Operator: Welcome to the Quarter One 2016 Service Corporation International Earnings Conference Call. My name is Ilanda and I will be your operator for today’s call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

It’s now my pleasure to turn the call over to SCI management. You may begin.

Debbie Young: Hi. Good morning, and welcome to our first quarter earnings call. This is Debbie Young, and I’m the Director of Investor Relations at SCI.

As customary, let me being today with the Safe Harbor language. The comments made by our management team today will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. In today’s comments we may also refer to certain non-GAAP measurements such as normalized EPS, adjusted operating cash flow and free cash flow.

A reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday. With that out of the way, I will now turn the call over to Tom Ryan, SCI’s Chairman and CEO.

Thomas Ryan: Thanks, Debbie, and good morning, everyone, and thank you for joining us on the call today. I’m going to begin with an overview of the quarter, followed by a more detailed analysis of our funeral and cemetery operations. So, let’s begin with an overview of the quarter.

Today, we reported normalized earnings per share of $0.28 for the quarter, which was lower than the prior year number, but in line with our internal expectations. We were facing a tough comparable earnings per share hurdle versus a strong first quarter of 2015, which was influenced by an usually severe flu season. We anticipate this decline in funeral volume when gave our guidance back in February and these results are in line with our expectation. At a high level, I summarized the $0.04 decline in the quarter like this. Lower funeral profits primarily driven by lower funeral volume created a $0.06 decline in normalized earnings per share.

This was partially offset by cemetery results, which added back just over $0.01. We had another $0.01 contribution from fewer shares outstanding, reflecting the effects of our share buyback activity over the last 12 months. And finally, we also had a temporarily higher tax rate, but that was offset by lower general and administrative expenses. The highlight of the quarter was our preneed sales success in both funeral and cemetery, which grew on a combined basis at about 8%. This is where it should happen when you combine talented salespeople with the right training and the tools like our customer relationship management system sales force to help drive productivity.

Thank you sales team for your tremendous efforts. Let me mention a few other highlights for the quarter. On the cash flow front, we generated a $190 million in adjusted operating cash flows, only slightly below our prior year number, despite the lower earnings and higher cash tax payments year-over-year. With that robust cash flow, we’re very proud to report that we continue to deploy capital in accordance with our strategy, utilizing $23 million for growing our business through developing cemetery property and constructing new funeral home locations. Additionally, we returned capital to our shareholders through both share purchases and dividends, totaling just under $78 million during the first quarter of 2016.

Additionally, we enhanced our liquidity and improved our debt maturity profile by entering into a new $1.4 billion five-year credit agreement. This affords us continued flexibility in deploying capital and shareholder friendly way, while reducing our overall cost of debt. Finally, I would like to take a moment to announce that we were extremely honored to be presented with the prestigious J.D. Power President’s Award in recognition of our dedication to service excellence. We have worked with J.D.

Power for the last 10 years to measure our customers experience, satisfaction and loyalty. We joined a very small and elite group of just 12 other companies to receive this award in J.D. Power’s 47-year history. My heartfelt thanks to my SCI colleagues for their commitment to delivering consistent, high-quality customer service, which is the foundation of everything that we do. Now let’s shift to a deeper dive into funeral operations for the quarter.

When compared to the prior year, comparable funeral revenues decreased by $14.7 million, or nearly 3%. This was expected as lower funeral volume, negative currency trends, and lower funeral trust fund income put downward pressure on our funeral revenues. As noted in the table of our press release on page 3, core revenues declined $26.1 million, or about 6%, due primarily to a decline in core comparable funeral volume of 6.5%, slightly offsetting the negative effect that volume had on core revenues was a slight increase in the core funeral average. When you breakdown the components of core funeral average, we’re pleased to see a 2.4% organic growth at the customer level. This core customer growth was negatively impacted by three things.

First, the Canadian dollar was $0.73 versus $0.81 in the prior year. This had a 70 basis point reduction in core average. The good news is at the profit level, it was not material and it should be a better comparison going forward. Second, the increase in the cremation mix had a 50 basis point negative effect on the core average. And finally lower trust fund income of $1.5 million negatively impacted the core average by another 40 basis points.

