Operator: Welcome to the Q3 2017 Service Corporation International Earnings Conference Call. My name is John and I'll be your operator for today's call. At this time all participants are in listen-only mode, later we will conduct a question-and-answer session. [Operator Instructions] Please note the conference is being recorded. And now I'll turn the call over to SCI management.

Debbie Young: Thank you. Hi, everyone. This is Debbie Young, Director of Investor Relations at SCI. Before we start today with our prepared remarks, let me quickly go over the customary 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 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 in our press release and 8-K that were filed yesterday. So with that behind us, I'll now turn the call over to Tom Ryan, SCI's Chairman and CEO.

Tom Ryan: Thank you, Debbie, and hello everyone and thank you for joining us on the call today. I'm going to begin my remarks this morning with some comments regarding the recent disasters that have impacted members of our SCI team and their communities. Next, I'll provide an overview of the quarter. I will then get into a more detailed analysis of our funeral and cemetery operations and finally, I'll comment on our outlook for the fourth quarter and for the full year 2017. Over the past nine weeks, many people throughout our company and the communities in which they live, were severely impacted by three major hurricanes; Harvey, Irma and then Maria.

We also endured the tragedy suffered in Las Vegas and the wildfires in Northern California. While hundreds of employees have experienced personal loss of homes, cars and personal effects, we never lost our focus on serving our client families. I've heard countless stories of personal sacrifice that will bring a tear to your eye. Our hearts and prayers go out to all the people affected by these tragedies and know that we stand beside you as you deal with the challenge of your personal recovery. Throughout each of these tragedies, our employees have been nothing short of amazing.

The examples of teamwork, sacrifice and hard work have been incredible. Vendors, members of our board and employees all across Canada and the United States have shown unwavering support through monetary donations, as well as personal items to help our SCI family members, who were impacted, get back on their feet. With a company match, we have raised nearly $900,000 for SCI Disaster Relief Fund, which is going directly to the hundreds of employees who have experienced a loss. In addition, we've donated over $300,000 to local United Way chapters in the markets impacted. And last, but not least, our employees have spent countless hours of their own personal time working side-by-side with their fellow teammates, as they cleaned up homes, delivered and sorted personal supplies and drove thousands of miles to help each other out.

I just want to take a moment to thank the entire SCI team and tell you that I couldn't be more proud to work with such a compassionate and caring group of people. On the operational front, we sustained damages to approximately 100 of our locations, predominantly in Texas, Florida and Puerto Rico, as well as our corporate campus. We estimate the impact on earnings for the third quarter approximated $0.02 per share. This estimated loss included a $5.8 million expense associated with repairs to locations, offset by a $4.5 million in insurance proceeds, making the net profit and loss impact from the damages to be about half a penny. Additionally, we estimate that we lost another one and a half cents from reduced revenue in the impacted markets when comparing year-over-year, which we view as temporary and should rebound in the near future.

Keep in mind, we are continuing to repair our locations and our home office, so you should probably expect another $0.01 to $0.02 of negative earnings per share impact in the fourth quarter. Now for an overview of the quarter. We reported adjusted earnings per share of $0.33 for the third quarter, which is a $0.07 or 27% increase over the prior year quarter. In light of the challenges, we were very pleased with our $0.07 increase in adjusted earnings. There were several moving parts.

So I'll try to walk you through this as simply as I can, by doing a roll forward from $0.26 of adjusted earnings per share posted in the prior year quarter, to $0.33 in the current year. First, we generated $0.05 of operating growth before the impacts of the hurricanes from our comparable businesses. This growth was achieved with higher property sales production and recognition rates, as well as higher recognized merchandised and service deliveries in our cemetery business. This strong performance in cemetery was tempered slightly by softer results funeral results, primarily due to lower revenues and ordinary fix cost growth. Adding the $0.05 of operating growth to the prior year earnings per share of $0.26, gets you to the $0.31.

