Executives: Viki Blinderman - SVP and Principal Financial Officer Ben Brink - CFO Mel Payne - Chairman and

CEO
Analysts: Alex Paris - Barrington Research Chris McGinnis - Sidoti &

Company
Operator: Good day, ladies and gentlemen and welcome to the Carriage Services First Quarter 2017 Earnings Web cast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions]. As a reminder, today's conference call is being recorded.

I would now like to turn the conference over to Viki Blinderman, Senior Vice President and Principal Financial Officer. Please go ahead.

Viki Blinderman: Thank you and good morning to everyone. We are so glad that you can join us today and we would like to welcome everyone to the Carriage Services conference call. Today, we will be discussing the company's results after the first quarter of 2017, which was released yesterday after the market closed.

Carriage Services has posted a press release, including supplemental financial tables and information on its Investor's page of our web site. The audio conference is being recorded and an archive will be made available on our web site. Additionally, later today, the transcript of this call will be made available and active through May 1. Replay information for the call can be found in the press release distributed yesterday. On the call today from management are Mel Payne, Chairman and Chief Executive Officer; and Ben Brink, Chief Financial Officer.

Today's call will begin with formal remarks from management, followed by a question-and-answer period. Please note that during the call, we will be making forward-looking statements in accordance with the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. I'd like to call your attention to the risks associated with these statements, which are more fully described in the company's report filed on Form 10-K and other filings with the SEC. Forward-looking statements, assumptions or factors stated or referred to on this conference call are based on information available to Carriage Services as of today. Carriage Services expressly disclaims any duty to provide updates to these forward-looking statements, assumptions or other factors after the date of this call to reflect the occurrence of events, circumstances or changes in expectations.

In addition, during the course of this morning's call, we will reference certain non-GAAP financial performance measures. Management's opinion regarding the usefulness of such measures, together with the reconciliation of such measures to the most directly comparable GAAP measures for historical periods, are included in this press release and the company's filings with the SEC. Now, I would like to turn the call over to Ben Brink.

Ben Brink: Thank you, Viki. Carriage's first quarter results reflected another solid operating and financial performance by our managing partners and their teams.

Overall, total revenue increased 7.6% over the year ago period to $68.1 million. Adjusted consolidated EBITDA increased 3.3% to $20.5 million. Adjusted net income increased 1.8% to $8.1 million and adjusted diluted earnings per share decreased 4.3% to $0.45. The decrease in our adjusted and diluted EPS can be attributed to the increase in diluted shares outstanding, due to the accretion from our 2.75% convertible notes, compared to the first quarter of last year. After receiving feedback from the investment community, we made the commitment in the fall of 2015, to simplify our already transparent, non-GAAP trend reporting, to reduce the amount of adjustments and add backs.

We are happy to report that this is the first quarter in a long while, where we have no add backs to EBITDA. As a reminder, going forward, we will only include in our non-GAAP adjustments, large onetime, non-reoccurring items that are not a part of our normal course of business. Same store funeral revenue of $42.7 million was an increase of 3.3% year-over-year. Same store field EBITDA increased 4.8% and field EBITDA margin improved 60 basis points to 41.5%. Revenue and field EBITDA from businesses acquired within the last five years increased 66%, while field EBITDA margins remained flat at 43.4%.

Our funeral home managing partners and their teams continue to demonstrate the operational discipline within our standards operating model. The high value personal service these professionals provide to our client families every day, resulted in an increase of approximately 2% in the average revenue per contract, and an increase of 3% in the average revenue per cremation contract over the first quarter of last year. In our acquisition portfolio, funeral portfolio, the businesses we have owned for over one year showed an acceleration in their operational and financial results in the first quarter, as revenue increased 13%, field EBITDA increased 24.6% and field EBITDA margins increased 430 basis points versus last year. The result of this group, coupled with a 190 basis point difference in the field EBITDA margin between our same store and acquisition funeral businesses, continues to demonstrate the execution of our strategic acquisition model, to affiliate with the best remaining independent businesses in the country, acquire larger businesses and larger strategic markets, that have the ability to grow revenue above 2% annually, once integrated on to the Carriage platform. I also want to note, that we have disclosed for the first time, the amount of revenue and EBITDA that flipped from the acquired portfolio to the same store portfolio on our trend reports for the quarter.

