Operator: Welcome to the Second Quarter 2016 Service Corporation International Earnings Conference Call. My name is Kristine, 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.

I will now turn the call over to SCI Management. You may begin.

Debbie Young: Good morning. This is Debbie Young, I'm the Director of Investor Relations at SCI. Thanks for joining us today as we discuss our second quarter earnings.

As usual I'll begin with the Safe Harbor statement. 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. Today we may also refer to certain non-GAAP measurements such as adjusted 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 also 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: Thank you, Debbie, and hello, everyone, and thank you for joining us on the call today. As usual I'm going to begin my remarks with an overview of the quarter, followed by a more detailed analysis of our funeral and cemetery operations. And finally I’ll comment on our outlook for the back half of 2016.

So, let's begin with an overview of the quarter. Today we reported adjusted earnings per share of $0.28 for the second quarter, which is on par with the prior year and within our range of expectation. At a high level, we are pleased with this outcome as we maintain revenues, and managed our cost effectively in the face of a very tough year-over-year comparison in both our funeral and cemetery businesses. More specifically, moderate growth in core cemetery revenue, higher recognized preneed funeral revenue and effective fixed cost management were offset by lower cemetery trust funding accounts and lower than anticipated funeral services performance. You may recall that the unusually strong 2015 flu season extended into the second quarter particularly in the month of April, and the first half of May.

Let me also mention a few other notable items during the quarter. We generated $69 million in adjusted operating cash flow, which was a reduction as compared to the prior year quarter as it absorbed higher cash tax payments that we had anticipated and timing differences associated with payroll and other working capital items. This cash, as well as some of the significant cash generated in the first quarter, afford us the ability to deploy capital, to enhance shareholder value. First we invested just under $53 million in two transactions resulting in the acquisition of eight funeral homes and one cemetery. Furthermore, we invested just over $19 million for growing our business through developing cemetery property and constructing new funeral locations.

And finally, we were able to return capital to our shareholders of almost $52 million in the form of share repurchases and dividends. Also within the quarter, we refinanced our near term 2017 debt maturities which resulted in a $21.9 million loss on early extinguishment of debt. This transaction lowered our weighted average interest rate, increased our weighted average debt maturity and significantly enhanced our liquidity. Finally during the quarter, we took an impairment charge for approximately $31 million associated with the recently agreed upon sale of our six funeral operations which operate on leased properties on catholic cemetery grounds of the LA Archdiocese. By selling these operations to the Archdioceses, the resolved litigation surrounding the lease terminations they delivered us shortly after our acquisition of Stewart Enterprise.

We will receive approximately $27 million the preponderance at closing which is anticipated during the fourth quarter. We also retain the right to the cash generated since our ownership of Stewart in December 2013. While this transaction should not have any material impact to our 2016 guidance, it will likely result in a net $0.02 per share headwind for earnings per share in 2017. Now diving deeper into the funeral operations for the quarter. Comparable funeral revenue decreased by $4.7 million, or 1% compared to the same period last year.

Funeral revenue and particularly core funeral revenue continues to be squeezed from lower funeral volume, higher cremation rates and continued pressure from lower trust fund income and negative Canadian currency comparisons. Higher recognized preneed revenues from SCI Direct has helped to overcome some of this downward pressure. As shown in the table of our press release, core revenue declined $8.3 million or about 2% due to primarily to a decline in core comparable funeral volume of 3.4%, as we continue to experience some headwinds from the unusually strong flu season in the first half of 2015. Hoping to offset the negative effect that volume had on core revenues was a 1.3% increase in the core funeral averages. When you breakdown the components of core funeral average, we are pleased to see a 3% or 300 basis point improvement in organic growth at the customer level, as we continue to focus on enhancing our merchandise and service offerings for both the cremation and the burial customer.

This 3% organic growth in the funeral average was reduced to 1.3% and are riding at reported core funeral average growth primarily because of three things. First, the increase in the core cremation mix had a 90 basis point negative effect on the core average. Second, the Canadian dollar was $0.78 versus $0.81 in the prior year. This had a 40 basis point reduction in our core average. The good news is at the profit level, the impact is less significant than what we’ve experienced in the past few quarters as we start to lap some of the lowest currency rates, we should see a better comparison in the second half of 2016.