Moving on, I just mentioned that our estimated loss from the storms was approximately $0.02 across the affected operating locations. So now we're at $0.29. Next, there was an additional $0.04 in the quarter, related to the noncash benefit in our tax provision from the new accounting standard for share-based compensation, which we discussed the past two quarters and another $0.01 of benefit resulting from tax planning. So now we're at adjusted earnings per share of $0.34. Lastly, there was about a $0.02 increase in anticipated corporate, general and administrative expenses and interest expense during the quarter that was partially offset by $0.01 of benefit from fewer shares outstanding, which then reconciles back to the $0.33 in the quarter.

Now shifting to some more detail around the funeral operating performance during the quarter. Comparable funeral revenue decreased by less than 1% compared to the same period last year. Comparable core funeral services performed were essentially flat quarter-over-quarter. Organic sales average at the customer level was flat. The other components of the average also were essentially flat as an increase in core cremation mix of 80 basis points was offset by a favorable Canadian currency impact and increased trust fund income.

Total non-funeral home revenue continued to increase by 4.8%, impacted by growth in volume and average revenue per service. Typically, we've seen a steady growth in recognized preneed revenues. However, during the third quarter, we saw a decline of $1.1 million or 4% due to a decrease in the number of contracts sold in hurricane-impacted locations, primarily Florida, where significant amount of this particular revenue stream is generated. Recall, these are the products sold in conjunction with the preneed contract that are delivered at the time of sale, primarily representing cremation-related merchandise and travel protection membership plans sold by our non-funeral home network. Other funeral revenue, the preponderance of which is General Agency revenue, was down $1.2 million compared to the prior year quarter on lower insurance funded preneed sales production.

Comparable preneed funeral sales production decreased $3.6 million or 1.8% in the third quarter of 2017 compared to 2016. This decline was primarily related to a 2.4% drop in production to the core funeral home channel that was slightly offset by a 0.8% increase in production through our non-funeral home sales channel. We estimate that the impact of the hurricanes reduced funeral preneed sales production at affected locations by approximately $5 million in total. When taking into account the estimated production that we lost, we believe that preneed funeral sales production would've been slightly higher than the prior year. Finally, comparable funeral operating profit decreased $3.2 million and operating margins dropped 60 basis points.

This decrease is primarily driven by decreases in revenue and ordinary fixed cost growth. However, the reduced profit was somewhat mitigated by enhanced selling cost efficiencies during the quarter. Now moving on to cemetery operations. Our cemetery segment continued to deliver outstanding results, posting top line comparable cemetery revenue growth of $16.2 million or 5.9%, which included a $15.5 million or 8.5% increase in recognized preneed revenue. Included in this $15.5 million increase is higher preneed property revenue, as well as higher merchandise and service deliveries, which includes higher merchandise and service trust fund income.

Preneed sales production or sales activity grew by $4 million or 2%. Again, not to sound like a broken record, but this would have certainly been higher barring the sales disruption caused by the hurricanes. We estimate that the impact of the hurricanes reduced cemetery sales production at affected locations by approximately $8 million in total, which would have led to an estimated 6.3% increase over the prior year, which is in line with our expectations. Finally, cemetery operating profits grew nearly $13 million or just under 20% and operating margins expanded 300 basis points to just over 27%. Typically, we have said that we expect to receive an estimated 65% incremental margin.

However, the margin was closer to 85% for the quarter. In this year's third quarter, our preneed sales recognition exceeded preneed sales production by $5.7 million, whereas last year's quarter, the inverse occurred. Preneed sales production exceeded preneed sales recognition by $5.3 million. As selling costs are recognized at the time of sale, not recognition, this creates a savings of selling cost for recognition purposes on $11 million of revenue quarter-over-quarter or about $2.2 million in reduced selling costs. Remember, the consistent investment in developing cemetery inventory over the past three or four years has enabled us now to recognize more preneed cemetery sales in conjunction with the actual selling activity.