That supplemental information can be found at the end of our press release. Additional disclosure can also be found at the end of the five quarter trend reports in the financial section on our Investor Relations web site. Our total cemetery revenue was essentially flat year-over-year, at $11.7 million, while cemetery EBITDA fell 10.2% from the first quarter of last year, to $3.6 million. Overall performance in our cemetery segment was impacted by three businesses within our portfolio, related to First Who, Then What, which negatively affected preneed property internment sales for the first quarter. Our managing partners and the regional support leadership teams have made difficult and correct decisions to upgrade their Who sales leadership talent, and we expect improved performance throughout the rest of the year.

The majority of our cemetery portfolio continued their long term trend of high performance, as our at need cemetery revenue increased 6% and the average revenue per property sale increased approximately 19% in the quarter. The increase in the average revenue per property sale was principally driven by sales of cemetery internment rates that we have developed throughout our cemetery portfolio over the past three years. Overhead expenses for the first quarter decreased 20.9% to approximately $9 million. The decrease in severance and retirement expenses were the primary drivers of the improvement in overhead expenses. Overhead expenses in the first quarter were approximately $1 million higher than we had anticipated, as we made strategic hires in our regional operational leadership, information on technology department and the continued build out of our corporate development team.

While we had planned for these additional hires throughout the year, they occurred much faster than we had originally thought they would. We also incurred expenses related to a tax consulting project, that we anticipate will lower our cash taxes by approximately $2 million over the next two years. Adjusted free cash flow declined to $6.4 million during the quarter. The largest variances in adjusted free cash flow for the quarter, with the cash payments to our first group of Good To Great five year incentive award recipients, and the timing of the last payment made on our previously expensed retirement agreement. Our discretionary trust funds returned 3.1% in the first quarter versus 3.7% for our benchmark and 6.1% for the S&P 500.

Overall, our investment strategy remains the same, and we continue to find better relative value for new investment ideas in equity securities, versus the high yield fixed income market. Based on our current outlook for the business, we are reiterating our rolling fourth quarter outlook of adjusted and diluted earnings per share of $1.73 to $1.77. This currently does not include any pending acquisitions. We here at Carriage remain excited for the rest of 2017 and the opportunities that currently lie ahead of us, and we look forward to reporting our results. And with that, I will turn the call over to Mel.

Mel Payne: Thank you, Ben. As is our custom, I'd like to read out the high performance hero managing partners for the quarter. Bob Prindiville, Bright Funeral Home and Cremation Center, Wake Forest, North Carolina. James Bass, Emerald Coast McLaughlin Mortuaries, Fort Walton Beach, Florida. Wayne Lovelace, Lotz Funeral Home, Western Virginia.

Patrick Schoen, Jacob Schoen & Son Funeral Home, New Orleans. Curtis Ottinger, Heritage Funeral, Chattanooga. John Bresnahan, Devanny-Condron Funeral Home, Pittsfield, Massachusetts. Bryan Hardwick, Bryan and Hardwick Funeral Home, Zanesville, Ohio. Andy Shemwell, Maddux-Fuqua-Hinton Funeral Homes, Hopkinsville, Kentucky.

Ashley Vella, Deegan Funeral Chapels, Escalon, California. Justin Luyben, Evans-Brown Mortuary, Sun City, California. Joseph Newkirk, West Contra Costa Group, Richmond, California. Cliff Pope, Havenbrook Funeral Home, Norman, Oklahoma. Nicholas Welzenbach, Los Gatos Memorial Park, San Jose.

And last but certainly not the least, Winnie 'the Winner' Hurston, Houston Support, who is my Executive Assistant, and without whom, I could not do what I do. She is awesome. With that, I'd like to turn it over for questions.

Operator: [Operator Instructions]. And our first question comes from Alex Paris of Barrington Research.

Your line is now open.

Alex Paris: Good morning everyone.

Mel Payne: Hey Alex.