And finally lower trust funding income of $1.7 million negatively impacted the core average by 40 basis points. Outside of core revenues, we’re pleased to see continued growth in recognized preneed revenues of $3.6 million or 14%. Recall, these are the deliverable product components of the preneed contract which are delivered immediately after sale primarily representing cremation related merchandise of SCI Direct and travel protection policies sold by the non-funeral home network, as well as within the core funeral home network. From a gross profit perspective, comparable funeral profits decreased $7.2 million quarter-over-quarter and margins were 19.1% compared to 20.5% in the prior year quarter. The majority of the decrease in funeral profits is a direct result of the lower funeral volume I just described along with higher selling cost incurred as preneed funeral sales production grew by 5.3%.

On a positive note, we experienced lower expenses by effectively managing both our variable and fixed cost in this low volume environment. As I mentioned, comparable preneed funeral sales production grew an impressive $11.1 million or 5.3% in the quarter. If you recall, our funeral preneed production suffered a little bit last year, so we are particularly excited to see the return of these levels of production growth. At the end of the second quarter, we had $7.1 billion of future funeral revenues from our funeral deferred contract backlog. In summary, the first half of 2016 was really tough as lower funeral volumes are hard to overcome.

However, I am encouraged by the organic growth in the funeral average as this is being enhanced by our investment in technology, HMIS+ and our great people presenting valuable option to our client family. As we look at the back half of 2016, we encountered an easier comparison on funeral volume and we would expect the negative Canadian currency and trust income in fact to be less of a headwind. As always we will be mindful of continuing to drive lower cost. Now shifting to cemetery operations. We were very pleased to see revenue growth in our cemetery segment in the face of a tough comparison over the prior year quarter.

Comparable core cemetery revenue grew $4.9 million or 2% which was a combination of higher atneed and preneed revenue. Preneed revenue grew $1.6 million resulting from higher preneed cemetery sales production of 1%. Well, this is not the level of growth we are used to, we are still pleased as we face the particularly tough comparison over prior year as the second quarter of 2015 was up some 17%. Large sales for the quarter were down about $4.7 million, so excluding that impact we increased our contracts written by about 3% and our average price grew by about the same, 3%. So again overall not a bad result.

For the six months of 2016 comparable preneed cemetery sales production increased $15.2 million or about 4% compared to the first half of 2015. Atneed revenue for the quarter increased $3.3 million primarily due to a higher average sale per contract. The decrease in other revenue of $3.9 million was primarily related to the decrease in cash distribution of capital gains from perpetual care trust. So, comparable cemetery gross profits increased about $900,000 over the prior year quarter and the gross margin increased 20 basis points to 25.7%. Profit growth from the core revenue increase, was offset by the reduction in other revenues or lower capital gains from our trust funds.

Additionally, we benefited from lower merchandise and healthcare cost during the quarter. Again as it relates to the cemetery segment, the first half of 2016 was a high hurdle to get over. In the first half of 2015, we grew preneed cemetery sales production by 17%. Now on top of that growth, we grew an incremental 4% in 2016. So remember in the back half of 2015, growth slowed to about of 8%.

So if you think about our hurdle in the coming six months, the comparison should be a little bit easier. So now to wrap it up, we continue to believe that we're on track to deliver solid results for the full year 2016. We knew coming into the first half of the year that we had a very high hurdles to overcome on both funeral volumes and preneed cemetery sales production as compared against the first half of 2015. When we gave our original guidance of $1.20 to $1.36, the $1.36 assumed a lot of things go our way. And the $1.20 represented a scenario where most things did not.

The first six months of this year we performed admirably, in a challenging funeral volume environment. Taking this into consideration, we believe it is prudent to reduce the higher end of our guidance range and narrow our range to $1.20 to $1.30 to normalize earnings per share. We expect to be able to share the impressive growth and earnings per share in the back half of 2016 and intend to continue to deploy capital wisely to generate shareholder value for you. With that I will turn the call over to Eric Tanzberger.

Eric Tanzberger: Thanks, Tom.

As usual today I’m going to provide you some details of our cash flow performance and capital deployment for the quarter and then I want to touch on our financial position and our outlook for the remainder of 2016, similar to what Tom just did as well. Let's start with the details of cash flow for this current quarter and as already mentioned and as you've already seen, during the second quarter we generated $69 million of adjusting operating cash flow which was a decrease of about $33 million from the prior year. However it was generally in line with our expectations. So now I'd like to give you some details on why cash flow declined year-over-year while earnings were generally flat. First and as expected, we paid about $18 million more in recurring cash taxes during the quarter.

