Service Corporation International
Q4 2014 Earnings Call Transcript

Published:

  • Operator:
    Welcome to the Q4 2014 Service Corporation International Earnings Conference Call. My name is Richard 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 now begin.
  • Aaron Foley:
    Good morning. This is Aaron Foley with SCI Investor Relations and I hope everyone is doing well today. We appreciate you taking the time to join us as we discuss our results for the fourth quarter 2014. As usual, we will begin with our customary Safe Harbor language. The comments made by our management team 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 measures, such as normalized EPS, adjusted operating cash flow and free cash flow. Reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our Web-site and in our press release and 8-K that were filed yesterday. With that behind us, let's begin with comments from Tom Ryan, SCI's President and CEO.
  • Tom Ryan:
    Thanks, Aaron, and good morning everyone. And thank you for joining us on the call today. I'm going to begin my comments by giving you an overall perspective of what we’ve accomplished in the year 2014. Then I’ll get into the details of the quarter and end with some color on our outlook for the year 2014. So as it relates to the year 2014, I’ll start by speaking directly to my SCI teammates in transition to my fellow shareholders. When we started off this year, things were a little chaotic. We had closed the Stewart transaction a brief eight days earlier. Since then, we’ve on-boarded over 3,400 new teammates, we’ve introduced Dignity products and services to the Stewart businesses, we transitioned them into a new set of systems and processes, we moved the entire organization to a new HR platform, we implemented a new customer relationship management system and a new sales compensation system, we rolled out a new regional original management structure, we sold 90 businesses for over $400 million and we identified an additional 40 million of synergies further enhancing the value of the combination. And by the way team, we grew earnings per shares from 21% to $1.11. We generated over 500 million in adjusted cash flow at a growth rate of 16%. We did all this by focusing on the customer and delivering to them what they wanted and what they needed. We continue to grow comparable preneed sales in the mid to high single digit range both in funeral and in cemetery. We expanded the footprint not just through the Stewart transaction but through several other accretive acquisitions in addition to building new funeral homes as we continue to grow the network. Finally, we continue to leverage our scale to drive efficiencies and enhance productivity, both of which provide our company with a strong competitive advantage. All I can say is thanks. You guys did it with style and humility, then you delivered over 20% growth, way to go. Now because of this fellow shareholders we were able to quickly de-lever the balance sheet to the targeted 3.5 to 3.7 times range and returned $314 million of capital to you in the form of share repurchases and dividends. Okay, we’ve had our celebration, now let's get back to business. Let's shift to an overview of the fourth quarter, we’re pleased to report normalized earnings per share of $0.37 for the quarter, which is an impressive 37% growth over the prior year quarter, also adjusted operating cash flow grew a solid 16.5% to over $123 million. These increases in earnings in cash flows were for the most part generated from three things; first and foremost, with the contribution from the addition of the Stewart businesses in the associated synergies from the combination. Second, we experienced growth in comparable funeral profit, primarily from increased case volume. And third, we saw strong growth in comparable cemetery profit as higher preneed sales production of readily available cemetery property was aided by the high margin increase of recognized perpetual care trust fund income. This perpetual care income was generated from expanding capital gain cash distributions to additional states, as well as anticipated distributions associated with the combination of the SCI and Stewart trust structures. These positive operating results were somewhat reduced by higher interest expense related to the Stewart acquisition and higher general and administrative costs which reflects to increased cost associated with running a larger combined business, as well as the timing of increased long-term incentive and pension cost. Now for a deeper dive into the funeral operations for the quarter; overall, our comparable funeral results which exclude the Stewart businesses had modest growth for the quarter. Fourth quarter comparable funeral revenues grew by $9.1 million or 2.2%. The bulk of this growth were 7.5 million of the 9.1 was related to core revenue growth of what we will describe as the traditional funeral service consumer. Volume grew 1.8%, which is more than we expected, but the sales average grew only 0.2% which fell short of expectations. This was primarily due to a higher cremation rate and a negative foreign currency impact as the Canadian dollar weakened against the U.S. dollar during the fourth quarter. Excluding the currency impact and higher trust fund income, we grew the sales average by approximately 1%. The remaining revenue growth for the quarter of $1.6 million was related to an increase in recognized preneed revenue and higher general agency revenue. From a profitability standpoint, comparable funeral gross profits grew $6.4 million or 8.1% and the gross margin percentage improved 110 basis points to 20.6%. We managed our cost well as the natural leveraging of the overhead support cost from the anticipated