This has had the effect of allowing us on a year-over-year basis to recognize more of what we sell in the first three quarters of the year. While we should see continued growth in preneed sales in the fourth quarter, the recognition rate should be lower year-over-year as less of what we sold throughout the year is in the backlog. The higher recognition rate also has a negative effect on working capital, as we are recognizing all of the revenues for items that are generally sold on an installment basis. The good news is, is that the cash is on its way. Now as we step back and think about our overall business for the remaining three months of 2017, we believe the fourth quarter will be another solid earnings quarter.

However, we are facing a very tough comparison, especially as it relates to the completion of those large cemetery development projects in Vancouver last year, which contributed approximately $0.03 per share. This coupled with the fact that we will continue repairs on our impacted locations that will probably reduce adjusted earnings per share in the fourth quarter by another $0.01 to $0.02. In light of the success that we have had in the first three quarters, we are raising our full year 2017 adjusted earnings per share guidance to $1.48 to $1.54, versus our previous expectation of $1.42 to $1.52. Included in this new midpoint of $1.51 is $0.09 of noncash excess tax benefit, resulting from the new share-based accounting guidance. We are expecting a nominal amount of these types of tax benefits in the fourth quarter.

Even when backing out the $0.09 of excess tax benefit, the $1.42 then represents an expected 15% increase over our 2016 adjusted earnings per share. We believe that is impressive, relative to our long-term annual 8% to 12% growth expectations. Further remember, the 15% growth absorbs an estimated $0.04 in 2017 for the negative impact of the hurricanes, $0.02 in the third quarter and an additional $0.02 in the fourth. So to wrap it up, we were able to deliver another impressive quarter, despite the challenges we faced with a rash of natural disasters. Once again, I could not be more proud of our team and how they reacted to adversity.

Thank you, team. And we look forward to a strong fourth quarter finish kind of like the Astros in extra innings. With that, I'll turn the call over to Eric.

Eric Tanzberger: Thanks, Tom. Good morning, everybody.

And my remarks for you today are very similar to other quarters. I'm going to address some details of our cash flow performance and our capital deployment specifically for the third quarter. And then I'm going to touch on our outlook and our financial position for the remainder of 2017. So let's start with our cash flow performance for the third quarter. So during this quarter, we reported $165 million of adjusted operating cash flow.

That was an increase of about $22 million or 15% versus the prior year quarter adjusted amount of $143 million. However, most of this increase is timing due to the deferral of cash tax payment. So let's talk about that. During the quarter, the IRS granted the deferral of pay in federal cash taxes for the remainder of the year for businesses affected by Hurricane Harvey. As a result, we have deferred about $25 million of cash tax payments that would've been paid during the third quarter, and we deferred it into the fourth quarter of 2017.

Additionally, we also benefited by around $10 million from reduced cash taxes, primarily as a result of the hard work of our tax team on ongoing tax planning initiatives as well as a favorable true-up of cash taxes paid associated with the finalization of our 2016 federal tax return. Neutralizing for this total of $35 million reduction in total cash tax payments that I just described, our businesses produced $130 million of cash flow for the quarter. This is about $13 million reduction from the $143 million in the prior year that I'd now like to walk you through that math. Our operating profits contributed $0.05 of earnings growth, as Tom just mentioned, which we equate to about $15 million of positive cash flow growth during the quarter. This growth is partially offset by three cash flow items, summing to $7 million during the quarter.

One, we had about $3 million of higher field compensation payments from higher midyear field bonus payments, and this was due to our strong first half field operating results. Additionally, cash interest was up about $3 million as we increased the borrowings on our revolving credit facility to maintain our target leverage ratio and of course, we deployed that capital to its best and highest return to continue to drive shareholder returns. Finally, net of insurance payments received, we had about $1 million of cash expenses associated with the hurricanes. The remaining $8 million of operating cash flow was more than offset by two working capital items, summing to $21 million, that's important to note, we believe, are temporary in nature. First, we had a use of $9 million due to lower cash receipts, primarily attributable to the impacts of the hurricanes late in the third quarter.

