate.
AML has never paid us a standard general agency commission, but they still incur costs for issuing a life insurance policy for these short-term arrangements. Terminally imminent contracts have historically represented 16% to 18% of our preneed funeral sales production, and as we were negotiating more favorable general agency rates, American Memorial Life pushed back us to deal with this administrative burden that they were bearing.
So beginning in late May, we instituted a new policy for serving customers in terminally imminent situation, which was a best practice for Stewart's that we adopted. We began transitioning this type of consumer in key markets from the preneed counsellor to a funeral director.
We further reduced the sales compensation associated with this customer to accommodate this change. This will have the effect of reducing our cost, focusing the counsellor on working true preneed sales opportunities and putting our most experienced funeral professionals in front of our families that are dealing with an imminent death.
The effect of this shift has improved the profits of our funeral business but reduced the preneed sales production as historically reported, as now the associated revenues are accounted for as at-need business. Therefore, we believe that providing the sales production excluding imminent contracts is a better reflection of our true preneed production activities.
Preneed sales production excluding imminent for the quarter was $158.3 million or an increase of $2.9 million or 1.9%. For the nine months ended September 30, sales production was $475.3 million, up some $17 million of production or 3.7%.
Now let's talk about cemetery operations. Comparable cemetery GAAP revenue excluding Stewart increased $10.7 million or 5.2%.
Preneed cemetery sales production increased $7.3 million or 5.6% over the prior year quarter, but only $4.8 million of that $7.3 million was recognized in GAAP income as more sales production was deferred into the backlog. In addition, at-need cemetery production increased some $2.3 million or 4.2%.
Additionally, trust fund income increased $3.1 million for the quarter. This was predominantly due to higher volume of matured preneed contracts and a slightly higher compounded embedded return.
Comparable cemetery profits increased $4 million in the quarter and the margin percentage grew 70 basis points to 24.1%. This occurred as a result of our revenue growth, offset by higher selling and lead procurement costs associated with increased sales production, some of which was related to revenues that were deferred while the costs were expensed.
Reported results from the Stewart cemetery businesses were below our expectations. While pre-cemetery sales production was very solid, a significant portion of the increase was deferred for GAAP purposes.
Additionally, the process of delivery of merchandise and certain property, both on a physical and administrative basis, was not consistently applied. This resulted in a slight revenue shortfall.
We have instituted retraining in certain geographies associated with these activities and expect them to be remedy during the fourth quarter. Now looking ahead to 2015, I believe we are well-positioned to deliver solid results.
In addition to SCI core business growth, we expect to realize the additional benefit from the full run rate of identified cost synergies associated with the Stewart transaction, as well as certain revenue synergies. Our preliminary earnings per share guidance range of $1.16 to $1.28 and at the midpoint represents an increase of 11% from the expected 2014 earnings per share guidance.
We expect to achieve this growth even as we overcome losing about $0.08 per share from 2014 contribution from the Federal Trade Commission mandated divested businesses. Just to give you a little more color on the broad assumptions regarding 2015, first for funeral, we believe comparable funeral revenues will be slightly higher reflecting some modest growth opportunities from our Stewart businesses.
We expect to continue to grow the sales average in the low single-digit percentage range which will help to offset our expectations of comparable funeral volume declines. Additionally, we would expect higher recognized preneed revenues as our direct cremation business continues to grow.
We will continue to focus on growing our preneed backlog which we believe is the most advantageous approach to expanding market share over the long term. Although we have experienced normal integration distractions in 2014, I believe we are well-situated for growing preneed sales production in 2015.
Our early preneed growth expectation for 2015 is in the low to mid single-digit percentage range excluding terminally imminent contracts. On the cemetery side, we anticipate that revenues will continue to increase in the mid single-digit range, led by preneed production growth in the mid to high single-digit range.
We consider this growth to be extremely positive and the attainment of this growth is on a significantly higher base of business due to the recent double-digit growth over the last few years and therefore equates to a much higher absolute growth in sales production. Preneed sales growth will continue to be driven by expansion of our sales force, primarily in the family service team or inside sales, while we continue to enhance the productivity and effectiveness of our preplanning advisor or outside sales team throughout the remainder of 2015.
We also expect to benefit from the utilization of our new CRM system, Salesforce.com. Segment margins will be impacted by the traditional inflationary cost in our business but we have a track record of minimizing that impact through our focus on standardized metrics and a continuous improvement culture.