So these three negative trends took a 2.4% customer average growth down to 0.8%. While cremation mix should continue to have a negative impact, currency movements and trust income can become a tailwind at some point. Outside of core revenues, we saw growth of $5.7 million in recognized preneed revenues, which is our nontraditional funeral home business or SCI Direct. Remember, these are the deliverable product components of the preneed contract that are delivered immediately after sale, representing cremation merchandise or travel and protection policy. And finally, other revenue grew $5.9 million, or 20%, which primarily consists of general agency commissions earned on higher preneed insurance sales production.

So now from our profit perspective. Comparable funeral profits decreased $20.4 million, on a core revenue decline of $26.1 million, assuming an 80% incremental margin, and this now excludes selling costs results in a profit decline of $20.9 million. Then we would anticipate our fixed cost base, which approximates $250 million a quarter to grow at about 2%, or $5 million. However, our fixed costs grew at about 1.3% and therefore only negatively impacted margins by a little over $3 million for the quarter. The $5.7 million revenue growth from recognized preneed revenues for SCI Direct generated about 30% margin, or $1.6 million increase in funeral profits, while general agency revenues grew by $5.9 million.

These were offset by similar increases in selling costs associated with our preneed selling efforts. While these can fluctuate some by quarter, the general agency revenue, which is only earned on insurance-funded production generally covers also in compensation costs, including our trust-funded production. Finally, comparable preneed funeral sales production was deferred into our backlog grew an impressive $16.6 million, or 8.5% for the quarter. This is a great start towards our annual guidance of mid single-digit growth. While we experienced the slightly higher selling costs percentage in the first quarter, we expect that – for that to normalize, as we progress through 2016.

Now moving onto cemetery operations, comparable cemetery revenue grew by $15.1 million, or 6.3%. Recognized preneed revenue accounted for a $11 million of the increase, aided by $1.4 increase in atneed revenue and $2.7 million increase in other revenue, which is primarily trust fund income. Recalled from a seasonal perspective, we sell a lot more contracts than we recognized that as revenue in the first quarter of the year, some $40 million or more in both 2016 and 2015. This is mainly, because we’re selling into projects that have yet to be constructed, and seasonally the work gets initiated once the weather gets more conducive. Many projects finished in the back-half of the year, in those quarters, we’ll see higher recognized revenues versus the current sales production.

Remember, we recognized increases in preneed revenue of $11 million for the quarter. The preneed sales production or activity grew even more at $13 million, or 7.7%. We started the quarter off slowly coming off the December close to 2015. But we had a strong finish in the last-half of the quarter, particularly, as we experienced the significant increase in large sales in the month of March. Now comparable cemetery profits increased $3.5 million and the gross margin was essentially flat at 21%.

Growth from the core revenue increase of $12.4 million should produce 60% incremental margins, as these would include selling costs or about $7.5 million of profit for the quarter. However, our profit was slightly reduced this quarter by some 200 basis points, recall it $4.8 million due to higher selling costs rates and higher property merchandised unit costs. Trust fund income increased by $2.7 million and that is 100% margin. And finally, our $100 million a quarter of cemetery fixed cost base grew in an inflationary rate of 2.3% and reduced profits by just over $2 million. So to wrap it up, we believe we’re on track to deliver solid results this year.

We’re glad to have this tough first quarter comparison behind us. We expect to return to our normal pattern of earnings per share growth in the remaining quarters of the year. We’re excited to see the growth in both our funeral and cemetery preneed sales program. And in present, we remain confident in our earnings per share and cash flow targets for the year. Lastly, we will continue to deploy our capital widely, so we can continue to enhance the value of SCI for our shareholders.

With that, I’ll turn the call over to Eric.

Eric Tanzberger: Thanks, Tom, and good morning, everybody. This morning as usual, I’m going to walk you through the details of our cash flow performance as well as our capital deployment for the first quarter, and then I want to touch on our current guidance, as we go forward for the remainder of 2016. So let’s start with some details on cash flow. And as you saw in yesterday’s press release, we generated $190 million of adjusted operating cash flow during the first quarter, which is just under $8 million below the first quarter last year.