We expect these cash receipts to rebound in the fourth quarter. We also had a use of working capital of around $10 million due to the timing of payables during the quarter, as compared to prior year. So now after discussing these cash flow results for the quarter, it's probably good, let's step back and cover where we stand on cash flow for the year so far. Year-to-date, we have generated $430 million of adjusted operating cash flow, which is an increase of about $29 million versus 2016. When we neutralized the net decrease of $14 million of cash taxes in 2017 versus 2016, our operating cash flow has increased by about $15 million over prior year, which is right in line with where we expect it to be year-to-date, when taken into account the acceleration of our recognition of the preneed cemetery revenues compared to the underlying cash receipts and the temporary third quarter working capital uses I just described to you.

So maintenance CapEx and cemetery development CapEx, which are the two components that we define as CapEx in our free cash flow calculation, came in at about $53 million for the quarter. This is about $10 million higher than the prior year quarter. While our CapEx was slightly down to the prior year in the first half of 2017, remember, we expected about a $10 million increase in CapEx for the full year, which primarily occurred in the third quarter. We continue to believe this $10 million more in CapEx is a prudent use of our cash flow, as we continue to invest more to update our facilities and to remain relevant with our customer through being able to offer catering and other celebration of life type service offerings. Deducting these capital spending items from our adjusted cash flow from ops, we calculate our free cash flow for the third quarter to be about $112 million, which is $11 million higher than the $101 million generated in the prior year.

And again, adjusting for the deferral of the Q3 cash taxes of $25 million, our free cash flow would've declined by about $14 million. The primary driver for this reduction in free cash flow during the quarter is due to the increased uses of working capital, which again, we believe are temporary and the increase of in maintenance CapEx that I just noted. So moving on to free cash flow deployment in the quarter. Our capital deployed to acquisitions, new location builds and to shareholders was significant during the quarter, totaling roughly $90 million. We are pleased to note that we invested over $29 million for the acquisition of several funeral homes in the Midwest.

Remember, as we've said in the past, accretive acquisitions remain our highest priority for capital deployment due to the significant after-tax cash returns we generate on these investments. Year-to-date, we have invested an impressive $80 million against our goal of $50 million to $100 million, including 1031 exchange funds, and we continue to remain optimistic about the pipeline of acquisition opportunities available to us in future quarters. We have also invested almost $4 million on the construction or expansion of several funeral homes during the quarter. This brings our year-to-date spend to $14 million on these construction and expansion investments that will yield positive returns to us. Shifting to capital return to shareholders during the quarter, we paid just over $28 million in dividend payments.

Looking year-to-date, we paid an impressive $81 million in dividends to our shareholders. And last, but certainly not least, we invested about $29 million on the repurchase of shares at an average price of $34.89 per share. Since the beginning of 2017, we have repurchased $4.8 million shares for a total investment of nearly $150 million at an average price just over $31 per share. We currently have about 188 million shares outstanding and just over $206 million of remaining share repurchase authorization. Subsequent to quarter end, we continue to buy back shares, investing about $14 million to repurchase just under 0.5 million shares.

So now let's shift to the cash flow outlook for the rest of the year. When we do look forward, as Tom noted, while we're expecting a strong fourth quarter, we expect earnings to be flat to slightly down to the prior year due to the tough comparables, as a result of the completion of the large cemetery projects in Vancouver in the fourth quarter of last year. Additionally, we expect to have more hurricane-related expenses, which we believe could have an additional impact in the fourth quarter. As I mentioned previously, with the IRS tax payment relief due to Hurricane Harvey, we deferred $25 million of third quarter taxes that will now be paid in the fourth quarter. So this is just timing in the year.