And finally, expect corporate G&A to be about $30 million to $32 million per quarter excluding one-time costs. The higher corporate G&A costs reflects the permanent costs associated with the increased scale of the combined entity which now includes the Stewart businesses.
So to wrap it up and summarize, we had a great quarter and delivered solid growth in both earnings per share and cash flow. We've had a very busy year thus far.
Despite the expected distractions we have had this year related to the Stewart integration and the sales force changes, I am very pleased with where the Company is positioned today. Our 2014 success would not have been possible without the hard work and dedication of our entire 23,000 person team, all rowing in the same direction and getting us through these critical milestones, all the while continuing to provide extraordinary service to our client families.
Lastly, as you can see from our 2015 outlook, I believe we are well-positioned to deliver solid growth in shareholder value in 2015. This concludes my prepared comments and I'll now turn it over to Eric.
Eric D. Tanzberger
Thank you. Good morning, everybody.
I'm going to start by commenting on our stronger than expected cash flow results for the quarter as well as our expectations for the remainder of the year, then I'm going to discuss our focused capital deployment to enhance shareholder value during the quarter, and then finally I'll end with some color on our cash flow outlook as we move forward into 2015. So starting with cash flow, our adjusted operating cash flow, and I'll remind you that excludes Stewart transition and other costs as defined in our press release, this cash flow grew $21 million or more than 20% in the third quarter to a total amount of $123 million.
These results were ahead of our internal expectations, primarily due to our strong preneed cash proceeds. Growth in adjusted operating cash flow was achieved despite higher anticipated payments for cash interest and cash taxes, which collectively grew more than $17 million over the prior year quarter.
Specifically, cash interest payments increased $13.9 million related to incremental debt associated with the Stewart acquisition, and our recurring cash tax payments increased $3.4 million which was in line with our guidance as well as our expectations. Our maintenance and cemetery development CapEx for the quarter came in at approximately $37 million.
This was slightly lower than our expectations but higher than prior year by approximately $9 million, which reflects our incremental investment in our Stewart properties. Deducting these recurring CapEx items, we calculate our free cash flow for the third quarter to be almost $89 million, or about $13 million or 17% higher than the prior year.
This again exceeded our internal expectations. In the first nine months of the year, adjusted cash flow from operations has increased $51 million or 15% to a total amount of $385 million.
While we are comfortable with our current adjusted cash flow guidance range of $475 million to $500 million for 2014, I do believe we will more likely end the year at the upper end of this range. So going back to the midpoint of the range, the guidance range for 2014 adjusted cash flow from operations equates to just under an 11% increase over 2013.
Our recurring CapEx guidance range is $125 million to $135 million and all of this results in a 2014 free cash flow guidance range of $340 million to $375 million. As I stated above for adjusted cash flow from operations, we are more comfortable with the upper end of this free cash flow range for 2014.
So now let me shift to our financial position and I'll talk about capital deployment as well. During the third quarter, we continued our strategy of returning capital to our shareholders through both share repurchases and dividends.
In the third quarter we repurchased 3.2 million shares for a total investment of almost $70 million. Now subsequent though to the third quarter we have repurchased an additional 1.8 million shares for a total investment of $38 million.
So in total, this brings our total shares repurchased this year to a total of 8.1 million shares for almost $167 million investment. So currently we have approximately 207 million shares outstanding.
As Tom noted earlier, our FTC divestiture process is now substantially complete. Total after-tax proceeds from the FTC sales associated with the Stewart acquisition were approximately $210 million during the quarter, which was in line with our guidance communicated to you in July.
We do expect to pay a tax payment of about $45 million in the fourth quarter from these divestiture proceeds. Now recall that the first $200 million of these after-tax proceeds were required to reduce our term loan as stipulated by our bank credit agreement.
In the second quarter we reduced the term loan by $120 million, and then in the third quarter we were able to pay off the remaining $80 million due from these proceeds. After these required payments and the quarterly amortization payments as well, the term loan has a current balance of just over $375 million from the original $600 million term loan amount.
During the quarter we also raised our quarterly dividend 12.5% to $0.09 per share, returning $19 million to shareholders through dividends. This increase is the second over the last 12 months, marking an almost 30% increase in our dividend.
Finality in terms of capital deployment, we completed two Canadian acquisitions during the quarter for a total investment of just over $3 million. So now turning to our financial position, we continue to have very robust liquidity of approximately $500 million at the end of the quarter, consisting of the cash balance of about $266 million and $233 million of availability on our credit facility.