Alex Paris: I got a number of smaller questions, but before I get started, I just wanted to make a comment and I have a follow-up question on the comment. First of all, Mel, I wanted to tell you that I read your 40-page shareholder letter over the weekend, and I got to tell you, I have never read a 40-page annual letter from any CEO in the industry, and I do appreciate you taking the time to outline where the company has been, where it is and where we hope it's going, going forward.

I think I have a better understanding, and I appreciate it. And I'd recommend it to any investor, who wants to learn more about the ups and downs of this industry and the economy's impact on, you know, any commercial enterprise over the last 25 years. There certainly have been their share of challenges.

Mel Payne: Thank you, Alex. That's an incredible comment coming from you personally.

I appreciate it. It was a labor of love for sure. But I got the impression, over the last five years in particular that, there were fragments that were missing in the story of Carriage and its evolution that were key to a deeper understanding of what we are doing here, and just how unique and different it is. And without that understanding, I don't know how anybody could want to own our shares, and keep them over five or 10 year periods, like I do. And so this was an attempt to do that and I hope, people do read it and get something out of it.

Alex Paris: Well especially appreciated the candor. You outline the mistakes you make, as we all make mistakes. But more importantly, what you have learned from them and what changes you made to the organization to make it better stress tested as you said and better positioned for the future. My takeaways incidentally, and you might want to expand on this or correct me, and not necessarily in this order is, it's the people, it's the entrepreneurial partnership you have with your key people at Carriage Services. It's the process.

It's these three models that have evolved over time, and it's capital allocation. Whether that's financial or the acquisition approach, the improvement of the overall portfolio through divestitures, when necessary. What am I missing? Or does that capture --

Mel Payne: No, you are not missing anything. What I have learned and created in the form of these ideas -- I got the impression over the last five years in particular, that people thought decentralization and partnership, these are just good words, fun words, feel good words, they are not. These are serious things.

And it's not for everybody. And so it is very Darwinian, very disciplined, very analytical and very high performance all the time. I was just looking at the last two years, in particular. And consensus estimate, I saw in looking at our CNBC thing, we have missed five out of eight quarters over the last two years. And if you go back to then, the first quarter of 2015 until now, we missed five out of eight quarters.

But I was thinking about who was here then, what we were doing then, how uncollaborative and uncooperative a lot of the company was then, compared to now, it's night and day. We have accelerated the Good To Great journey in the last two years, beyond what I could have imagined, was possible and I think the same thing will happen over the two or five years as well. I think it will actually accelerate. But without reading this and understanding it more deeply, I don't know how anybody would want to own our shares. And I am just thrilled with your takeaway, Alex, and I appreciate it more than I can express.

Alex Paris: Well, thank you and I read it twice, just to make sure I didn't miss any of the keypoints. So we too are in at [indiscernible], it has always been our approach to investment. I do have some questions regarding the short term though, and again, not in any order, but adjusted EBITDA, congratulations on getting adjusted EBITDA equal to consolidated EBITDA. I know that has been a goal of yours.

Ben Brink: [indiscernible].

Alex Paris: I am curious, and maybe Ben can answer this. If you were operating under the previous methodology, what would be the add back this quarter? I mean, I know you -- adding those consulting fees and things back anymore. What did you go --

Ben Brink: Right.

Alex Paris: Like becoming a better company?

Ben Brink: Right, exactly. It was a hodgepodge of things, between consulting fees, severance expenses, some other onetime items that we probably would have added back in the past.

And the way we look at it is between $500,000 and $600,000. That would have been in our non-GAAP lines for this quarter, under the previous methodology.

Mel Payne: The way I look at it, if 30% has never been achieved before by anybody, and we did it without any add back noise, that is so bad.

Alex Paris: Without a doubt. I mean, it signifies also a much higher quality of earnings.

Mel Payne: Yes. When we went out, Ben, Viki and I, a couple of years ago for the first time, maybe a tour [ph] conference. We met with a guy, and he put an arrow straight through my heart. He said Mel, you are a student of Warren Buffett. I said, yes.