synergies were accelerated versus our original expectations. The Stewart funeral businesses performed slightly below our expectations from a profitability standpoint as moderate declines in case volume were offset by increased average revenue per case. On a preneed basis, comparable preneed funeral sales production excluding terminal M&A transactions in both periods grew a very strong 11.7%. For the year preneed funeral sales production grew 6.1% in line with annual guidance of mid-single digits. Now for a closer look at cemetery operations for the quarter. Overall, comparable cemetery results which exclude the Stewart businesses performed extremely well and ahead of our expectation. Comparable cemetery revenue grew $38.4 million or 17% compared to the prior year quarter. Our sales team had an outstanding performance, comparable preneed sales production grew a strong 10.2% in the quarter and a significant portion of that sales production growth was recognized as revenue as we had an abundant property inventory available from recently completed constructions projects. For the full year 2014, preneed cemetery sales production grew approximately 7% or $37 million within the guidance ranges we initially communicated. Also during the fourth quarter, atneed cemetery revenue grew some $5.6 million or 10% as increased activity drove increases in property, merchandise and service revenues. Lastly and as I mentioned earlier, included in this revenue growth was approximately $15 million of perpetual care trust fund income that was recognized in the quarter as a result of the capital gain cash distributions received from the trust. This cemetery revenue growth in the quarter drove cemetery profits higher by $34 million and the margins increased to 36% from 27.3% in the prior year quarter. Excluding the high margin $15 million of perpetual care trust fund income recognized in the quarter, our margins would still have grown a healthy 480 basis points to 32%, reflecting the high margins associated with increased sales production revenue in the accelerated recognition of the Stewart cost synergies. Now shifting to our 2015 outlook, as we disclosed in our press release, we're pleased to confirm our 2015 normalized earnings per share guidance range of a $1.16 to $1.28 per share. This is despite a continued weakening of the Canadian dollar, which has reduced our original forecast by approximately 2 pennies in just the last three months. When you look at our guidance for 2015, remember that in 2014 we benefited from an $0.08 per share contribution related to the federal trade commission mandated divested businesses, which will impact us approximately $0.03 per share in the first quarter alone. Normalized 2014 earnings per share of $1.11 for this $0.08 get you to an adjusted base in 2014 of $1.03. The midpoint of our 2015 guidance for earnings per share of $1.22 represents an increase of $0.19 or an 18% growth from this adjusted 2014 base. You can think of the $0.19 growth as roughly half related to Stewart synergies and the other half related to base business growth. Remember that at the midpoint of our earnings guidance it assumes minimum benefit from 2015 share repurchases on earnings per share. Now, just to refresh the broad assumptions regarding our 2015 outlook and first for funeral. We believe comparable funeral revenue will be slightly higher reflecting some modest growth opportunities from our Stewart businesses. We expect to continue to grow the sales average in the low single digit percentage range absent currency impacts, which will help to offset our expectations of 1% to 2% comparable funeral volume declines. Additionally, we would expect higher recognized preneed revenues in the mid-single digits as our non-funeral home direct cremation businesses continue to grow. We will continue to focus on growing our preneed backlog, which we believe is the most advantages approach to expanding market share over the long term. Our preneed growth expectation for 2015 is in the low to mid-single digit percentage range excluding terminally imminent contract. On the cemetery side, we anticipate revenues will continue to increase led by preneed production growth in the mid to high single digit percentage range. This growth is impressive on a substantially higher base of business due to the significant growth over the last few years and therefore equates to a much higher absolute dollar growth and sales production. And finally recall that we're modeling corporate G&A to be about $30 million to $32 million per quarter excluding any onetime cost. The higher corporate G&A cost reflects the permanent cost associated with the increased scale of the combined SCI and Stewart entity. So to wrap it up, as we close the chapter in 2014 and to look ahead to 2015, we believe we've good momentum. Our strategy remains the same. Demographics will provide a natural tailwind for us and our improved and expanded footprint positions us well for the future. We also believe we'll capture more than our share of this growth as we expand our network to continue to specific market acquisitions and more importantly by continuing to grow our preneed backlog. In the meantime, with the help of our tremendous scale, we expect to continue to generate strong cash flow that we intend to use in returning capital to our shareholders. Last but certainly not least, as we close the year and particular in light of the successful Stewart integration, I would like to acknowledge the contributions and hard work of every team member at our company to embed these successes possible. To all our associates, you have my heart full thanks and appreciation for all that you do. This concludes my prepared comments and I'll now turn the call over to Eric.