I'm happy to note that the $10 million of other tax planning initiatives, we benefited from during the third quarter, has reduced our cash tax payments expectations for the year to be approximately $130 million to $135 million or about $10 million less than the previously guided $142 million at the midpoint of the previous guidance. When you think about our original guidance for adjusted operating cash flow at the beginning of the year, we are projecting $485 million at the midpoint. And our [remarks seen] last quarter, we increased our guidance range by about $15 million to $500 million primarily on our strong first half results. Our revised 2017 adjusted cash flow guidance range remains unchanged at this midpoint of $500 million, but we have tightened the endpoints to $485 million to $515 million. Our guidance for capital spending in 2017 for maintenance and cemetery development, also remains unchanged at the $180 million for the full year.

And when you deduct these recurring CapEx items from our 2017 adjusted cash flow from operations expectations, you'll calculate free cash flow in 2017 ranging from $305 million to $335 million with a midpoint of $320 million. So lastly before we close, let me provide a high-level view of our financial position as we close out the quarter. We finished with $268 million of cash on hand and $197 million of availability on our long-term revolver. Taking into account the fact that some of our cash is encumbered due to being in Canada and our minimum operating cash flow threshold, we believe our unencumbered liquidity to be about approximately $390 million at the end of the quarter, which we view favorably and is well in excess of our internal goals. Our leverage, which is calculated as net debt-to-EBITDA in accordance with our updated credit facility, was approximately 3.62x at September 30, which is well in line with our target leverage range of 3.5x to 4x.

So lastly, we are very proud of our performance, thus far in the year, and we expect to finish the year strongly. As our track record has shown, we are constantly looking for ways to maximize value for our shareholders, and we plan to execute accordingly for the remainder of this year. So with that, operator, that concludes the prepared remarks from Tom and I, and we'll go ahead and turn the call over to you to generate questions for the remainder of the call.

Operator: Thank you. [Operator Instructions] And our first question is from Chris Rigg from Deutsche Bank.

Adam Chaim: Hey how are you doing? This is Adam Chaim stepping in for Chris Rigg. Thanks for taking my question. Regarding the same-store funeral results, can you provide some color on the drivers of the divergence in atneed and matured preneed revenue and volume growth in the quarter?

Tom Ryan: Sure. So, atneed and matured preneed you said, as far as volume goes? Yes. So the drivers…

Adam Chaim: Volume and revenue, right?

Tom Ryan: Yes.

So the drivers of those, one of the things, remember that we focused on terminally imminent contracts approaching that in a different way, as it relates to interacting with our sales force. So what we're seeing right now is the potential for year-over-year, you're seeing more volume through that category that has to do with terminally imminent. The other thing that I would say is over time, because we've grown preneed over the years, that we're forcing we would expect that over time, those matured preneed will become a larger and larger portion of the contracts that we're going to service. So atneed is getting impacted, if you will, temporarily, by the process through which we're handling terminally imminent. And longer term, again, because we're - we believe we're locking up more people every year as we write preneed contracts, that number as a percentage of the people we serve is going to continue to go up.

As you think about the year and step back, and our volume is up this year overall, below 1%, but it is comparably up and we're very pleased with that. I think our field leadership has really taken a focus this year on trying to capture more market share in the markets which we operate, and I think they've done a great job. With that, I think, we've seen, from our pricing perspective, at least in certain markets we're being a little more competitive as it relates to pricing where that is a primary issue with the consumer. That is probably that's clearly less than most of the business that we interact. But on the margin of that business, we're competing more effectively.

Adam Chaim: Great, thank you.

Operator: And our next question is from Joanna Gajuk from Bank of America.

Joanna Gajuk: Good morning, thank you. So just first on the guidance, which you raised at the midpoint by $0.04, right? So there's $0.02 in there from the higher expectation from the benefit from the accounting changes for stock compensation, right? So call it $0.02, but then what you're saying is that does include about $0.04 headwind from the hurricanes, right? So when you think about it, excluding the taxes and storm impacts, that essentially means that you're raising your core guidance by more like $0.05 to $0.06, right? So can you confirm that, the way I think about it, if whether it's correct? And then if it is, then what's driving that core business kind of outlook improving?