Next we had an expected $8.3 million increase year-over-year in our payroll funding which is just simply a timing difference, a temporary timing difference with the way the July 4 holiday fell last year versus this year. So, the way you should think about this is that this will result in an $8.3 million cash flow benefit in the third quarter of this year, so just a timing difference there. Another cash flow item during the quarter I want to highlight relates to trust fund income. Although total capital gains during the quarter were less the prior year, we did receive $6 million of cash distributions of capital gains from our cemetery ECF trust funds during the current year at core. This is in line with a similar amount of $6 million of capital gains we received from the same trust funds in the prior year quarter.

Similar to what I have mentioned before on these calls, these special capital gains distributions relate to the liquidation of trust assets at the end of 2014, when we implemented a change in our trust structure following the Stewart acquisition. We do not expect that we will see these levels of special capital gain cash distributions of this magnitude in future quarters or future years. So this topic is generally behind us at this point. Moving on to other parts of our cash flow statement, maintenance CapEx and cemetery development CapEx which again is what we call the two components that we defined as CapEx within our free cash flow calculation, these components came in at $38 million for the quarter, which was about $2 million higher than prior year. When you deduct these capital spend in items from our adjusted cash flow from operations, we calculated our free cash flow for the second quarter to be just over $30 million.

So let’s talk about deploying this free cash flow in our capital during the second quarter. Our capital deployed to acquisitions and to shareholders was significant in the quarter totaling roughly $105 million, which by the way is in line with capital we deployed in the prior year quarter. However, this quarter it was deployed differently when compared to the prior year and Tom has already mentioned, we are pleased to note that we invested a robust $53 million on two acquisitions during this quarter. Remember as we’ve said in the past, accretive acquisitions remains our highest priority for capital deployment due to the significant after tax cash returns we generally receive on these investments. These are all great businesses and we are very excited to have them on board with SCI.

We also pay just over $25 million in dividend payments and as a side note by the way, the second quarter dividend rate of $0.13 reflected an impressive 30% increase over the prior year quarter. Last and again certainly not least, we repurchased a little over 1 million shares for a total investment of $27 million during the quarter. Subsequent to the end of this quarter, we have repurchased about $300,000 additional shares for total investment about $7.5 million. We currently have around 193 million shares outstanding and about 192 million of remaining share repurchase authorization. Now let's shift away from the quarter and talk about the second half of the year as it relates to cash flow.

So in terms of our full year cash flow guidance, our expectation for the full year of 2016 cash flow from operations excluding special items remains unchanged at 450 to $500 million. As a reminder, we are projecting our full year 2016 normalized cash tax payment to be about $140 million and that compares to $93 million in 2015. During the quarter we paid $64 million in cash interest rate bringing our first half of 2016 cash interest payments to about $80 million. But in the second half of 2016, we expect to pay around $5 million less or about $75 million of cash interest which will result in our full year cash interest of about $155 million and about $9 million less than the prior year. And this reduction is primarily result of our refinancing transactions that we completed earlier during 2016.

Finally, we still expect our cemetery development and maintenance CapEx full year guidance to be approximately $150 million. So when you exclude these CapEx items from our 2016 full year adjusted cash flow from operations our full year expectations for free cash flow remains in the 300 to $350 million range. So in closing, let me provide a high level of view of what we consider our financial position. First, we begin the second half of 2016 on sound financial putting with great liquidity and a very manageable near-term debt maturity profile both bolstered by the recent refinancing of our near-term 2017 debt maturity. We finished the quarter with strong liquidity of $589 million and this consists of $172 million of cash on hand and about $417 million of availability on our long-term revolver.

Our leverage which is calculated as net debt to EBITDA in accordance with our updated credit facility was 3.86 times as of June 30.This positions us within our target leverage range that we’ve discussed before of 3.5 to 4 times. So in conclusion, our liquidity, leverage ratio and favorable near-term debt maturity profile creates a solid platform for us to continue deploying capital to achieve the highest total shareholder return. From an acquisition perspective while we have already achieved the low end of our acquisition spend target for the year up 50 to $100 million, we believe we have a healthy acquisition pipeline in place yielding further opportunities to possibly finish at the midpoint or upper end of this range as we progress through 2016.We expect full year 2016 dividends pay to be around 100 million based on the current dividend rate and share count and we will continue to deploy any remaining excess cash flow to other value accretive opportunities which of course includes share repurchase. So with that, we appreciate you joining us this morning. And now operator we’d like to return the call over to you for questions.

Operator: [Operator Instructions] And our first question is from Scott Schneeberger of Oppenheimer. Please go ahead.