He said, if Warren Buffett were to look at your reporting right now, he'd be very critical. I am going, oh. I think you are right. So I am wondering, who is going to say something. I hope he says something about it.

I told Ben, make sure you find him, and ask him now, how are we doing. Well thank you.

Alex Paris: Very good. And it was so substantial. It was just substantial add back just looking at last year, it was over $5 million of add back.

So what should we expect then over the balance of the year? It should consolidate and continue to equal adjusted? I guess, you can't always foresee what might be one time in the future, but it should be --

Ben Brink: Yeah, Alex -- as of right now, we don't see anything on the horizon, that wouldn't require any add backs on the EBITDA line. So I would expect it to be similar going forward for the same.

Alex Paris: Great. And then, I got to ask about cemetery. Cemetery, by my count you had at least 19 consecutive quarters, and that's a first, my model goes back on quarters, of growth in cemetery revenue.

Q4 was down, I think 2.8% year-over-year, Q1 was down at a lesser rate, was kind of flat, down eight-tenths of a percent. I know you have touched on it, but the issue is just a small number of the cemeteries within the portfolio?

Ben Brink: Yeah. What has been good and as we went through the first quarter and identified these areas where we could -- where you are going to have improvement, where it was really down to really three locations and businesses that we could pinpoint, and the leadership in those businesses and the regional teams made the tough decisions, as we said on the comments. And we feel good about people we have in place and moving forward, and we expect improved results.

Mel Payne: Alex, this is Mel.

I pulled away from operations over the last year. Mark Bruce is our new COO and he has been playing that role for the last year or so, while I dabbled in other things, investor relations and acquisitions. But I am so impressed, because I have stuck my head over there to see what was going on, and I quickly took it back, because I don't want to interfere with what I see going on; because everything I see going on is pretty awesome, and the decisions they are making, the dial-downs into the various businesses, where this underperformance was concentrated, what they are doing about it; because it always comes down -- our cemetery business has some large cemeteries, and we have a lot of not so large ones. So when the large ones don't perform, it moves the meter either way. And so I think what you will find over, if not the next quarter, the rest of the year and thereafter is, they have brought in some real top talent.

Now, in our world, if you can't perform or find [indiscernible] players, and now we know what they are and what they look like and the performance to expect for them, you don't belong here. And so this is how it is. It's Darwinian, it's high performance, and I think you will be very surprised at the difference in our cemetery performance. We want to be good in the cemetery business broadly speaking, everywhere, all the time, as we are in the funeral business. And I have no doubt we will get there.

Alex Paris: I would point out, that overall performance was a bit messed by the slight decline in cemetery, looking at --

Mel Payne: There was.

Alex Paris: Your performance in funeral, versus your -- the larger competitor in the space, and you significantly outperformed this competitor both in contracts, as well as in revenue growth?

Mel Payne: That is correct.

Alex Paris: Last question and then I will give it up to somebody else. It's just a bookkeeping question I guess. Then, for purposes of calculating the fully diluted shares, I have the schedule from the filings.

We use the share price as of the last day of the quarter, to determine how many shares were adding to the denominator, or is this some sort of average price approach, of what have you?

Ben Brink: No. It's the -- it’s the price of the last trading day of the quarter. And then as we move to the year, it's an average of each of the quarters, right?

Alex Paris: Right.

Ben Brink: So it will be, whatever the price is on the last day of the quarter, it will be used for dilution for that quarter.

Alex Paris: And then, related, I know that none of us like the result of this low interest piece of that, just because of, the confusion of it and the dilution of it for that matter.

But you had talked in the past about potentially refinancing this debt, is that something still on the table, something you are considering for 2017?

Ben Brink: I wouldn't say its necessarily on the table for 2017. I think, we have done a lot of work over the past nine months or so, to better understand what our options are, around the entire capital structure. To make sure that we are positioned and have the financial flexibility to execute our plan going forward. So those talks are ongoing, and we feel confident about where we are with that.

Mel Payne: Let me add to that, Alex.

