Executives: Viki Blinderman - Co-CFO Mel Payne - CEO & Chairman Carl Benjamin Brink - Co-

CFO
Analysts: Alex Paris - Barrington

Research
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Carriage Services Inc. Third Quarter 2016 Earnings Webcast. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions].

As a reminder, ladies and gentlemen, this conference is being recorded. Now I will like welcome and turn the call to Ms. Viki Blinderman, Co-Chief Financial Officer, please go ahead.

Viki Blinderman: Thank you and good morning, everyone. We are very glad you can join us today.

We would like to welcome you to the Carriage Services third quarter conference call. Today, we will be discussing the company's results after the third quarter which was released yesterday after the market closed. Carriage Services has posted the press release, including supplemental financial tables and information on its Investor Page of its website. This audio conference is being recorded and an archive will be made available on our website. Additionally, later today, an audio archive of this call will be made available and active through October 3.

Replay information for the call can be found in this press release distributed yesterday. On the call today from management are Mel Payne, Chairman and Chief Executive Officer; and Ben Brink and myself, Viki Blinderman, Co-Chief Financial Officers. 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 make 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'd like to turn the call over to Mel.

Mel Payne: Thank you, Vicki. I'm really honored to start out this call, about our third quarter and year-to-date today performance by naming Carriage high performance heroes. This is an important part of our high performance culture tradition and language. So the winners, the heroes for the third quarter are as follows; in the east region, Robert Maclary, Kent-Forest Lawn Funeral Home, Panama City; Courtney Charvet, North Brevard Funeral Home & Crematory; Titusville, Florida; Sue Keenan, a repeat winner from the first or second quarter, Byron Keenan Funeral Home & Cremation; Springfield, Massachusetts; Kim Borselli, Fuller Funeral Home-Cremation Service; Naples, Florida. In the central region, Michael Page, Allison Funeral Service; Liberty, Texas; Andy Shemwell, Maddux-Fuqua-Hinton Funeral Homes; Hopkinsville, Kentucky; Brian Binion, Steen Funeral Homes; Ashland, Kentucky; and Kyle Incardona, Hillier Funeral Homes; Bryan and College Station, Texas.

And then the west, Justin Luyben, Evans Brown Mortuaries; Sun City, California; Ken Summers, also a repeat winner from the first or second quarter, PL, Fry & Son Funeral Home; Manteca, California; Verdo Werre, McNary-Moore Funeral Service; Colusa, California; and Steve Mora also a repeat winner; and along with Cardana [ph], a member of our standard account; Conejo Mountain Memorial Park; Camarillo, California. And in the Houston Support Office, Marisol Britton, Houston Support-Information Technology. And with that I'll turn it over to Ben for more color on the performance. Carl

Benjamin Brink: Thank you, Mel. Carriage's third quarter results reflected all of our long-term value created entity, firing on all cylinders.

We continue to demonstrate fantastic operating results with revenue growth and margin improvement across our business; we closed one acquisition with the leading funeral operator in Madera, California, while signing letters of intent with two businesses in strategic market. All three businesses are perfect examples of our stated goal to partner and affiliate with the best remaining independent funeral home and cemetery operator in the country. As such one-time retirement expenses, we continue to reduce overhead expenses while our pre-need trust funds had a strong performance, and we benefited from a lower tax rate due to a change in calculation of bonus and depreciation. As a result, our adjusted diluted EPS for the third quarter increased 30.3% over prior year to $0.43. While our adjusted earnings per share for the first nine months increased 17.4% from 2015 to $1.28.

In our seasonally weakest quarter, we also earned a record $17.1 million adjusted consolidated EBITDA while we continue to increase our record at industry leading adjusted consolidated EBITDA margin to 29.6% on a year-to-date basis. In previous conference calls and our written material, we have told [ph] for investors to understand about the operating characteristics of our company. The first is the tremendous amount of operating leverage that is inherent in the funeral business at the local level; and the second is the operating discipline that results from high performance execution of the standards operating model by 4E managing partners and their teams. The third quarter and year-to-date performance of our same-store funeral portfolio is a testament to the operating discipline and speaks for the quality of 4E management partners and their teams to not allow operating leverage to work against us in a flat or down revenue environment. While same-store revenue was potentially flat for the third quarter, we continue to show incremental improvement in field EBITDA margins which increased to 120 basis points to 37.2%.