Scott Schneeberger: Thank you, good morning. The guidance implies as you mentioned accelerating earnings growth in the second half of the year, can you discuss the drivers that are the major swing factors there that could put you at the high end or the low end of the range. Thanks.

Thomas Ryan: Sure Scott. This is Tom. The things I think are going to drive that are really a couple, really a plethora of things. One is we think we’re going to have better comps as it relates to funeral volume in the second half of the year because if you recall on 2015, we had a lot of funeral volume growth in the first half which then kind of tracked off on the second. The second thing is we believe we’re going to continue to grow cemetery particularly preneed cemetery sales in the back half of the year like we have historically.

Again we've got a little better comp to go I guess, it still grew 8% last year but we’re excited about the momentum in our sales force. And there is some natural things that are just put into place that Eric talked about from a balance sheet perspective. We've lowered our interest rate as it relates to last year and we're going to see a better year-over-year comparison in the back half of the year. And then the impact of our share repurchase program. We got pretty aggressive out there over the last few years and so as you think about share count that’s going to be better.

So if you put all those things together and we feel pretty good particularly the last two because they’re already in place, the first two we’ve got to execute but we feel really good about our position and the momentum we’ve got like I said within our sales force and within our upstream.

Scott Schneeberger: Great, thanks Tom. You guys noted that in the quarter you had some fixed cost management assisting margins. Just curious could you elaborate on that and is that something just managing in a relatively lower volume environment on the tough comps or is that something that we may see persisting as a go-forward? Thanks.

Thomas Ryan: Yes, Scott, it’s a lot of things.

So if you think about it when we have a lower volume, we can manage for instance our labor cost within that environment, so we can share people a little better not use as much part time help. We can utilize our fleet a little more effectively. The other things that happened in the quarter again kind of go back to supply chain and our good people there that are everyday working harder to get better deals inked as it relates to some of our supplier cost. So we were able to negotiate and renegotiate some good terms on suppliers so the effects of that are in that number. So, it's a cumulative thing and I think in a low volume environment we’re just able to manage particularly the fleet of the people cost a little more effectively.

Scott Schneeberger: All right, thanks. And then I just have one more follow-up and I’ll pass it on. In light of these first two questions how are you thinking about funeral and cemetery margins in coming quarter and any swing factors of note for either of them? Thanks.

Thomas Ryan: I mean, funeral volumes is going drive the margin side of this thing. So just think about the third quarter it's dearly a quarter as it relates to seasonality where you get to see lower margins and as you pick up a little bit, as you get to the fourth quarter you get into flu season and a little change in the weather.

Cemetery is again very seasonal related to construction. So you think about margins what happens typically and again this changes your year while we’re comparing seasonality period but in the first half of the year we’re selling into projects that aren’t built and so a lot of the times we’re actually selling maybe 20% or 25% more than we’re recognizing. And then as you get into the back half of the year particularly the fourth quarter, a lot of those projects get finished and as they get finished we’re going to recognize more revenue. So in the fourth quarter you should see more recognition than sales. So that’s a much higher margin quarter historically.

We would expect similar patterns for the back half of this year.

Scott Schneeberger: Thanks very much.

Operator: Thank you. Our next question is from Chris Rigg of Susquehanna Group. Please go ahead.

Chris Rigg: Good morning, guys. Just wanted to sort of better understand the normal sort of seasonal patterns in the preneed cemetery sales, I mean, forgetting about the comp component and the year-to-year change I mean it looks like the absolute level of production on a dollar basis swings around quite a bit from quarter-to-quarter and it’s probably something I really haven’t focused on in terms of absolute dollar production. Just can you give us a sense for the normal selling patterns there and how we should think about the back half of the year. Thanks.

Thomas Ryan: So that's a very good question Chris, and so when you think about we typically see the best cemetery sales around - you have particular days, like you think about Mother's Day, and events like that, you're going to see a lot of activity in cemetery.

When you think about ethnicity and customs, Ching Ming is a massive event for that segment of the population. So those are going to be drivers in projected quarters. So for us, you generally are going to see in March or April a big swing in the seasonality of those types of events. Now stepping back a little further and just look at the general population, you’re going to sell a lot more cemetery property when people at home and not on vacation, and when the weather is good because you’re going to get cemetery tours. So think about walking a cemetery in February at Chicago, there's not a lot of people out there.