Our leverage ratio, which we calculate as net debt-to-EBITDA in accordance with our credit facility definition, drove below 3.7x to 3.68x as of September 30. This is within our current targeted range of 3.6x to 3.7x.
Also being below 3.75x gives us additional flexibility in deploying capital and buying back our shares under the terms of our credit agreement. And as we have mentioned before, just to be clear, we are comfortable at these leverage levels compared to our historically lower leverage levels due to our resilient free cash flow stream, our strong liquidity and of course our favorable debt maturity profile.
So now I'm going to shift to 2015, in 2015 we expect our operating cash flows to be in the range of $425 million to $475 million. Our higher cash flow growth from our underlying funeral and cemetery operations will be more than offset by higher anticipated cash tax payments.
And as I have mentioned several times previously, we anticipated that we will become a full federal cash tax payer in 2015. As a result, our guidance range for cash flow is based on a current preliminary estimate that cash taxes will grow to approximately $145 million to $165 million in 2015.
This compares to our 2014 normalized cash tax payments that we currently expect to be at approximately $40 million, and by the way we have already paid that amount through year-to-date third quarter. The increase results in $105 million to $125 million more in cash taxes expected during 2015.
Now we will of course continue to look for ways to minimize this impact, as we have done in recent years, but we do recognize the increase in cash taxes will temporarily limit our historical rise in cash flow. Looking beyond 2015 though and looking to 2016, we remain confident that we will be able to perpetuate the cash flow growth we have delivered in the past after absorbing this one-time effect of becoming a full cash tax payer.
As it relates to our provision for income taxes within our income statement, we expect to have an effective tax rate of approximately 38% to 39% in 2015. And lastly, related to 2015, our capital spending for maintenance and cemetery development is expected to range from $130 million to $140 million, which is slightly higher than our expected spend in 2014.
So in conclusion, we are excited about our 2015 outlook. Although our free cash flow temporarily dips in 2015 due to the effect of cash taxes, we still expect to generate abundant cash flow that will allow us to continue to deliver significant value to our shareholders.
After estimated dividend payments in 2015 of around $80 million, we will still have substantial cash flow remaining to continue to pursue our strategy of tuck-in acquisitions, share repurchases or other strategic options. We continue to have a healthy balance sheet and capital structure and tremendous liquidity, all of which adds to our flexibility to pursue opportunities that we believe will yield value for our shareholders and our Company.
So with that, operator, that concludes Tom and my prepared remarks, and we're now ready to turn the call over to questions.
Operator
(Operator Instructions) From UBS we have A.J. Rice on the line.
Please go ahead.
A.J. Rice - UBS
Maybe first just a point of clarification to Eric's comments on divestiture. So $0.08 of EPS headwind, can you give us a sense of how much revenues are represented from those divestitures?
Eric D. Tanzberger
The contribution in the first – in 2014, A.J., is probably close to call it $28 million of EBITDA, maybe approaching $30 million. So if I back into revenues, I'm probably getting close to $100 million of revenue.
That's the way to think about that.
A.J. Rice - UBS
Okay. And then obviously I understand the terminally imminent change, it makes a lot of sense, can you give us a sense of how much benefit that might actually be for you and then if you incorporated that in your guidance, and then is there any backlash or – I mean I assume the sales force was not happy about the commission impact, how are you managing that?
Thomas L. Ryan
I think, A.J., we choose to look at it from a positive because I think it was really about taking care of these families, number one, and what we wanted to do is we wanted to provide our sales force ways where they can go out and [radiate] (ph) true preneed business. So we view this as kind of a win-win-win, first being we've got a very caring professional that we're handing these people over, they've been taken care of before, but these are folks that are really good at dealing with death upon us or as [indiscernible].
So the customers are being handled very well. Secondly we are freeing up our sales force to get work released which generate higher commissions and compensations for them, and so that's obviously a very powerful thing.
And then like you said, we have been burying, and again you'd have to estimate the cost, but about half of the compensation level, so call it a 7% to 8% burden of the face amount, in making those arrangements and paying the counsellors to sit down and take the time to do that. And so that may be now down to call it 2% or 3% based upon the new flow.
So you're right, I think as it relates specifically to this business, and we even saw it in the quarter, you should reduce cost to some extent if you annualize this probably $4 million or $5 million year-over-year. Now having said that, I think there's another important thing to say though.