And even better example of operating discipline is that while revenue has decreased by $1.3 million through the first nine months, field EBITDA has actually increased modestly, and margin have improved by 70 basis points the 38.3%. The third quarter performance of our acquisition funeral portfolio showed both a successful execution of our strategic acquisition model to partner with larger, higher margin businesses that have the potential for higher long-term revenue growth, and what happens to the operating results of these businesses when led by 4E management partner that execute for high standards achievement. For the quarter, our acquisition funeral revenue grew by $1.5 million, equal to 18.5% versus prior year while field EBITDA grew by 720,000 or 22.5% and field EBITDA margins expanded by 130 basis points to 40.3%. During the first nine months of the year, the acquired funeral segment has grown revenue by almost $4 million, field EBITDA by $2 million, and as expanded field EBITDA margin by 170 basis point to 41.6%. Consistent with our stated goal to purchase larger businesses as based on our due diligence and analysis, have the ability to tap higher revenue growth and higher field EBITDA margins.

The year-to-date field EBITDA margin of 41.6% in our acquired portfolio, its 330 basis points higher than our same-store funeral field EBITDA margins. What is important for investors to understand, is that not only do these business qualified under our strategic acquisition model, have a higher field EBITDA margin profile when acquired, but we have consistently seeing field EBITDA margin improvement in subsequent years after acquisition. For example, the 16 businesses we acquired between 2012 and 2014, where we have two full-years of data, the average field EBITDA margin improvement was 330 basis points from the end of first year as part of Carriage due to the current period. Based on our expectation for funeral execution of our acquisition operating model, we anticipate the trend of field EBITDA margin improvement, and acquired business to continue. The third quarter was another period of continued high performance for our managing partners and their teams in our cemetery businesses.

Same-store cemetery revenue grew $625,000 or 5.8% versus prior year, and is currently $2.5 million or 7.8% for the first nine months of the year. Not to be outdone, the two cemeteries in our acquisition portfolio increased revenue by 41.3% in the third quarter. This growth in revenue led to a 15.5% increase in our cemetery field EBITDA to the third quarter at a 10.2% growth in cemetery field EBITDA year-to-date. This organic growth in revenue, EBITDA, and filed EBITDA margin demonstrates the ability of our high performance cemetery leadership and sales teams to continue to deliver high value, personal sale service to our cemetery customers in local markets. Moreover, these teams have taken full advantage of the strategic investment we've made in many of our cemeteries in recent years which has translated into average revenue price for property sale, increasing approximately 7% year-to-date.

We continue to identify opportunities to make further investments at high value differentiated cemetery inventory in select markets at rates of return well in excess of our cost of capital. Financial revenue and EBITDA were both lower in the third quarter and year-to-date due to lower pre-need funeral contracts maturing, a small reduction of realized actual care income and a lower amount of pre-need cemetery earnings. The lower amount of financial revenue in EBITDA are in-line with our expectations from the beginning of the year. During the third quarter, we continued to lower overhead expenses as a percentage of revenue. Adjusted for one-time retirement and severance expenses, overhead as a percentage of the revenue would have been 12.2% or a reduction of 160 basis points from the third quarter of 2015, and 12.7% for the first nine months of the year, a reduction of 90 basis point and approximately $1.1 million.

Our third quarter results also benefited from a reduction in non-cash stock compensation due to the retirement of Dave DeCarlo at the end of September. Looking ahead, we expect overhead expenses to be lower by approximately $1.5 million in the fourth quarter, first to the prior year based on our expectation for operating results affecting variable compensation accruals and announced retirement from our operations and strategic growth leadership team. Our 25% effective tax rate for the quarter was positively impacted by $1.1 million discrete tax items related to additional bonus depreciation we were able to accrue in the third quarter. While we had anticipated some benefit to the changes in bonus depreciation, there were legislated at the end of last year, we were not able to determine the full magnitude until our 2015 federal tax return was completed in the quarter. We expect to have additional tax benefits from bonus depreciation in the future but do not anticipate the amount to have a material impact going forward.

The larger benefit this quarter is directly correlated to the high amount of capital expenditures we completed in 2015. We expect to complete approximately $16 million of capital expenditures this year which represent on almost 50% decrease from our spending in 2015. The $16 million will be split evenly between maintenance and growth CapEx. We originally intent to essentially complete the construction of two new homes by the end of this year, we now expect to have one open by year-end with the other completed by the middle of next year. Year-to-date adjusted free cash flow declined by 12% or $4.7 million, first at $34.1 million.