They're staying inside but in the summer months, particularly if they’re at home, that’s a great activity for our business. So you are generally going to see, when the weather is good, you generally are going to see when people are on vacation or away on holiday. And so you miss some sales if you will over these holiday periods where people are on vacations, travelling, that’s not a good time for our cemetery sales production. So you tend to see very good activity, probably a little tougher activities when you think about the fourth quarter. But from a revenue recognition, that’s where it’s little bit confusing, we’re finishing a lot of these projects where they get drawn up, they get a lot of the activity happens when the weather is good and they finish in the fourth quarter of the year.

So think about it from a sales perspective is, kind of front heavy, and think about it from a recognition perspective kind of back heavy.

Chris Rigg: Great. And then just on the M&A environment, I mean from my point of view, it’s sort of slow and steady and has been for a while with exceptions obviously every now and then. I mean, is there any reason to think that the overall selling dynamic is poised to change or is it just more the same where it will be somewhat lumpy? And then really what I'm trying to get at, if it remains in the same sort of pattern, is there any appetite for potentially accelerating the share repurchases with maybe taking the leverage up above the four times? Thanks.

Thomas Ryan: I’ll speak to the acquisition, and I’ll let Eric speak to the leverage.

But on the acquisition side, you're right. The reason it looks lumpy most of the time is because of the size of the transaction. So the pipeline is pretty consistent and we get deals closed. But every once in a while you get pretty big deal close and that’s why, Eric mentioned we spent $53 million, but it was two transaction. So you can do the math and say, that was a pretty big transaction on one of these.

That's the stuff you can't predict because we don’t know when that big acquisition is going to come. What I'd tell you is we’re seeing a lot of activity. We’re not surprised by that because when you think about the ownership level of these businesses, it’s not unlike our customer. The typical ownership of these businesses is a baby boomer, and they are reaching a point in their life where they are beginning to say, what’s the next move, and we are probably seeing less and less generational passing of the time. So they've got a look and say, do I want to sell it to my employees? Do I want to sell it somebody else? Or do I want to sell it to SCI who is going take that property, put some money, put some love, put some investment? Is he going to take care of my people and I think we are a great option because people look at it and say, it's an investment opportunity for my folks, they are going to take care of it, they’re going to be here for a long time, and maintain the great name in our community.

So we think we have a real advantage as we go around. And again, because of the demographic of the owners, we’d expect again, not a massive acceleration but we expect more and more of these deals to begin to come up and we think we're going to win our fair share there.

Eric Tanzberger: Chris, in terms of leverage, what we want to do obviously is deploy all our free cash flow to the relative highest after-tax cash return. And that's why our acquisitions most of the time, especially with these deals that we have in front of us now ends up winning over share repurchases, surely from a return perspective. Absent that if you have excess cash flow, and if we will deploy it toward share repurchases and we have a track record of it.

In terms of going above four times, I think we are pretty comfortable where we are between 3.5 to 4 times, I think we've certainly considered that in the past and have thought that it's more reasonable for several factors to stay where we are. However, we’re always open minded, I think a couple of years ago, we discussed on the call with you that we're kind of more around the three in a quarter times a leverage now we’re up about 3.75, three in three quarters. So we looked at it, we looked at the enterprise risk associated with it and we saw the shares with a certain amount of value to them. And we kind of took our methodology up have return and we deployed that capital in 2015 and in my opinion very effectively with the correct return associated with that capital of deployment. So that kind of gives you some insight into our methodology and in our thinking I never say never but right now I think we’re pretty comfortable with where our leveraging and our methodology is.

Chris Rigg: Okay, great. Thanks a lot.

Operator: Thank you. Our next question is from A.J. Rice of UBS.

Please go ahead. A.J. Rice: Hello everybody. So maybe just follow-up first on the acquisitions, can you just give us any update on what you're seeing competitively, is there any emerging private equity or otherwise money that is competing with you how is the pricing on these deals versus what it has been and maybe a little comment you mentioned the better returns is there any way to quantify their - what that return compares still like using it for share repurchase in your mind?

Thomas Ryan: Yes, A.J., this is Tom. Good to talk to you.

So I would say that again from a competitive environment we're seeing kind of the same players. There's a little bit of private equity that we see from time to time on deals. Clearly you’re going to see from time to time carried and some more another people. But our acquisition opportunities is going to come in two different buckets. We are seeing - we do see quite a few deals where we have relationships with people while they’re going to approach us and say, let’s make a deal.