Eric Tanzberger: Yes. Generally, your math is right, Joanna.

And I would say that what is happening in the core business is really the preneed cemetery growth that we expect during the year, during the fourth quarter, I should say. And we also expect some momentum in the fourth quarter related to our pre-arranged funeral sales that will generate General Agency revenue, which will be both cash and earnings. And then lastly in the Neptune part of our business, which was interrupted as we've described to you earlier related to the hurricane, we also think those sales are temporary in nature in terms of the pause that they had. And so I think the benefit is, we expect some momentum in the fourth quarter from the sales organization, which will generate preneed cemetery revenues, General Agency revenues and recognize preneed funeral revenues from SCI Direct.

Joanna Gajuk: So you're saying that you're seeing already the rebounding in those sales in some of these markets that were impacted?

Eric Tanzberger: Yes.

We are seeing it and I think let's put Puerto Rico to side. I think that was devastated, and we're not seeing that rebound yet. But, yes, I think it's safe to say in October, we feel good about our momentum, going into it going in for the first month. The first month doesn't make the quarter. But yes, we feel good about our momentum in those areas.

Joanna Gajuk: And just talking about the fourth quarter, what are your expectations for flu activity against this year because it seems like in Australia, the flu was quite strong actually, resulting in a lot of deaths related to influenza in that hemisphere. And some people believe that what happened in Australia implies what's going to happen in the Northern Hemisphere during the flu season. So how do you think about that and what are your expectations? What do you assume in your guidance there for flu and unrelated, I guess, business activities for you there?

Tom Ryan: We've seen that correlation work in the past and we've seen that correlation not work in the past. So to answer your question, we've not built anything in the fourth quarter in our funeral segment for incremental influenza outbreak that would increase the number of services that we are performing. I think it's possible but we don't try to guess at that correlation with a crystal ball, so we don't have that built in.

Our funeral volumes are similar to what you've seen the rest of the year, in terms of our outlook.

Joanna Gajuk: Okay. And then, if I may, on the cemetery segment, right, the margins continue to be very impressive because of this dynamic that you've been playing around, looking at the revenues of the properties that you sold. So how should we think about these margins, going forward? Because I guess at some point, I guess, you're going to anniversary sort of the recognition or rather, you could have, as you say, in Q4, it's going to reverse where you have the recognition rate versus the production rate might reverse. But I guess, you still keep on investing and developing new cemetery properties.

So how should we think about it in next year in terms of the margins for cemetery business?

Eric Tanzberger: Yes, Joanna. So I think the way to think about it is, if you look year-to-date, we have upside surprise as it relates to the first nine months, in the sense that our long-term guidance would say we could grow cemetery margins in the, call it, 80 to 120 basis points a year. I think that is still very achievable and what we expect. We've outperformed that year-to-date pretty significantly, and the reason for that is what I was touching on before. In previous years, we'd see a lot of selling activity.

Think about the first three quarters of the year, we'd sell more than we'd recognize for three quarters. And then you get to the fourth quarter and get all the construction, and then the big reversal happens and you have a huge influx of recognition that's going to well exceed the production. What's happened this year, because we've spent money in developing particularly a lot of high-end product, we're now selling stuff and recognizing it quicker relative to the prior year. So what you've seen is an acceleration of margins that again, we're going to have great margins in the fourth quarter, but I think compared to last year's fourth quarter, you should see a diminishment of the margins. And then it will get you back to more normalized year-over-year growth for, we think, the entire year.

So as I think of '18 and again, we haven't perfected this yet, but I think my belief would be that we'll continue to see kind of that early recognition in the first nine months of the year, that will be pretty comparable to what you've seen in '17 and then the same thing happens in the fourth quarter of '18. That we've got a new dynamic where there is more inventory readily available for sale and therefore will accelerate our ability to recognize those revenues.