The main cause for the decrease was lower earnings, driven by the decreases in funeral volumes offset somewhat by a robust preneed cemetery sales. But additionally, we did pay about $4 million more in recurring cash taxes during the quarter. And both of these declines were partially offset by increases in cash proceeds from preneed cemetery installment collections during the quarter. Now one cash flow item that I really wanted to touch on quickly was $7 million of capital gains that we received from our cemetery ECF trust funds during the current year. A $3 million increase compared to $4 million of capital gains received from those same ECF trust funds in the prior year.

And similar to what I mentioned in the past is capital gain distributions continued to relate to the liquidation of the trust assets at the end of 2014, when we implemented a change in the trust structure following the Stewart acquisition. This $3 million increase in capital gains over prior year was not contemplated in our models when we talked to you in February. Maintenance CapEx and cemetery development CapEx, because you remember are the two components that we consider are recurring CapEx. For the quarter, we came in at $38.7 million, which was about $12 million higher than prior year. The increase relates to the development of contemporary cemetery property, which of course enables our sales force to drive sustainable growth in our preneed cemetery property sales.

However, we do view this increase in the first quarter, as the timing issue, which really related to the timing of cash invoices being paid for these projects. So our 2016’s full-year recurring CapEx guidance remains unchanged $150 million. When you deduct these recurring capital spending items from our adjusted cash flow from ops, we calculate our free cash flow for the first quarter to be just over $150 million. This was slightly below our quarterly expectations, but that’s because of the timing I just mentioned of the cemetery development CapEx during the first quarter. So let’s talk about how we deployed that free cash flow during the quarter.

And as we’ve consistently said, returning capital to our shareholders is a top priority for us. We returned almost $80 million in the form of share repurchases and dividends during the quarter. Specifically, we paid a $0.12 dividend in the quarter of funding just over $23 million in dividend payments. And then we repurchased 2.3 million shares for our total investment of about $55 million during the quarter. Subsequent to the end of the quarter, we have repurchased another just north of 400,000 shares – additional shares for our total investment of about $10 million.

So to update you on our program, we currently have about 194 million shares outstanding and about $216 million of remaining share repurchase authorization. Finally, during the quarter, we had no material acquisition activity. However, in April, we invested almost $12 million in the acquisition of two premier funeral businesses that we welcome into the SCI network. So shifting now to the cash flow outlook for 2016, first, let me take a few minutes to discuss our full-year cash flow guidance. Our expectation for the full-year 2016 cash flow from operations, excluding special items continues to be $450 million to $500 million.

When reflecting on the first quarter cash flow, remember, that our first quarter cash flow is seasonally high due to cash interest payments that primarily occur in the second and fourth quarter of this year. So during this quarter, we paid $16 million in cash interest. We expect to pay about $64 million in the second quarter and about $75 million to $80 million in the second-half of 2016. With regard to cash taxes, we still anticipate our full-year normalized cash tax payments we previously communicated to you to remain unchanged with that level, which remember at an expected $140 million spend. Moving onto our current CapEx, already mentioned this to you that our cemetery development spend came in higher, but also as I said, this is a timing issue.

So we still expect our full-year guidance to remain unchanged at approximately $150 million. So when you put all these pieces together and you deduct our current CapEx items from our 2016 recurring cash flow from operation expectations, this results in free cash flow for the full-year in 2016, ranging from $300 million to $350 million, which by the way equates to about $1.64 per share at the midpoint of this free cash flow guidance. So let’s now move on to capital deployments for the remainder of 2016. And of course the foundation to our capital deployment strategy is first having adequate liquidity and manageable near-term debt maturity profile. So let me tell you about a 2016 refinancing that helps to bolster this.

So in the month of March, we entered into a new $1.4 billion five-year credit agreement with a $700 million revolving credit facility and a $700 million term loan. In March, we drew $550 on the term loan and an additional $30 million on the revolver, which is used to fund the outstanding balances on the old credit agreement. As a result, we finished the quarter with outstanding liquidity of just over $850 million, which consisted of just over $200 million of cash and about $640 million of availability on that new revolver. But subsequent to the end of the quarter, we refinanced our $295 million of senior notes that were due in 2017. Used in these new credit agreement, during incremental $150 million term loan funding and $170 million additional drawdown on our revolver.

This leads us as we speak with about $683 million of liquidity. So I know there are a lot of moving parts in what I just described. And of course, I also said that it crossed over the quarter end. So let me just summarize what I tried to say at the very high level in terms of how it impacted SCI. From a liquidity perspective, at the end of the year at December 31, 2015, we had about $335 million of liquidity.