And generally what they will say to us is give me a fair price don't try to nickel and dime me and we’ll go to the dance and not seek other partners. And surprisingly we see a lot of this and network is really well and that generally through the efforts of hard work of developing relationships over time with different people in our organization that are out there in the industry event getting to know people and if people you just want to go with SCI because they think we’re the best. And I think there's a competitive environment to where we’re going to be competitive with others. What we’re seeing is generally people are staying within those lines, we’re not seeing a lot of overpayment like we saw in the 90s. Generally we’re seeing deals traded somewhere between seven and eight times EBITDA and depending on where that business is whether it’s in a large city or small town depending on whether it’s a cemetery or funeral hall.

But generally you’re seeing in those types of transactions and we're not seeing necessarily any higher prices as you think about those types of things. And A.J. your second question was…
A.J. Rice: Just the returns thinking about you're saying that you get better returns on acquisitions I wanted if there’s any way to quantify that?

Thomas Ryan: It’s hard to do, what we’re generally saying is the internal rates of return on these things which is the primary where we evaluated. So all we’re looking at this kind of flow and what we think the return is.

So I’d say most of our deals range somewhere between 12% and 16% top 17% internal rates of return which are well in excess of our weighted average cost to capital. So those are great returns for our shareholders. You can look at share repurchase in a 100 different ways; we try to quantify that a little better. We’ve got a various different methodologies to do that. So we kind of view of our cost of equity and call it in a 8%, 8.5% range and then we do models that say this kind of cash flow where we think the companies work.

So we can kind of quickly figure out based on what we’re paying versus what we think the companies were. And then evaluate that against our cost of equity call it 8%, 8.5%. And so these types of ranges if you try to compare those two things you’re getting into low double-digit types of returns as we buyback our shares but probably not as the 15% range. So nearest point, we think acquisitions are the best use of our front, let’s say the current price. Now you do get the price that you'd say I’ll much rather back up the truck and buyback a hell lot more shares, and we're blessed with enough cash so we can do both.

So that’s how we look at it. A.J. Rice: Okay. And maybe I will just ask you as well about the buyback of the properties by the Archdiocese, I guess I call them buyback. Is the $27 million, is that net proceeds to you, is there any cash state or whatever taxes that you have to pay and I know you said it was a couple cents I think headwind, how much revenues are we talking about that come off and is there anything else of legacy Stewart that’s like this, that you might have to redo?

Thomas Ryan: Okay, so first of all let me answer the last question first, there is nothing else like this in Stewart.

This was a pretty unique - this is what we meant even though it wasn't written that way. So we were very pleased with the way this rolled out, but we think this is a really good resolution to a problem, we’re going to get $27 million, I think the taxes will be about $3 million as it relates to what we are going to pay. But the way we look at it is we are able to maintain owning this business for 3 years, so think about it, if we are able to generate cash pretty significant amount of cash the approximate is what we have got and so effectively we ended up selling this business for 6 times the EBITDA when you combine the cash we are able to retain and the money that we are going to get above closing. Again we would have loved to kept it but we think this was best for our shareholders and best for us to move on with a lower co-ruling that we have in the prospects of what the appellate court would do. So bitter sweet but we are going to move on and the $0.02 really reflects the fact that we are going to lose some EBITDA so we got some cash to redeploy and invest in other businesses or buyback shares and naturally how we come to the $0.02.

A.J. Rice: Okay, all right. Thanks a lot.

Operator: Thank you. Our next question is from Robert Willoughby of Credit Suisse.

Please go ahead.

Robert Willoughby: Hi, Tom and Eric, you have answered half of my question already but just the deal spending to-date, what you did in the quarter, can you give us some ideas what it was that you exactly required and can it take any kind of bite out of that $0.02 hit, won't these things be somewhat additive for you or too early to say that?

Thomas Ryan: Like the glass is half full Bob, that’s good. No, you’re exactly right, I would have said that, you said it for me but that’s the way we think about it too. Think about what we did in the first half of this year and what we will probably do in the next month is going to replace that or more. So it's a bump in the road we don't like it, but I think it’s best to move forward and you said it exactly right, we feel very good about the pipeline, opposite issue is going to be a great acquisition year.

Right now, I bet 17 is going to be a good one too. And we are going to continue to work hard at growing this business and take like Eric said, this continues to redeploy that cash in the highest and best use. So you’re going to see a growing robust acquisition pipeline and continuing to shrink that equity and own more of these great businesses.

Robert Willoughby: What did you buy actually though Tom in the quarter?

Thomas Ryan: It was two transactions where we brought eight funeral homes and one cemetery and they are located in the state of Connecticut and Indiana, the two transactions. So, and again we've got more to come in a variety of other states at different levels.