This decrease is entirely due to the timing of federal estimated tax payments compared to last year. We currently estimate that adjusted free cash flow will be approximately equal to 2015 levels of $43.6 million even though cash tax paid will be higher by over $2 million versus last year. A critical and what we believe an overlooked aspect of Carriage, as a value creation long-term investment, as our growing free cash flow and our continued ability to turn a higher percentage of revenue free cash flow. This free cash flow is currently and will continue to be used to generate value with our long-term shareholders in disciplined capital allocations. Our discretionary trust funds at a strong performance in the third quarter with returns of approximately 8% and 10.2% for the first nine months of the year, this performance is led by a rebound in our 10-year type-1 [ph] portfolio, of too big to sell banks and insurance companies.

As stated in our second quarter conference call, we use this opportunity to determine some of our warrant positions, particularly for securities that have expiration dates within the next two years. The fixed income portion of our portfolio continue to track the performance of the overall high yielding market with a year-to-date return of 17.2%. While our entire fixed income portfolio has performed well, the investments we've made during the first half of the year have been the primary drivers for outperformance versus the high yield index. Examples of these fixed income investment include Free Port Mcoram [ph], William's Company, Waterford [ph], Trans Ocean, C-Core Holdings, Watson Digital, Dell, Salient Pharmaceuticals, and two high yield flows and funds. The average total return of those investments was still at 35%.

The execution of our trust fund repositioning strategy we announced at beginning of the year has allowed us to increase the amount of recurring income within the portfolio by 17% or $1.6 million from the year-end 2015 and improve the overall credit quality and liquidity of our fixed income investments and create an even more flexible portfolio to take advantage of what may lie ahead. As conditions have improved over the last six months; and credit spreads continue to narrow. We've taken the opportunity to access some older position and raise approximately $24 million in cash which is significantly higher than our normal tax position. We recently closed on Jade Chapel [ph] in Madera, California; a growing community that's outside of Fresno and we have signed letters of intent with two first five businesses in strategic markets. We expect those transactions to close within the next 30 days.

All three of these businesses fit the profile within our strategic acquisition model of larger, higher margin businesses that have the ability to grow revenue above 2%, compounded over the first five years of being a part of Carriage's high performance filter. Much with the owner quoted on our press release, the owners of these three businesses recognized that our culture and standards operating model are unique within our industry and that they have the ability not to sell out, but rather join in with the group of other elite local, funeral and cemetery businesses within Carriage. Based on the actual and expected closing of these three acquisitions, along with our current expectations for the performance of our business, we are raising a rolling fourth quarter, adjusted earnings per share rate by $0.10 to $1.81, to $1.85. As we come to the end of our first five years of our Good to Great Journey, we are looking forward to finishing 2016 on a strong note. As our third quarter and year-to-date results demonstrate, our managing partners and our teams continue their disciplined execution of our standards operating model with EBITDA growth at higher margins.

We continue to lower overhead expenses and increase our adjusted consolidated EBITDA margin, all while adding first-class businesses to our ever improving operating consolidation platform. All of us here at Carriage are excited for the future of our business and we look forward to our continued Good to Great Journey with our shareholder. With that, I'll turn it back over to Mel.

Mel Payne: Thank you, Ben. There is no one in Carriage more excited about the future than me and I get the honor of writing and talking about our company, our leaders and our people.

I can't imagine anyone having a better job. Our Good to Great Journey that we initiated at the beginning of 2012 has been simply amazing to all of us. Whatever our individual role and responsibility, to have the pleasure and the honor to work at Carriage, the idea of it being the best mission and vision over the next 10 years in funeral service and cemetery industry can only be achieved when you unleashed the human potential power of the very best leaders and the employee at every business and in each of our support department, in complete alignment with our third guiding principle of elite and the power of people through individual initiative and teamwork. So I would like to thank each and every one of our employees and leaders who fully understand the key clients are Jim Collins and his Good to Great book research team that 'Greatness is not a function of circumstance, greatness it turns out is largely a matter of conscious choice'. Our remarkable performance this year and for the four years and nine months profoundly reflect that our wonderful high performance of employees and leaders have made their conscious and very personal choice to be great.

And we expect supply will affect [ph] of such multiple sources across the Carriage platform to continue power our operating and financial performance higher over the next five years because we all choose to be great and [indiscernible]. With that, I'd like to open it up for questions.

Operator: Thank you. [Operator Instructions] Our first question is from the line of Todd Steinberger [ph] with Oppenheimer. Please go ahead.