Today, we have about $680 of liquidity. Our weighted average interest rate came down at the end of 2015 was about 5.2%, today, it’s about 4.7%. And our weighted average maturity pushed up from 5.5 years at the end of 2015 to 6.2 years today. So, of course, this transaction that we did positions us very well to strategically execute our capital deployment plans going forward. Our leverage, which is calculated as net debt to EBITDA in accordance with our updated credit facility was 3.75 times as of March 31.

This also sets us nicely at the midpoint of our target leverage range of 3.5 to 4 times. So, therefore, our liquidity, leverage ratio, as well as our favorable near-term debt maturity profile created solid platform for us to continue deploying capital to achieve the highest total shareholder return. So from an acquisition perspective, I just noted acquisitions we’ve closed in April. We believe we have a healthy acquisition pipeline in place, and therefore, we are comfortable with our current $50 million to $100 million acquisition spending guidance for 2016. Based on our outstanding share count and current dividend rate, we expect dividends to be paid about $100 million in total for 2016.

And therefore, any remaining excess cash flow will be available to be deployed towards other value accretive opportunities, such as the share repurchase program. So in conclusion with the first quarter behind us, we’re excited about the prospects for the remainder of 2016. Our robust cash flow coupled with the strength of our balance sheet will continue to provide us with a tremendous amount of financial flexibility to focus on deploying our capital to increase shareholder value. So we appreciate you joining us this morning. That concludes our prepared remarks.

And now we’ll go ahead, operator, and open it up to questions.

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Scott Schneeberger from Oppenheimer. Your line is open.

Scott Schneeberger: Thanks. Good morning. I’d like to start out by congratulating you on the J.D. Power Award. The first question I would like to ask is is with regard to flu impact, we’ve kind of been tracking it and obviously we saw the results in the first quarter.

Could you please comment on thoughts on a year-over-year comparison in the second quarter, the relevancy, and how you would consider looking forward to next year, obviously, we had a lot of volatility in the first quarter? What you think appropriate run rate would be your thoughts just for modeling purposes? Thanks.

Thomas Ryan: Yes, Scott, so as you think about the impact of severe flu and as you can go back and look at some of the data, particularly over the last 10 years. When you see kind of severe downturns like we’re seeing in the core part of our business call it a rounded 6% down. When historically when that has occurred, we end the year close to down 1% to 2%, which bodes very well for your comparisons when you think about the rest of this year. I will say that last year, my memory is the second quarter was still a little strong, pretty close to flat volume.

So that maybe a harder comparison as you think about quarter-over-quarter. And I think as we think the long-term, we’ve kind of said this historically, we generally tend to model somewhere between flat to down 2%, generally somewhere in that 1% to 2% down range until we see the – we believe is the demographic impact of what will happen in the United States. And, again, I’d point back to people, we’re seeing that demographic impact of cemetery business already today. So we know it’s going to occur. What we can’t predict is exactly when it’s going to occur.

And so, we run our businesses with an idea that we can ramp up when volume shows up, but we model – tend to model down, call it, 1% to 2%, as we think near-term.

Scott Schneeberger: Thanks. I appreciate that. And then just kind of a similar modeling question. Gross margin was a little lighter than we expected in the first quarter by some usual culprits and then of course the higher elevated expenses you mentioned with regard to pre-sales, which is essentially a good thing.

So just looking for a little bit more and thanks for what you’ve already provided with regard to cadence over the year on how you would expect the gross margin to progress, thank you, and drivers?

Thomas Ryan: Yes, I think if you separate the two businesses on the funeral side, volume had such a big impact on what’s going to happen to margin. So I think we feel pretty good about the comparisons as we go forward when you think about funeral volumes. Now by pretty good that probably means that they can be essentially flat when you think about the percentage gross margins, we expect to be able to grow revenues slightly and therefore the gross margin dollars should increase in funeral. But as you think about that to really move the needle on funeral, you need volume. And so think of that as a very consistent predictable cash flow model.