We got letters of intent signed and I think about three transactions and negotiating other deals as we speak. So we are very excited about and think there is more good news to come as it relates to acquisitions.

Robert Willoughby: Okay. And any comment just on July trends. You usually been helpful giving us early look in the quarter?

Thomas Ryan: Yes, I mean as it relates to volume, we are not seeing a big turn yet.

I don’t think it's as bad up so it’s the first quarter comparison. Again we are still looking at few weeks in July, so that could turn around. On the sales front it looks pretty good, I think as it relates to the prior year, we feel good about getting back at it and we are excited, again get into the third quarter and continue to grow our sales activity and like we talked about some of the other things are in place. Like Eric said, we’ve got lower interest rate, we’ve got more capacity, our lines and we’re continuing to reduce that share count. So we feel good about the third and fourth quarters and our ability to get back to the growth levels that you guys get excited about.

Robert Willoughby: I would have thought that searing heat here would have done more for you on the current months. But - thank you.

Thomas Ryan: Not yet, not yet. That having in the voice based convention I think.

Operator: And our next question is from Duncan Brown of Wells Fargo.

Please go ahead.

Duncan Brown: Hi, good morning. Just a few for me, you talked really about the core funeral pricing of about 3%, I’d love any color or flavor how sustainable you think that is going forward?

Thomas Ryan: I think it's very sustainable as it relates to the core. Duncan I think the thing that we're excited about is we’re continually developing new products and services that people can buy through the package or through the À La Carte selection option. One thing we did is we rolled out a new point-of-sale system called HMIS+ and what it does it takes advantage of technology that allows us in a very concise way to walk people through the variety of options.

And this technology really enhances our ability to walk them through those options in a way that’s very attractive as with the training as we’ve rolled this out and it’s getting to more and more places all the time. We're seeing people select more options and that's generating again higher levels of revenue and is supported by royalty and customer satisfaction surveys that say people are more satisfied with it. So we view this a real win for the customer or real win for us. And we’re seeing a variety of impacts in different market. So people embrace it quickly some little bit longer but our great people are using a great tool and getting higher customer satisfaction and higher revenues per case.

The headwinds we’ve got, we’ve talked about them on the call, Canadian currency which should in, I mean I don’t want to talk about Canadian currency ever again if I can. But it was pretty big on the revenue line again not so impactful on the bottom line. Trust fund income ought to get better as time goes on, we’re seeing the markets participate a little bit more effective. And the one thing that we’re always going to have is that cremation mix change that’s going to continue. So 3% of the customer level ought to be knock down by call it a 80 to 100 basis points by cremation mix and that ought to be our sustainable growth and average.

Somewhere around 2%, if you don't have the other two headwinds I mentioned. So that will be geared to get back to that number. We haven’t seen that for probably seven or eight quarters now. And so I feel good about our ability to continue to utilize HMIS+ and I expect that have an impact all the way through next year as it relates to year-over-year. And again it’s just a better tool in the hands of our great people to deal our customers right.

Duncan Brown: So maybe a follow-on there that that 3% again before cremation et cetera, is that would you view as it is pure pricing or is it more of a reflection of adding an additional element to the card, i.e. new products and the services?

Thomas Ryan: It’s really both. I think while you’re seeing it get to 3% it’s because of more products and services. It’s not going to - I mean a great example would be, we may have sat down with the cremation family before and we may be – we may think in my minds as an arranger and you’re doing this all the time and people of different skill levels and knowledge levels. And so I may sit down with the cremation family and think I know what they want.

What HMIS+ forces us to is walk through the option. So you’re going on to and you’re being able to show here’s a variety of options and so you’re showing more choice, you’re presenting in a formed manner and once you find those customers say I want that. I didn’t know I can do catering, I didn’t know I can do that. And so it’s really kind of forces the conversation and forces the training because I’m going to make sure I understand all of the things that I have to explain to a customer. So I would say a lot of this is the fact that people are choosing more options because we are having to present them through the use of our point of sale system.

Duncan Brown: Okay. That’s helpful. I appreciate it. And just switching gears back in June you announced, I think 40 million of investment in Texas and I wonder if you could spend a few seconds characterizing that, is most of that spend growth related or is it more sort of maintenance, renovation and I know following further I know you reiterated your 2016 CapEx guidance but should we may be expect higher levels in 2017 and beyond in part due to this?