Unidentified Analyst: Mel, you noted on your second quarter call that you and your leadership team were doing an analysis regarding corporate development in your five-year scenario. Just wondering if you could give us an update on that? Any color would be appreciated.

Mel Payne: Yes, we're doing an analysis. I said in the third quarter press release that we will grow faster and higher margin than we have in the past, that's what the analysis shows. I just returned along with three other members of the Carriage leadership team from Philadelphia last night where we had the annual and FDA conference, that's the big point in the funeral business.

And we meet with a number of really strong candidates in one of our business and one of the markets. We have something that's unique at Carriage, it's never been created before. It has a lot of momentum right now within the industry; the word is spreading and seats have been planted and succession plans will continue to be needed, all of the consolidation in the 90s. There has been not a whole lot of consolidation of consolidators over the last 7 or 8 years, 10 years. And so I think you will have a lot of increased need for succession plans, evolutions, and no one has a framework like we do than exist, never has existed and so I would think that the way to think about the future is, there is a reason why we're so excited; there is a reason we can -- we know names, we know markets, we know relationships, it's not like this theoretical.

We took the last five years, cleaned up a lot of things, we had fits and starts of acquisition growth, I think we did exactly what we needed to do to get the platform, to get the leadership ready. We are ready. The growth will be high quality and faster over the next five years than it has been in the last -- long time, since '07 when we bought seven businesses and added $25 million of revenue. And I see faster growth, I don't want to try to get into modelling that. We've done that in different scenarios, and there is not a bad one, let me just put it that way, lot of value we create.

Unidentified Analyst: Sounds good, thank you for that color. I'll hop back into the queue.

Operator: And our next question is from the line of Alex Paris with Barrington Research. Please go ahead.

Alex Paris: Good morning, Mel, Ben and Viki.

To follow-up on that question, and I think you touched on it but -- your current five-year revenue in cash flow scenario that you published regularly and much recently in your July investor packet [ph], is that roughly right under -- given that you're cycling through the end of the first five-year plan and getting ready to set a new one? And later in your comments you mean that growth is going to be higher quality and faster over the next five years? Do you anticipate any significant changes to those numbers that are already out there or is it -- is that constantly being updated?

Mel Payne: That's a wonderful question and -- absolutely, that's a wonderful question. The timing for that question Alex, could not be better. Having just returned as I said for a minute, be with our team, we had some wonderful meetings and visits in highly -- we had other activity, I don't want to get into it too much calls, and potentially while we were there. And so we're looking very hard to get that issue and raise them; we're looking so hard at it, we really find it to get a better grasp of near-term visibility; let's say a year or two. But what we found in the past is when you get momentum going at your side, I mean it really carries for a while and I would expect that 2017 will be a year of momentum for the company within the industry, and then that would carry forward from there.

And so one of the things we're doing is, as a team is revisiting so that at year end well into our first five-year timeframe of our good-to-go journeys that never end; and then we will reboot the next five years. So what's after now in the company's investment profile is still a carryover from where we were in the first five-years timeframe is that probably will be changed. How much; I can't say right now but I feel certainly won't be less. And we'll all put our ideas together and as a team we'll come up with a fresh, roughly right range, we'll probably keep the format the same but we'll take a fresh look at that as well. We might have an uppercase, might have effective [ph] case, I don't know what we're doing but we're doing our homework right now and I promise you it will be -- it would be something you want to own.

Alex Paris: No doubt. So as to timing, when will be expect for you to debut the new five-year plan, the new…

Mel Payne: We'll report out of our result.

Alex Paris: On the year-end call, right.

Mel Payne: I'll stick it right out, I'm thinking about sticking it right into threshold [ph] rather than the company invested so far, that's what I am.

Alex Paris: Yes, it certainly sounds you're enthusiastic and the momentum is clearly building, certainly with initiatives…

Mel Payne: I don't think any of them actually needed a plane to fly back from Philadelphia.

Alex Paris: Well, I'm just looking at recent activity; the two acquisitions in 2015. You've already closed three year-to-date and you have two LOIs signed for acquisition that took place in…

Mel Payne: Yes, but that's not why we didn't see the point.

Alex Paris: The -- so with that said and with Dave DeCarlo's retirement, what does the business development team look like today? Had there been any changes in it or any changes in the approach?

Mel Payne: Yes, there has been some changes in the approach. We were highly focused on a huge strategic markets. I would say five or six; we're really hitting all.