The one piece in those, Scott, that I’m trying to talk to people to about the way to think about our margins and there’s a little bit of an evolution in our thinking is think of funeral margins is being 80% incrementally on the gross margin level. That just includes your ancillary service costs and your merchandise costs against that revenue. Then we’ve got this what I call big fixed costs pool of about $250 on the funeral side to grow inflationary rates, call it, 2% in today’s world. And what we do now as we take the selling costs and the revenues [ph] and separate those out. So if you think about it, that activity really has nothing to do with delivery of funeral services.

It’s a pre-selling activity that generates a general agency commission for insurance-funded, and we pay our selling compensation costs, and those tend to kind of offset one another. So as we grow putting sales, it’s going to have a natural gross margin percentage decline built into business that, in my opinion, you have to look at separately. Cemetery wise, we feel very good about our ability to continue to grow cemetery margins in the near-term. That’s going to occur mainly, because we believe we can grow preneed cemetery sales in the high single-digit range, and again, we’ve done that through five or six years. We believe we can continue to do it.

We did it again this quarter. So I would expect that to continue. We did refer to selling costs. We had selling costs a little higher than we want it. We understand why that was.

We think there is a fix in place to manage that. So we feel better about – back-half of the year when you think about selling costs related to production.

Scott Schneeberger: Okay, it’s sounds good. And looking forward to the balance of the year, I now – I’ll pass it on. Thanks.

Thomas Ryan: Thank you.

Operator: Our next question comes from A.J. Rice from UBS. Your line is open.

Unidentified Analyst: Hi, this is Brandon in for A.J.

here. The question is really around the preneed sales. Investor Day last year, I think you talked about around 25% market share of preneed sales in terms of overall market that you have annually. I was wondering, if you have an updated figure on that. And then just also I haven’t heard you talk about just – what you think the – people over age 60, for example, how many have bought a preneed cemetery contract at this point or preneed funeral, if you have any sort of data points around that? Thanks.

Thomas Ryan: Yes. So, first as it relates to that 25%, as we made clear, that relates to funeral preneed only. So, cemetery, most cemeteries that are core profit have a pretty substantial sales force and the customers preneed selling. But funeral is a little different and you see it in different parts of the country, in different business, in different philosophies about it. So that 25% will really an estimate from us.

There’s not good national data. We do our best market-by-market to understand how people are selling. We can look at some of our larger public competitors. We see things and we’re in the acquisition markets and we buy the business. We know how active they are in preneed selling.

And what I’d say is generally we see that we come in, we’re going to have a more active selling – preneed selling program than the people that were requiring. Now always the case, we went across some really good preneed selling companies. But that’s really how we have derived that data. So I don’t have a new number for you, because again it’s predominately an estimate. But we feel very good about our competitive position in that market.

Second question you had, I’m sorry was…?

Unidentified Analyst: Just if you had any data around just people over age 60, for example, that have already purchased the preneed cemetery contract, just sort of your – overall market penetration if you will, and then also on the funeral side, if you have any data there as well?

Thomas Ryan: Yes, I think as you – I don’t have those specific data as to – in the country how many have. But again I would remind you, the average age of the – the age that we see is the sweet spot for selecting cemetery property is in that kind of low to mid-60s. So when you think about the baby boomers who were now, I guess, the first were about to turn 70 this year. Think about at it this way that six years of a 18-year span have run through the first part of that sweet sport. So as we view the world, there’s two-thirds of the baby boomers left to enter into that decision point.

Having said that that’s the average age. So there are people that are 68, they’re going to come preneed with us that haven’t done it yet. What we did always this is that by the time, people become atneed or we’re we’re burying them in cemeteries about somewhere between 65% and 70% of those people have selected final resting place before they show up. So pretty high percentage before they pass away or selecting cemetery property in advance. And, again, we see a lot of activity in that 60 level.

Unidentified Analyst: Okay. Thank you.

Thomas Ryan: Thank you.

Operator: Our next question comes from Chris Rigg from Susquehanna Financial. Your line is open.

Chris Rigg: Good morning. Just wanted to get a little more detail on the current M&A environment and sort of, it ebbs and flows every year and just a sense for where you think you could end up this year. Is it more likely going to be towards the lower-end or towards the upper-end of the target? Thanks.

Thomas Ryan: Chris, you always ask the hard questions my friend. I wish I could say was certainly, it’s a harder thing to say, because the difference between 50 and 100 generally is going to be a large transaction that comes our way.