Because we're freeing up time for the sales counsellors, our hope is that we are going to generate more business which is going to be at full compensation levels, and so you really got to kind of break it down but we'd like to see the compensation go way up. So that's our anticipation but in your specific instance I think you're right there's probably call it annualized $3 million or $4 million or $5 million type of savings.
A.J. Rice - UBS
Okay. And then, Eric, I know that you laid out the guidance, I just was curious I think you've done a little better or you've raised synergy guidance several times this year, maybe some of that synergy is accelerated into this year from last year, is there any way to call out somehow embedded in your guidance what's the step-up from this year to next year in synergy?
At one point I think though we were looking at about $50 million to $55 million being picked up next year in incremental synergies. Is that somehow shifted a little bit or any thoughts about that?
Eric D. Tanzberger
It has shifted A.J. I think that's a fair point that you're making.
As we up the guidance from the original level up to the $100 million including revenue synergies, we also made a lot of traction on the integration this year, probably a little bit quicker than what we originally talked about. So originally it was half and half, it was supposed to be about $30 million that were going to hit 2014.
I think it's higher than that by about $10 million to $15 million. So that therefore reduced your $55 million by about $10 million to $15 million.
So the incremental step-up is probably in the let's call it $40 million to $45 million range as you look at it that way as you just described, and it's not that the synergies aren't there, it's exactly what you described, some of the acceleration is in 2014 and we'll get the full amount in 2015 but less will be the step-up because of the acceleration in '14.
A.J. Rice - UBS
Okay, alright, I'll pass on to others to ask more questions. Thanks a lot.
Operator
From Susquehanna International we have Chris Rigg on the line. Please go ahead.
Chris Rigg - Susquehanna Financial Group
Just on the Stewart business, sounds like you're seeing some volatility there. I was just hoping you could give a sense whether you think you've got your arms around that and maybe just sort of describe some of those issues if you could?
Thomas L. Ryan
Sure, Chris. I think there really isn't I'd say a lot of volatility.
I'm trying to address, break it into funeral and cemetery. I think funeral is looking good.
We are seeing some increases in average revenue per case due to our expanded kind of product offerings and widening out what we can put in front of client families. We have seen a little bit of loss of volume to compensate for that, but generally we're in line with expectation when you think of funeral.
So now let's shift over to cemetery side. One of the things we said is we thought over a longer period of time we would be able to ramp up production on the Stewart operation.
So remember there's three components to that. There is the taking the existing inventory within the cemeteries and broadening the base if you will of tiering the product; secondarily, pricing that new tiered product; and third, selling that product.
So the real impact of that as it relates to property, we wouldn't have anticipated until 2015, some even moving to 2016, depending on how quickly we can get construction underway. The good news is, on the cemetery side our production is up in Stewart, and a lot of what it is, is selling items that are not recognizable today.
So our production is actually up about 10% to 11%, but basically none of that drops to the bottom line because it's in the deferred bucket. The second item that I talked about, again kind of briefly mentioned, relates to recognition of when we can recognize property merchandise, and I didn't want to get into it because it's a little bit complicated, but cemetery is more difficult than funeral.
So we have to physically deliver what we are doing and then we have to go deliver that item in the system, and you can imagine that is a very different revenue recognition policy than Stewart had before and different processes to go through. And so as we trained on the integration, as you do with anything, sometimes it [sticks] (ph) but sometimes it doesn't, some areas had better training and some areas didn't, and we need to go back and refresh that training, that's a normal process of any integration.
So what we found is there were things that weren't being recognized because of either physical or administrative delivery that we are now going back to making sure the records reflect that. So that is something that we are absolutely positive it's going to be fixed, we believe it's probably going to be fixed in the fourth quarter, and so we look at that as kind of an interim slip if you will that's a normal part of any integration.
So we feel good about where we are. The real list I think is as we think about hopefully differentiation on the Stewart properties, will come with property production increases which will be followed by construction of available inventory, pricing it appropriately and into driving those sales and the new compensation system with a new lead management system, customer relationship management.
So a lot of things to stay [graced over] (ph) but we feel very confident about what we're going to be able to do in the coming years.
Chris Rigg - Susquehanna Financial Group
Okay, great. And then just on the buybacks, I don't think you have them in your guidance, and then more importantly – and this is guidance for '15 – when I look at the last time you guys did sort of an accelerated repurchase program, it was in the immediate afterwards of Alderwoods and you've got 260 somewhat million of cash already in the balance sheet plus what you're going to generate over the next 12 to 18 months.