A highly focused, highly selective setting, profiling, and fine-tuned to determine whether -- it doesn't take a whole lot to figure out what is a good business using our thin strategic criteria in a good market, a bigger market. And so we had the candidates identified in these five or six strategic areas in the market, we're in the process of vastly betting, profiling, and determining what the timeframe might be or a succession planned solution, adult conversation and even more detailed timeframe about something that should be done and how we can help each other to minimize after-tax proceeds with structure and [indiscernible]. So now we're very focused, very accelerated, the entire team is involved, not just -- like Stan [ph] is doing a wonderful job after Dave's retirement. It's a complete collaboration and that includes some of our DOS in the region, and even some of our managing partners. We have a wonderful business in Philadelphia, we're one of the two places we're building is in the suburb of Philadelphia which has some wonderful suburbs, and this guy is pretty much slain to competition where he is and grown and now he is going to build a new place, and I'm sorry for the competition over there but there will be his victim.

This guy is good; so we have him with -- and we're all in this together, it's a team deal.

Alex Paris: Great. Now looking at -- narrowing the book of survivors, this is like a big strategic market. You said you've identified the candidates, and in order of magnitude, how many candidates are there? I hope that's 10,000 funerals…

Mel Payne: I'm not going to go there. It's all right, it's not 10,000.

There is not one, and there is not 10,000. You know, that's a losing game, I'm not getting into founded model out how many acquisitions we'll do in a year. So some of them are bigger, some of them are not as big and that doesn't really mean a whole lot Alex which we wanted a bigger.

Alex Paris: Well, I didn't mean to ask how many per year; I just -- the candidate, you quantified the number of models…

Mel Payne: These are fantastic businesses, I mean it's not like -- I mean it's like I said in shareholder letter, it's hard -- birds of the feather flock together, when you know the very best in a market, an area, you put aside me and actually have an investor come down last week and we had this discussion at dinner with our team. What does it mean to be great in any industry and how many people are, companies are or individuals are? It's a very small percentage, so we don't want to be just doing deals, we want to be doing quality deals with people who enhance representation.

And so I don't want to get into a numbers game on that kind of thing, in fact I won't.

Alex Paris: I hear you and that its good. And then I just have a micro question I suppose for Ben or Viki, I mean tax rate has been low and you said that -- what should we use for a tax rate going forward? Since it was lower than I had forecast; in Q4 and maybe 2017, this is some sort of ballpark?

Viki Blinderman: Yes, I mean the -- our effective tax rate on our current operations which is still holding at around 40%. The benefit that we received in Q3 kind of brings us down to 35% range. I think overall, if you want to do overall effective rate, it's probably going to be somewhere around 36% by year-end.

Mel Payne: Probably, going -- Alex going forward 40% is a safe assumption and I think the magnitude of our benefit we picked up in this quarter was kind of a one-off deal related to how much CapEx we have last year which we don't expect that level of spending on really going forward so.

Alex Paris: Got you. So revert back to 40% for the fourth quarter, obviously the tax rate for the full year will be lower because of the impact of the third quarter but 40…

Viki Blinderman: Correct.

Alex Paris: On a go-forward basis. Got you, all right.

Well, thank you very much and congratulations.

Mel Payne: Alex, thank you; thank you for your support and your recovery. We'll try to make you look good.

Alex Paris: Thank you.

Operator: [Operator Instructions] Your next question is from the line of Chris Miggins [ph] with Sidoti & Company.

Please go ahead.

Unidentified Analyst: Good morning, thanks for taking my question and nice quarter.

Mel Payne: Thanks. We've got a great company, so you know quarter just happens.

Unidentified Analyst: Yes, sure, of course.

I guess two questions; one, maybe you can just talk about your comfort on your debt levels and maybe even after the two likely acquisitions and maybe with seemingly just a robust market out there in terms of -- maybe on the M&A side, how high you're -- you feel comfortable in bringing up your leverage?

Mel Payne: Yes, Chris that's a really good question. We are constantly looking at our capital structure and where we feel comfortable on leverage. We've said publicly and we still believe at that; our range at four to five times is where we like to operate the business, obviously we're at the high-end of that range today. Given the current level of acquisition activity and what we plan going forward, we don't anticipate our leverage being much above five, and should trend down overtime. And I think the business that we have, the consistency in operating results really support that level of leverage, I mean with low cash interest costs that are easily covered by adjusted consolidated EBITDA which we're really comfortable about our leverage today.

Unidentified Analyst: Great, thanks, I appreciate that. And then second, just a small piece, just wondering -- you did talk about the cremation rate picking up in the quarter itself is there any rate that I guess would be negative to the business overall and what rate would that increase kind of make you a little bit more scared about the industry?