So we did think, because we’re going to do $15.3 million transactions or $10.7 million transactions, because we’re going to do a $25 million to $40 million transaction, and that was so hard to predict. You’ve got some out there that we’re speaking to timings, always difficult to predict. So that’s the way to think about it. And I think as we give one of those in the chute then you can have a stronger opinion about our ability to get to the higher end. So we’ll probably know a lot better as the year goes on, I wish I can be more specific.

Chris Rigg: Okay, no problem. And then just one question around, some of the larger sale activity that you described. What – is there any rhyme or reason to that, or is that just locked that certain things hit up at a random time, or is there a long lead cycle, or just some details around how the higher-end properties get sold would be helpful?

Thomas Ryan: Well, I think, we view – I think out cutoff for annualizing large sales is $40,000. And I think if you went to different parts of the country, it would give you different opinions about what a high end sales is. So it’s almost – it’s almost, it’s hard to define what that mean.

My reaction to this is in a couple of thing. We tend to see a lot of activity around Ching Ming, which occurs kind of at the end of the first quarter and beginning of the second quarter, that’s a very, very important time of year. And so you can see a lot of activity from time-to-time depending on what’s going on in those markets. The big markets for us are going to be Vancouver and California and different pockets there. And so, again, if you – if things were good in those cities, then you probably tend to see people a little more confidence or a little more buying opportunity.

The other thing is our available inventory. I think, as you open a new park and you put in higher inventory, you tend to see a flock to the new place impact, and over time that’s going to slowdown the excitement. It’s like the new ride at Disneyland that I’m going to have to go to some day soon. That is the way that, you have that kind of effect when you think about large sales. So it’s hard to predict economically driven, confidence driven, availability and kind of new opportunities for sale is the way.

Chris Rigg: Gotcha, great. Thanks a lot.

Operator: Our next question comes from Robert Willoughby from Credit Suisse. Your line is open.

Robert Willoughby: Hi, Tom and Eric, Penny Willoughby in for Bob.

Can you tell us how the death rate trended in February and March? And do you have any comments on the both ends?

Thomas Ryan: Death rate in February versus March…

Eric Tanzberger: Well, can we start on the last part of your question with regard to February and March death rates?

Robert Willoughby: Sure. Comment on the April trend as well.

Thomas Ryan: Okay. APRIL trend, well, first of all, I’ll start with February and March. Obviously things accelerated in the back-half of the quarter and that kind of comes across the board.

And when we can talk about sales, we could also talk about the number of funeral services being performed. I mean, when we talked to you, Bob, in February, I think it was February 10, around that time, things were kind of, I believe, we just got January results, so double-digits in terms of down, in terms of number of funeral services performed year-over-year. That really flattened out towards the end of February and actually have a little bit momentum going into March. So far I would put that April is really kind of neither way. It’s not that it’s really accelerating, but it’s also not going back towards the January and February almost doom and gloom that we saw.

So kind of just continuing to trudge along pretty consistent with prior year and our expectations of flat to slight down in terms of funeral services.

Robert Willoughby: A follow up for Penny if I could. The share repurchase, Eric, was a little bit lower in the quarter. You had a bigger CapEx number. Would we expect the bigger share repurchase going forward, or maybe just remind us the target for the year potentially?

Eric Tanzberger: Well, I think, in this, obviously we’re going to travel it up and travel it down based on the share price in the market compared to what we think intrinsic values.

At this level, we think that it’s definitely something that we want invested capital towards. However, we also believe, in our history with our acquisition program is that was a better value for our shareholders over the long-term in terms of return on invested capital. So we did have some in acquisition deployment in April and of course as I said, we’ve been excited about the pipeline, which means that we want that capital for that pipeline to some degree. The dividend is pretty normal at the $100 million annual mark that we said and we always revisit that as we do kind of mid-year. But ultimately, I don’t think there was anything reason one way or the other, I think when you comparing it to the prior year, you have to remember we had significant cash balance from the Stewart divestitures that allowed us to go heavier in 2015.

So I recall 2015 we have more of the anomaly Bob, as opposed to 2016 being kind of right on mark, where I expected.