Can you give us sort of your latest thinking on sort of the pace of buybacks over the next year or so?
Thomas L. Ryan
I think the way to think about it this way, Chris, is I think the midpoint of the 2015 free cash flow guidance is about $315 million. We've got an $80 million worth of dividend we are going to do.
We'll do somewhere we believe between $50 million and $100 million in acquisitions, and again we just don't know, right, we hope there's more of them because they're great internal rates of return when they become available, and the balance of those two – and again kind of using my math at the high end of the acquisition, I would say we've got somewhere in the neighborhood of $140 million of free cash flow if we get those acquisitions, plus your $260 million. We like to maintain about $100 million in cash, Eric mentioned that we've got $45 million tax payment.
So as I think about, the probability is, we're going to spend somewhere around $250 million give or take on share repurchases over the next year. And I think to use your terminology, we've never done accelerated share repurchase, we just had a lot of cash after the Alderwoods deal.
And so we believe we can do this without an accelerated share repurchase, be opportunistic when the stock drops and buy more because again we have such a high level of confidence about where this Company is going in the future. So we'll take advantage of dips and we'll buy more and we'll dial it back as things come closer to fair value which is we believe a ways away at this point.
Chris Rigg - Susquehanna Financial Group
Okay, and just on what's assumed for next year in the EPS?
Thomas L. Ryan
I think it would be helpful for everybody, if you take this year's $1.10, okay, and now back out $0.08 that we've identified for you that was contributions from businesses that aren't there anymore. Now we're sitting at, again I'm doing this from my head, $1.02.
The midpoint of our guidance is showing you $0.20 of improvement, so call it 20%. $0.12 of that synergies, if you again say computing what Eric just said $40 million to $45 million, that implies an additional $0.08 of improvement beyond the synergies.
So knock yourself out and let's pretend that the core grows at 6%. We're going to get an additional $0.02 because we paid down $200 million in debt required, [so even if it is] (ph) 2% debt, so give us $0.01 for that, and then give us a couple of pennies on share buyback because we're going to have incremental share buyback '15 over '14.
Now we're sitting at $1.20, $1.30. Now knock it down $0.01 for an increased tax rate that's identified.
There's your midpoint. So the real question is will we grow the quarter at 6% or grow the quarter at 8%, grow the quarter at 10%, that's what we've got to figure out, and again we try to give a wide range of guidance because we can't control what volume is going to be, we're going to compete as effectively as we can.
We believe there's some upside to cemetery sales that we can achieve if things go our way. So that's the way to think about this.
I don't think there's anything too secret in our guidance, it's just that's the business where it is and we're going to deploy cash very wisely and grow this thing, as we've [indiscernible] impact and we'll continue to be impacted over the next 20, 30 years.
Operator
(Operator Instructions) From Bank of America Merrill Lynch we have Robert Willoughby on the line. Please go ahead.
Robert Willoughby - Bank of America Merrill Lynch
Just on the back of that question, just clarify, Eric, you're not assuming any more debt reduction then going forward, we're flat-lined to debt levels at this level?
Eric D. Tanzberger
Yes. As I said, we're right in the middle of 3.6x to 3.7x, Bob, and we anticipate staying at those levels.
Robert Willoughby - Bank of America Merrill Lynch
Okay. And I didn't see it in the disclosure, maybe you commented on it, but the SCI direct and cremation rate disclosure in the press release, I did not see, is there a reason that's been eliminated or did I just miss it?
Eric D. Tanzberger
The cremation rate is pretty consistent, Bob, as it's always been. We ended the quarter at 51.9% which is 100 basis point increase over the prior year, so very consistent.
No reason why we [indiscernible] it – omitted I should say. We will put that back in.
SCI direct continues to grow, continues to do well, we just had a lot of Stewart data in the press release but we'll take your comment to heart and under advisement. The preneed production grew 12.4% to just under $30 million and that's really a function kind of split evenly between a 5 or so percent growth in the prearranged funeral volume in terms of the number of contracts and the average as well, kind of 5% to 6% growth.
So it continues to be healthy, it continues to be an exciting part of our business.
Operator
From UBS we have a follow-up from A.J. Rice.
Please go ahead.