I think you properly painted the picture. Looking back over the last five years, if there is one regret that I have, it's that one going along with that idea, which was a very stupid idea, and it led to a lot of confusion, it led to the dilution of the economic value, as was quickly pointed out to me by a long term shareholder. I regret it. Having said that, it does have certain benefits, with all its confusion, in the short term and over the intermediate term, we are looking very hard, because I mean, we leave all the non-GAAP noise behind, and now we have this. You just can't seem to escape certain stupidities that were put in place.

So that's how strongly I feel about this being a mistake. I take responsibility for it, and we will do something about it, we just don't want to say when.

Alex Paris: Fair enough. Thank you so much and congratulations.

Mel Payne: Thank you, sir.

Operator: Thank you. [Operator Instructions]. And our next question comes from Chris McGinnis of Sidoti. Your line is now open.

Chris McGinnis: Good morning.

Thanks for taking the questions.

Mel Payne: Good morning Chris.

Chris McGinnis: I guess just to echo Alex's comments about the shareholder letter, although I got a little late and didn't have the luxury of a weekend. But I too wonder what [indiscernible], so thanks in helping sort of understand it in a different light.

Mel Payne: So Chris, I got a question for you.

Chris McGinnis: Yeah.

Mel Payne: And everybody who gets around me, this is what I do. On a scale of zero to 10, you were somewhere before you read it, and then there was somewhere after you read it, on a scale of zero to 10. Can you tell me what the difference was?

Chris McGinnis: The difference in understanding the --

Mel Payne: Well you read it, and so after you read, you realize there were a lot of things you didn't know or understand.

Chris McGinnis: Right.

Mel Payne: So you would have been like, what you knew after you read it, you would have been -- so somewhere on the scale of zero to 10.

Chris McGinnis: Maybe, Mel, it was a three before, after reading that, a five. I think I still have a lot --

Mel Payne: Hey, well that's a jump of 66.67%.

Chris McGinnis: Well, there you go. So sort of help me understand it a little bit more, I think.

I had three questions, and I think very close to Alex's kind of takeaways, but one was just one the talent throughout the organization, and maybe, can you just talk about it on a corporate, but also on a local level, and it sounds like, if it's 18 to 24 months to get to the other side that you talked about, can you just maybe walk through, how you cultivate the -- especially on the local level, the talent across the organization, and how do you go out and seek them? I know you have mentioned in the note or in the letter that, you are attracting better talent, because of your position in the market. But I guess, can you just give us, maybe an update on that, and how you go about cultivating the talent in the organization.

Mel Payne: That is a wonderful question Chris. There are two parts to the answer. We have managing partners and sales managers in our businesses.

These are the people that have the most important jobs in the company. And then you have the support teams here in Houston, and we have one layer, I guess you could call it in the field, call the Director of Support. But the whole idea of Carriage is a partnership idea, and the only management that occurs in the company should be at individual business unit level. And the concept over the last 13 years of this model has led to declustering of markets. Like we declustered Roanoke, we declusterd Chattanooga early on.

We declustered certain businesses in California, continue to look at others. Big declustering Springfield, Massachusetts. In Naples, Florida, we declustered. What happens is, you break clusters into smaller more locally defined markets, where you have a piece of real estate, might have the same brand name. But it's a submarket, very different in complex dynamics compared to the bigger market.

So what you want, is to get entrepreneurial people who want to get more market share from their competitors. So we have learned how to profile that kind of person. Now, we have learned this through experimentation, testing all kinds of -- we tried everything, okay. There is no silver bullet. But we have become much better at attracting the type of people who are hungry to lead and grow and get recognized for high performance in this model, which is not easy to achieve these standards, to grow your volumes and market share.

This is not easy in this business. We have found a very high batting average, increasingly attracting that kind of person. Now, if you get somebody that has been in one of the other companies that has the opposite model, topdown performance management system, which is common in America. And they are afraid to take risk, they are afraid to try new things, they are afraid of failure, they are waiting for orders from above, they want an initiative to work on. That gives them something, like a security blanket.

They will never get to the other side. They may be a good manager of a budget, but they are not an entrepreneurial person, who wants to grow their business, and will take no prisoners, in trying out new ideas and being innovative at how they do that. And we often get the question, well how do you grow market share? Is it advertising? I couldn't possibly tell you how. I tried all that, and it doesn't work. The only thing that works is getting the leadership right, and then you don't have to manage them or worry about them.