Joanna Gajuk: Great, thank you. I'll go back to the queue, thanks so much.

Eric Tanzberger: Thanks Joanna.

Operator: [Operator Instructions] And your next question is from Scott Schneeberger from Oppenheimer.

Daniel Hultberg: Good morning. This is Daniel stepping in for Scott. Let's start with funeral. Can you discuss the selling cost efficiencies you know there, and how we should think about the margin outlook for funeral?

Tom Ryan: I think, again, our long-term guidance, as it relates to funeral margins, is that we believe until there's a demographic impact on the funeral business that they're generally going to be constant year-over-year.

And you may have slight dip in one year, a slight acceleration. What we've seen this year so far is in the third quarter, we're talking about a slight diminishment of the margin. But if you step back and look at the nine months, they're actually up a little bit. And, again, we believe that is driven by better volume performance than we anticipated, coupled with, again, I think, very good expense management, as it relates to the operations of the business. When you think about the selling changes, the selling changes really gets back to what we're incenting people to sell and what we're willing to pay for it.

So as an example, we're paying people to sell terminally imminent contracts on the funeral side at a certain commission gate. We're paying a little bit more, if you will, I think, on the cemetery side and again raising the targets of the sales force in accordance with that. And a lot of this has to do with the technology we have invested. We've got salesforce.com. We've got technology that we're going to put - again, we're in the early stages of rolling out technology into the field, what we call our beacon project, where we're going to be able to interface with consumers and utilize contemporary technology for our presentations that also will generate a contract and allow us to initiate collection procedures right there in the family's home.

So a lot of what we're doing is with this new technology is raising our ability to generate more sales. And so really, the changes in the program were designed with that in place, and so we're seeing those efficiencies today in the way that we do it. The other thing that has been interesting is we're generating a lot more leads through the Internet. And so that form of lead procurement is a lot cheaper than some historical methodologies that we've utilized in selling cost. So we expect to continue to be able to generate leads more effectively and efficiently, particularly as it relates to our website project that's going to roll out in 2018.

So we're continuing to find ways to be more efficient on the selling front and we're beginning to see that show up in our margins in 2017.

Daniel Hultberg: Got it. I appreciate the color. There's been discussions with respect to the FTC funeral rule and the potential for an increase to online pricing transparency for the industry. How do you think about the probability of that happening and if it went in effect, what do you think about the impact for the industry?

Tom Ryan: I think, right now, it's our belief that these changes are not likely to occur.

It would be a really long and expensive process to make a significant rule change, because, again, hearings would have to be held in a variety of markets across the U.S. We just don't believe that that's a priority of the administration at this time. Having said that, faced with that, we deal with it and we're not afraid of it. I think the complicating factor about online is just the uniqueness of what we do. Prices can vary greatly depending on cremation or burial, the quality of the facilities, additional benefits that can be provided like catering or personalized services or tribute videos.

So we're selling a unique experience that can be altered dramatically, and I think it's really hard to convey that with Internet pricing. It's easy to price caskets against each other. It's terribly hard to compare as an example, Ritz-Carlton and a Holiday Inn, right? They're going to have two different pricing mechanisms. And so if you're in a Holiday Inn and are shouting you've got a lower price, well, of course you do. But there's still people that want to stay at the Ritz-Carlton.

So that's the way we think about it. It's complicated. If that were required, we surely would be compliant and I think we'd be really good at it.

Daniel Hultberg: Got it. Appreciate the color there.

Final one from me, how should we think about the outlook for General Agency revenue and preneed insurance production?

Tom Ryan: I think, we think as we roll into '18, we feel very good about it, as it relates to our ability to grow that and particularly on the insurance product side. So yes, I think we've worked through some challenges in '17 and we've got a stable year-over-year selling compensation plan. And so I think with those two things in place, we would expect more of a normalized growth pattern, as it relates 2018 versus '17, which we typically guide to low to mid-single-digit kind of growth.