Eric Tanzberger: No I mean, we reiterated $150 million and the component of that Duncan as is cemetery development. And you can - that’s obviously a recurring CapEx spend but you can also consider is growing more inventory for our sales folks to sell and create revenues.

I’d also point you to how we did the CapEx in the press release this quarter. Well, we kind of broke out some growth CapEx expenditures which is primarily related to the construction in new funeral hall facilities which we're starting to ramp up and we’re excited about those opportunities. In fact the spend year-to-date is probably up about $5 million as we speak. And of course you should assume that those projects have a great return and the proper IRR after-tax cash return as the acquisitions did. In terms of specifically within the State of Texas, I think that was the specific press release aimed at some local markets but primarily that relates to a couple - I think there was one funeral home and the cemetery development spend which is more ongoing.

So I don't think I’d take that particular announcement that was aimed at specific Texas markets and extrapolate that anything differently than what we normally where you and I are talking about in terms of deployment of capital and maintenance in cemetery development CapEx.

Thomas Ryan: And Duncan I think that release was again like Eric said geared to local investment. With the old downtown in Texas I think a lot of people here looking at what are companies doing to invest back in the communities. And that number was probably cumulative not necessarily for 2016 but an overall investment over a period of time in those markets. So like Eric says, it's hard to correlate.

It wasn’t intended to enhance our disclosure as it relates to overall spending.

Duncan Brown: Perfect. That clarifies it. Thank you.

Operator: Thank you.

And our next question is from John Ransom of Raymond James. Please go ahead.

John Ransom: Hi, good morning. Just a quick one from me, if you look at your M&A in the first half of the year what's the EBITDA contribution through the six months. I know there is timing versus what you think it will contribute in the back half of the year? And then a follow-on to that is Eric you said you pay between seven and eight times, what do you hope to drive that multiple to over say three or four years and how do you - what's the main lever you pull to get that multiple done?

Thomas Ryan: Okay, John how are you doing? Good to talk to you.

John Ransom: I’m great.

Thomas Ryan: Good. So the transaction timing the larger of the two transactions occurred very recently. There’s really almost no contribution from that. The smaller of the two I think happened in the beginning of the second quarter.

So, again not a lot of impact so most of it's going to happen in the back half of the year. As you think about acquisitions in our hands and again everyone is a little bit different way. But I think the way to think about for us is, as you think about our funeral acquisitions major preneed of funeral transactions we're going to take those businesses, the first thing we're going to do from an impact of value is going to be - we’re going to take our buying power and transfer that into the business day one. So think about caskets, we buy them a lot cheaper think about. Really about really supply that they may use.

We also take those businesses and we tie them into our network as it relates to pay roll and accounts payable and a lot of these administrative duties surrounding those businesses. So a lot of times when we buy businesses we may not need all the employees to come onto the payroll. And again we talked about those in transition before we buy them and before we bring them online. So almost immediately you can take a transaction and knock it down into the sixes. And now we get into the top line stuff so on the funeral side it’s a - and we’re using our dignity showrooms and we began to sell packages to the customers who now our HMIS+ system where people are buying more.

And we find that that takes a little bit of time in training but again as you get into 3, 6, 9 months you begin to see that impact as well. So ultimately I’d say you get into year 3 to 4, from an EBITDA multiple, you may be down into high fives and that tell Eric when you get back to his math of internal rates of return of 12% to 18% let's call it, that's the magic in that one. Cemeteries are kind of the same probably less leverage on the cost side but generally because we've got such a great sales force and great leadership, we can take a lot of experiences that we’ve had in other markets and look at those markets maybe a little differently than the former. We may see ethnic opportunities where that they weren’t exploiting in those market as well as we think they should and again not because we're better or smarter but we just see a lot more with the large network that we have and we can take that learning and apply to the market. So that’s why we think we’re so valuable, probably a little more cost leverage on the funeral side a little more topline growth as you think about cemeteries.

John Ransom: So if I would have think about the question then if you spend $52 million and you paid 8 times I mean 7 or 8 times, there should be 7 million plus of incremental EBITDA in the back half of the year than it was in the first half, is that fair?

Thomas Ryan: On a 12 month basis, yes. So you enjoy half of that in 2016 and then the full rack in 2017.

John Ransom: Okay. Thank you.

Operator: Thank you.

I will now turn the call back over to SCI Management for closing remarks.

Thomas Ryan: We want to thank everybody for calling in today. We really appreciate it. We look forward to talking to you again I believe at the end of October. So everybody have a great week and thanks again for being on the call.

Operator: Thank you. And thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.