Robert Willoughby: And maybe another last question, maybe Eric, the cemetery trust did well up 2% or so plus in the quarter, where is the other ones were a bit flat? Any reason for the variability between the individual trust I mean there’s some differences in investments I guess, but I thought they’d all be reasonably similar, why wouldn’t they be?

Eric Tanzberger: Well, the cemetery perpetual care is a different animal as you know between the preneed funeral and preneed cemetery, both of those were somewhat flat, excuse me in somewhat consistent with what you just described that 0.3% and 0.5% up for the quarters. Those are the two trust-funded that back to contracts, the preneed contracts and merchandise and services on those contracts. And those were invested 10 to 12 year life, and have the equity – high equity component 50%, about 30% fixed income and then some alternatives and some cash. Endowment care fund obviously is different, because that corporate we will never get and so we invested differently for yield perspective because as it creates interest in dividends and to some extent realize capital gains under same loss that’s when that earnings is distributed to us to offset maintenance cost under a specific state loss.

And of course this year we said this quarter, excuse me, we said it’s a little bit higher, because we had a little bit more or realized capital gains come through then what we originally expected when we talk to you in February. So it’s a little bit of different animal and when we say – when you really look at on together in terms of funeral and cemetery – first two line items which the merchandise and service cost.

Robert Willoughby: That makes a great deal sense. Thank you.

Operator: [Operator Instructions] Our next question comes from Duncan Brown from Wells Fargo.

Your line is open.

Duncan Brown: Hey, good morning. On the non-funeral home matured preneed pricing front was down mid single-digits. Is there anything you can talk about that? Is that just pressure on the pricing front in Neptune business or how should we be thinking about that?

Thomas Ryan: Yes I think that’s a bit – if you think about Neptune in the way that we sell and this kind of gets into the functional aspects, you got a service component and then you got it what I’ll call it merchandised component. The merchandised components consist of seasonally in earn in a way from home protection or travel protection policy.

When we sell those Duncan, they get recognized immediately in income, because they’re delivered – the customer did fear and the customer gets the protection provided during third-party insurance provider, so we done it. The last piece is when the person actually is deceased, we the responsibility to again perform that cremation and those funds are trusted over time. So once you beginning to see occur is the backlog of that service component becoming a bigger part of our business. So we’re seeing a volume growth, because they did such a good job and grabbed the market share. So it’s profitable business, but it puts pressure on the overall average, because there’s more of those types of contract.

So think if it is you rather do it because you’re making a little bit of money on it and not to the business. Also year-over-year if you think about comparing the two averages, we had a business that was in the direct commission business, but it had a different model. It didn’t have the same I’d say sales and marketing emphasis that Neptune had. So as we’ve begun to convert those businesses to look more like Neptune, their backlog is now run into the income statement is shrinking, because we used to put more into trust, put more into this on the actual commission itself. So it’s not something to be concerned with all the level out at some point, but that what’s driving that.

It’s not a big number, so we don’t get a lot of questions about it, but that what’s happening.

Duncan Brown: That’s fair, I appreciate that. And then Eric, I think I missed that you mentioned earlier about some capital gains benefit that you receive this quarter as you were expecting previously. Was that just a cash flow item or was there some impact to the P&L there?

Eric Tanzberger: Duncan, it was from the internal care fund, so the internal care fund, when it get distributed to us, it’s from income and cash.

Duncan Brown: So was there a component sort of onetime income gains in the quarter that we should be thinking about?

Eric Tanzberger: Yes, I would say there was – I would say that we can always – as I described earlier on the earlier question, we’ll always have our portfolio managers perhaps realize some gains on their own.

We’re obviously not managing the money or insurance. But ultimately in certain states as it get distributed to us. But I do agree with you that it was elevated this year, because this is kind of some trail in pieces to it from the original realized gains from the Stewart integration and whether it is distributed to us or not has just taken some time to get through it to the elevated part, I would call it $3 million, which is kind of the increase year-over-year.

Duncan Brown: Great, okay, thanks a lot.

Eric Tanzberger: Thank you.

Operator: We have no further questions at this time. I would turn the call back over to SCI management.

Thomas Ryan: Well, thank you all for participating today and we look forward to talking to you next time in July. Thanks so much.

Operator: Thank you ladies and gentlemen, this concludes today’s conference.

Thank you for participating. You may now disconnect.