Daniel Hultberg: Got it, thank you and congratulations on a good quarter.

Tom Ryan: Thank you very much.

I appreciate it Daniel.

Operator: And we have our next questions from Duncan Brown from Wells Fargo.

Duncan Brown: Hey, good morning. Thanks for taking my question. I've been thinking you guys about you guys obviously with all the disasters, with Harvey in particular, I wonder if you could give us an update on the home office or in headquarters, is it up and running fully or where does that stand?

Tom Ryan: We're getting really close, Duncan.

It's getting really close. We have two buildings of the corporate headquarters. One is going to come, the larger building is going to come first. We think that's early November that we'll start moving back in there. And the second one will probably be towards the end of November.

A lot of it has to do with just finishing the construction, getting the electrical grid that was flooded back up and running, which were primarily there. And then the rest of it is just a little bit of infrastructure of the building itself with connectivity, but thanks for asking. We've been displaced, but the truth of it is, we've been able to rent space and we've been operating just like a normal company has been, despite that. I think where we're most concerned in reality is not the corporate office, but the people that were really impacted out at the funeral homes and their families, and their personal effects as well. We had a little bit of that with corporate employees, but a lot of that was out in the field that were facing the customer.

And that's who we've been really truly trying to support to get them back to work in front of the customer as soon as we possibly could.

Duncan Brown: Then, I guess, got $4.5 million or so of insurance dollars in the quarter. Should we expect some more in Q4?

Eric Tanzberger: Yes, I would hope so. You know the deductibles is complex. But ultimately, we've had a payment in the quarter, as we set it out, the net number that $1.3 million of hurricane expenses that are in there.

It was about $5.8 million of expenses offset by about $4.5 million insurance proceeds. We could end up spending somewhere in the $15 million, $20 million range in total related to everything. That includes all the field operations. And it's a range right now because of the Puerto Rican situation that we're still grasping, getting our hands around, but ultimately we believe, insurance will cover the vast majority of that. And I think ultimately what you're going to see is that hurricane expense is not covered by insurance, growing from about $1.3 million to maybe $4 to $6-ish million and that's what we were referring to when we say maybe $0.01 or $0.02 of headwind in the fourth quarter will affect us.

But, again, the good news is the vast majority of this stuff is going to be covered by insurance.

Duncan Brown: Great. And you mentioned Puerto Rico, can you disclose or would you disclose some metrics for us to help size it, like maybe percentage of revenue for the company or total revenue in Puerto Rico?

Eric Tanzberger: It's not very significant in the big picture of things.

Duncan Brown: That's fair. And then, just last one.

Tom, you've mentioned, I think, new website project rolling out in '18 and I wonder if you can give us more color on that?

Tom Ryan: Yes. So the color is really our websites were designed originally, and this is a problem a lot of companies have, were designed with a desktop in mind. So as you think about the way people were searching for us and our ability to compete in a search world, we weren't geared to deal with mobile the right way. So I'd say in a nutshell, there's a lot of changes that I think that are going to be very dynamic. But in a nutshell, we had to get to a mobile solution that allows us to compete more effectively as it relates to search.

And so that's what this is designed to do is to upgrade the websites, have more customer interactivity. Again, be in a position to compete more effectively as it relates to the search world.

Duncan Brown: Great, thank you.

Operator: And at this time, we have no further questions. I'll turn the call back over to SCI management.

Tom Ryan: We want to thank everybody, again, for being on the call. Thank you for a lot of you for your support through this challenging time of our employees. We look forward to get back in our building and so our next call, we will be back in our home office and we'll talk to you again in February. Thanks so much.

Operator: Thank you, ladies and gentlemen.

This concludes today's conference. Thank you for participating and you may now disconnect.