A.J. Rice - UBS
I figured I'll just come back and ask a couple of more questions if I could here. Eric, when you talked about being below 3.75x debt to EBITDA and that that gives you more flexibility, can you just expand a little bit on what additional flexibility you have?
Eric D. Tanzberger
A.J., we had what would be characterized as a basket in the banking credit facility world of capital that we could spend which was around $150 million-ish that we could spend related to share repurchases when the Company has a net debt-to-EBITDA calculation north of 3.75. Now that we are below that, there is no specific stipulation as to how we can spend our capital.
And so therefore we can continue deploying capital towards share repurchases with nothing specific limiting us below 3.75.
A.J. Rice - UBS
Okay. Tom, you talked about expectations for share repurchase over the next year, what we might think about.
I know there's been this discussion about the strategic review, et cetera, and I think you've been orienting yourself towards just redeploying free cash flow towards an ongoing buyback program as opposed to any kind of accelerated program or any of the other things that were mentioned from time to time over the last 18 months. Is there any formal update on any of that, is it pretty definitive now this is the path to go forward with?
Thomas L. Ryan
A.J., I don't know that formal is the right word but we did evaluate each of those. And I think as we put those through first of all the lens of our client families and our communities, there are certain of these – because of the emotional business that we're in and how reputation is very important, there are certain of these that just don't meet the right criteria for us.
There are some that actually work and create some value, but the real I guess test is, when you apply that opportunity against our opportunity to grow like we think we can through continuing to acquire great businesses and redeploying that cash either to integrate businesses or to shrinking the equity base, the higher return is doing what we're doing. I guess you can make a case that leveraging up more could create a little more value, accelerate your shrinking of the equity base, and I think when we weigh that versus running the [indiscernible] and what that could do in a downside scenario, we think the pace we're on is very healthy and very good.
So our conclusion is what Eric said, run the Company at 3.6x to 3.7x, be very diligent about how we deploy capital. I think hopefully you guys have seen our diligence to that over the last four or five years.
We're big believers in growing in this business and we will invest to do it, and absent opportunities we're also believers that our share price is not truly reflective of the value of the Company. So we'll continue to deploy capital as such.
A.J. Rice - UBS
Okay. Eric, when you were talking about the step-up in cash taxes this year to next year, I guess you mentioned that you'll continue to look for opportunities.
I know there were some things that [slowed] (ph) the service down, like they required some long-term due diligence to figure out what you could deploy into that to reduce cash taxes, are you thinking pretty much to run through those and this is a firm number, or you think there's some opportunity to wiggle this away as the year progresses next year?
Eric D. Tanzberger
I answered it was a firm number in 2012 and luckily I was wrong, so there is always hope. But I would tell you it's a little different time, A.J., than what we've had in the past.
We did have and utilized that benefit that you just described, we had a hunch that there was some opportunity there within the Stewart business and their deferred tax assets but we essentially were able to get to that and utilize that in 2014. And if you recall, our original guidance was $70 million of cash taxes in '14, it ended up being $40 million, and a lot of that was us doing the work related to the Stewart businesses.
That being said, we are focusing, continuing our focus to try to drive some ideas to fruition in terms of continuing to create benefits for our shareholders. We do have a couple of ideas that are going to come to fruition but those are, some of those are already baked into this guidance.
There is a little bit of other ideas that we have, that we will continue to look at, but ultimately I do think that it's not going to dramatically move from what I gave to you this morning.
A.J. Rice - UBS
Okay. And then just my last one was on the mom-and-pop acquisitions, I know you talked about $50 million to $100 million going forward.
I guess I had the impression that there were some things maybe that might close even between now and year-end and I think you may see about 11 million year to date. Is there some fourth quarter bolus of things that may get closed or is that now really more next year type of opportunities?
Thomas L. Ryan
There may be something that closes, A.J., but not to the level of that $50 million or $100 million, because again I think a lot of our focus was integrating Stewart in the first half of the year. But I think we do feel good about 2015 and the potential for getting some transactions to close that will allow us to deploy some of that capital into growth opportunities, which again we'd be excited to do.
A.J. Rice - UBS
Okay, great. Alright, thanks a lot.
Operator
We have no further questions at this time. We will now turn it back to SCI management for final remarks.
Thomas L. Ryan
Thank you everyone for joining us on the call today. We look forward to talking to you again in 2015.
Take care.
Operator
Ladies and gentlemen, this concludes today's conference. Thank you for joining.
You may now disconnect.