You just sit back and watch it, and it's almost like turning on a light switch. You can see it. You got a good business, and you get the right person, and if you hit the wrong person, the thing [ph] lights up almost immediately. Now, that's individual businesses. Now if you look at the incentive programs that we have, in the Good To Great five year program, the Annual program, these are -- everyone told me not to do this.

The generosity of sharing what they produce locally is huge. I mean, huge. Everybody said don't do that, everybody told me not to do that, is no longer here. But the players who create the value, love it. And so, this is what we are looking for.

And we found, that the word is out. Now, the good thing about Carriage is, we don't need millions of these, we just need one at a time and a good business. So it makes it easier for us as a small company, to find good businesses and put great managing partners on them, if they are not already there. And they turn into meter movers and then you have this spiral effect around the portfolio. This is what has happened over the last 13 years, and particularly, over the last five.

Here in our home office, it's different. You got to find people who are team players, who are collaborative, who like to win, and they view our businesses in the field as their customer, and they want to make their life easier. So they can focus on winning locally in the market share battle. And when you find people here in each department, who don't have silos, they all buy into the vision of high performance being the best, at what they do, which is supporting our businesses. Then you have a wonderful partnership, that was a powerful impact on performance.

And it takes fewer people, because you eliminate complexity and stupidity, silos, the lack of collaboration and cooperation, I wrote about that at the end of my shareholder letter, Bob Axelrod, the professor for Michigan wrote about this. I mean, this is what we do. We collaborate, and coordinate towards the idea of always getting better tomorrow, compared to how good we are today. And when you put these two ideas together, it's basically magical. And we are just getting started.

That's why I wrote a 40-page shareholder letter. Your question is one of the best questions I ever got. Thank you.

Chris McGinnis: Hopefully, the next two aren't as bad, or just as good, and not too far away. But thanks for that.

That dose help a lot. And I guess, going off of your last comments, when you think about the transition over, let's say the last 10 years roughly, and putting together the operations in place, when you look over the next 10, how do you think that changes? And what I mean is -- I know you have your standards in place, but are there other components that you are looking at today, that you think need to be added, or to get to that next phase, even though your numbers have been great, and I am just wondering, with your kind of relentlessness for excellence, how do you add to it, and going forward, and outside of I think the next five year plan that you have, out there. But --

Mel Payne: You are betting 100% on this call, Chris. That's another great question. The weakest part of the company, in the past, five or 10 years.

But even in the last two years, has been the industry understanding of who we are, and being able to target, very specifically, those businesses and the best markets, the bigger better businesses, that have a bigger higher performance revenue and earnings profile over the next five or 10 years, is to have a team in place that understands it and can explain it. Because if you can't explain it to the bigger, better operators, the way I wrote about it, then you are pretending to be a player that understands Carriage, and you are not. And so, I am just a slow learner, to have Shawn Phillips in charge of explaining the company now, along with Gabe. And if you think about what I just said on your first question, Shawn, was the regional partner in the west for quite a while. Then he became a regional partner in the central.

And before that, he was with Alderwoods a long time, used to be Loewen Group, and before that SCI, another independent. So he is an operating guy and an operating leader, and he has been here since October of 2007. So he has been on the learning journey. I am talking big time, with his idea and -- he can explain to the bigger better operators and owners, which he is doing. And Gabe, has been in most of our support departments.

And now they have added two other people to this team. Bill Hudson and Mike Kelly. Bill came over from Matthews Aurora and Mike was one of our DOSs, Director of Support; before that, he was a managing partner. Very successful. So we have got real operating players that understand every aspect of our company, explaining it.

And I just walked back this morning, this is the missing piece over the last five or 10 years, that I expect to accelerate the growth with the bigger, better players; because when they understand who we are, now they got a tool, they got a shareholder letter that really explains it. And who will not, then they have an easy choice to make. So over the next five or 10 years, stay tuned to the growth and acquisitions, the size and the quality and the margins that will produce in the company. I can't tell you how to model that out, but I can tell you, it's going to happen.