Mel Payne: This is -- I would say going back to when the company was up in the '91, someone had told me 50%, that's very dangerous; that's where we are. I'd say real dangerous where it would be at 110%.

Unidentified Analyst: Sure.

Mel Payne: But I mean give me a break, we've been setting records and it's been going up.

So you tell me what's the danger level? The key is whether you can use the power of your platforms, your people in the way you think and deal with every family to overcome any trend in the short-term. I mean if you had told me that we'd be -- we are an all-time industry adjusting consolidated EBITDA margins and nobody ask us about that. Instead we get asked about the cremation rate and what's dangerous, I don't understand the question.

Unidentified Analyst: Well, I perceived headwind in the industry, so I feel like…

Mel Payne: No, that's the industry problem. I don't think that we have any problems.

Unidentified Analyst: I wasn't saying it was a problem for you, I'm asking a question. I mean…

Mel Payne: Well, I mean I can't…

Unidentified Analyst: All right, congrats on a great quarter, I appreciate it.

Mel Payne: Thank you.

Operator: And our next question comes from the line of Joe Jansen [ph] with Raymond James. Please go ahead.

Unidentified Analyst: Hey guys, great quarter and good job with the rate of the EBITDA margin there. I had a couple…

Mel Payne: If it's a great quarter why did you guys say we had a slight miss on EBITDA?

Unidentified Analyst: Well, that was in comparison to our model but it was…

Mel Payne: What's the model got to do with our company?

Unidentified Analyst: Well, that was our projection for how you were going to perform in the quarter.

Mel Payne: Come here and visit us sometimes, I don't think you -- that would be very helpful than might your model.

Unidentified Analyst: I agree. Well, I had a couple of quick questions here; so your cash flow from Ops is down a little bit in the quarter, and I was wondering if that can all be attributed to the retiring of the lower premium contracts maturing?
Carl

Benjamin Brink: Really the delta and operating cash flow were both on the quarter and year-to-date was entirely attributable to the timing of our federal estimated tax payments.

We became a full cash tax payer on a federal level last year, we had all of our tax payments repaid in the fourth quarter last year where this year we've been paying estimated out-payments quarterly, that's going to even out here in the fourth quarter. We've checked free cash flow to be on par with where we were last year on adjusted basis, even with our cash taxes being about $2 million higher than what we paid last year.

Unidentified Analyst: Got it, perfect, that makes sense. And then lastly, I was wondering when we can expect the severance expense to more normalize following the December retirement under the management?
Carl

Benjamin Brink: Yes, so every large severance and retirement expenses are in our numbers now, we don't see -- we don't have any larger severance expenses going forward and overhead as a percentage of revenue it should normalize in the fourth quarter and going forward. And as we've said on the call, it's going to be versus the last year the fourth quarter will be -- overhead will be down significantly just because I think we've been accruing at a better rate as so far this year.

Mel Payne: Joe, I've got a question. Since you all covered the sector, does your research show that any company in the history of debt [ph] consolidation has reached a consolidated EBITDA margin of 30% using current accounting methodology?

Unidentified Analyst: It does not, and I know that's your goal and you guys are well on your way there.

Mel Payne: No, no; I mean we're almost there with the overheard even when the acquisitions -- I mean we say that but I'd just be curious about what you guys think about that since you've covered the sector.

Unidentified Analyst: Sure. No, I mean that's not something that we've seen you with the leaders in the margin category there.

I think that…

Mel Payne: So what do you think it means?

Unidentified Analyst: Well, I think that's largely attributed to the pre-sales focus for the other consolidators and you guys are able to maintain your pricing power.

Mel Payne: That's it?

Unidentified Analyst: I think that's a portion of it.

Mel Payne: You really need to do more homework on our company and come here and look under the covers because if you use the same ideas that you use to explain the sector, you will completely miss the merits of the uniqueness of Carriage which you are currently missing, completely.

Unidentified Analyst: All right, well I will look into that.

Mel Payne: Thank you.

Unidentified Analyst: I'll go lick my wounds.

Operator: And ladies and gentlemen, this concludes our Q&A for today. I would like to turn the call back to Mel Payne for final remarks.

Mel Payne: I have no final remarks other than it's a wonderful time to be at Carriage, and to be a large shareholder, and an employee, and a leader. Thank you very much.

Operator: Ladies and gentlemen, this concludes our program for today. You may now disconnect. Have a wonderful day.