Chris McGinnis: Last question, and you obviously indicated one of your last observations, talking about your EBITDA margin and the success you have had there.

And I am truly asking, what does it mean? And to us, or to me at least, it means that you are operating on all cylinders and with the continued growth of it in the expansion. But what does it mean to you, and what are you trying to translate to us, I guess, when you ask that question.

Mel Payne: Okay. Now I mean -- you are hitting it out of the park. What does it mean, I have been waiting.

Thank you, Chris. You read the shareholder letter, starting at the end of 2003. I had this idea. We had this offsite retreat with these 17 former owners and best managers at that time, and these are the people that I learned from. These were the ones I was watching all those years.

Well why is it -- well, it doesn't matter what their budget is. They seem to do well, regardless of what their budget is, and it doesn't matter what the cremation -- the death rate, the flu season, that's just a bunch of noise to these people. How do they do that? Well, I didn't just sit here in the home office and wondering about it. I went out there and spent time all over in the businesses. I learned this from the bottom up, Chris, and the people I really wound up learning the most from, I listed in the shareholder letter.

These were the people I learned from. And after that three day off site retreat, where we flushed out this beginning version of standards operating model, which is -- what has been hilarious, is to get questions about how undisciplined and lack of control you have over operations, it’s the opposite of that. So, after three days, we went to a Mexican restaurant, and one of our former owners who is listed, says Mel, where did you come up with this idea, in the book? I said, no. Although, I understand some book has been written about Beyond Budgets, I have ordered it; I came up with this by observing what you do. Year after year after year after year, and all I did, was just convert a purely financially desirable outcome, into a high operating performance standard that you could relate to.

Getting more volumes over time. I mean, that's a no brainer over a high fixed cost distribution piece of real estate. This is not complicated. It is very difficult to do. And so the way this has evolved over the last 13 years, is pretty magical, and every step along the way, except for the people that were really turned on to it, I have been told, it won't work, or you shouldn't do this and you shouldn't do that.

My only regret, looking back over the last 13 years, is every time somebody smart told me that, I should have speeded that up, right away in the opposite direction. That's the beauty of where we are. What does it mean? It means I don't know anybody else who has done anything like this, and I think, it means, that even though, we didn't get to this sector first, SCI did, and they do a wonderful job with their competitive advantages of scale and buying power and all that, it's obvious. But we couldn't do that. No one could duplicate that.

So we literally had to invent a new methodology of consolidating a highly fragmented industry. And there were years, maybe five or 10 years at a time, when I thought I had made a bad bet on my career. And I didn't think this idea, I'd live long and see if this idea work out. But, it has worked out, and what does it mean now, it means that this idea, in my view, is a superior idea about how to consolidate this particular fragmented industry in the future. I can't talk about 70s, 80s, or 60s, because I wasn't here.

But I think it's a superior idea. And I think it also is a superior idea for other industries and other companies, but no one wants to take the risk of something so novel, and kind of weird, and be told by so many people, it won't work. It does. And it's a beautiful thing. And it just is going to get better and better.

That's what it means to me, and it's not just me, it means that to everybody in the company.

Chris McGinnis: Sure. Well thank you again for taking the time, and congrats on a good quarter. Good luck with the next quarter.

Mel Payne: I appreciate it.

Wonderful questions.

Chris McGinnis: Thanks.

Operator: Thank you. And there are no further questions at this time. I'd like to turn the conference back over to CEO, Mel Payne, for closing remarks.

Mel Payne: I will end this call, on hopefully a funny note. I was kind of hoping someone would ask me this as a fun question, but you didn't. So I am going to ask myself; my dream question would have been, but I am glad, nobody asked me this; Mel, did you ever figure out, what job can be the best in the world at? And I would say, absolutely. We figured out, that you should never have an offsite treat and ask a dumb question like that; because if you do, that means you are going to get bad real fast, almost overnight. So what we can be the best in the world at, is never having stupid retreats again.

Thank you very much for your interest and listening in on this call. Thanks.

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