  • Eric Tanzberger:
    Good morning everybody. This morning I'm going to start in my usual way by commenting on our cash flow results for the fourth quarter and the full year of 2014, then I'm going to shift and update you on our capital deployment, then as Tom just mentioned, I'd like to talk about the trust structural change that we completed in the fourth quarter and then by -- then end by discussing our forward-looking cash flow outlook for next year. So first to summary of 2014, we finished 2014 on a high note and I'd like to echo Tom's earlier remarks. I'm extremely proud of our nearly 24,000 dedicated and talented associates that drove our outstanding 2014 performance. I want to personally thank each of our associates for their hard work, dedication and most of all, their perseverance during the integration of the Stewart businesses in 2014. So now let's talk about the financial results. Free cash flow generated in 2014, grew $40 million or 12% over 2013, this double digit percentage growth was due to higher earnings and higher cash proceeds that are primarily associated with strong preneed funeral and cemetery sales. This growth was particularly meaningful in light of having approximately $60 million higher combined cash interest and cash tax payments during 2014 compared to the prior year. Our deployment of this free cash flow in 2014 was also impressive and I’ll touch on that in just a moment. So in the fourth quarter, adjusted operating cash flow which again is normalized to exclude the Stewart transition other cost which are defined and reconciled in our press release. This grew 17.5 million or 16.5% to total $123 million. While our cash flow was slightly higher than our internal expectations, it did grow at a slower rate than our normalized EPS as the higher earnings related to increased cemetery sales production resulted in timing differences and which cash receipts are received over time due to the use of customer installment contracts. Our maintenance and cemetery development CapEx for the quarter came in at approximately $48 million or $17 million higher than the prior year quarter reflecting the addition of the Stewart businesses and resulting from higher cemetery development CapEx that occurred during the quarter. Deduct of these recurring CapEx items we calculate our free cash flow for the fourth quarter to be $76 million. Now let’s shift and let’s talk about our capital deployment and then our financial position. Returning capital to our shareholders remained a priority for us during 2014. The strong cash flow that I just described coupled with the proceeds from our FTC mandated divestitures that were not required to pay down the term loan allowed us to return a significant amount of capital to our shareholders. First, the dividend payments in 2014 totaled $72 million and recall that we had two dividend increases in 2014 increase in our quarterly dividend rates 30% in 2014 compared to 2013. Additionally, I am very pleased to reiterate that yesterday our Board of Directors approved a quarterly dividend of $0.10 per share which represents an increase in our quarterly dividend of 11%.In total, we have raised our dividend by approximately 43% since January 1, 2014. During the fourth quarter we repurchased 5.1 million shares for a total investment of almost $113 million. The total shares repurchased for the full year of 2014 amounted to 11.4 million shares for a total investment of nearly $242 million. Additionally, subsequent to the end of 2014 we are continuing our momentum and have repurchased an additional 1.8 million shares for a total investment of about 42 million. Currently we have approximately 203 million shares outstanding and 196 million of remaining share repurchase authorization which gives us a substantial amount of capital deployment flexibility as we move into 2015. Additionally as it relates to capital deployment we completed two acquisitions for a total investment of approximately $6 million during the fourth quarter. And let’s continue for a moment on acquisitions. We are excited about the pipeline for potential opportunities as we move into 2015. We believe we are seeing an uptick in activity coming off the year where most of our focus was on divestitures and I feel confident that we’ll be able to invest 50 to 100 million in 2015 on new tuck-in acquisition opportunities. Now shifting in terms of our financial position we finished the year with robust liquidity of approximately 410 million consisting of 177 million of cash on hand and 233 million of availability on our credit facility. Today we have approximately 200 million of cash on hand as a result of strong free cash flow during the month of January. Our leverage which is calculated as net debt to EBITDA in accordance with our credit facility was just below 3.7 times as of December 31st. This is within our current targeted range of 3.5 times to 3.7 times and again strategically positions us well as we move forward in 2015. Now I’d like to just take a moment and briefly shift to discuss changes in our trust funds. As we integrated Stewart’s trust assets worth with ours we reorganized our trust structure to primarily increase the efficiency of our back office support. It’s important to note that this efficiency strategy we have been working on with our trustees for a couple of years now. To make this change we had to liquidate the underlying securities which obviously triggered the realization of net capital gains. As a reminder for our cemetery perpetual care trust we recognize revenue to the extent funds are distributed to us from these trustees to offset our ongoing cemetery maintenance expenses. So in the fourth quarter, our normal cash distributions from our perpetual care trust funds increased by 15 million as the distributions in certain states contain these realized capital gains along with the normal interest and dividends. Because we have been working on this transition for a while we anticipated some of these gains and so therefore so that you know about half of this amount was included in our annual guidance for 2014. So now let's here to talk about 2015 and let's start with cash taxes. First, you may have seen in our press release that we revised our financial statement so just certain tax related balance sheet items primarily related to older period prior to 2010. These non-cash adjustments had no material impact on our consolidated financial results of any currently reported period. So now for the good news related to this, with this revision we have identified additional net operating losses to help offset 2015 cash tax payment. Our cash tax estimate for 2015 has now decreased by 25 million from approximately 150 million to approximately 125 million for the full year. This compares to our 2014 normalized cash tax payments of about 42 million or an increase of approximately 83 million year-over-year. Accordingly though, we have increased our 2015 guidance for adjusted cash flow from operations by this 25 million dollars to a range now from $450 million to $500 million. Our guidance for capital spending in 2015 from maintenance and cemetery development remains unchanged and as to range of a $130 million to $140 million, when you deduct this recurring CapEx from our 2015 cash flow from operation expectations, this will result in free cash flow in 2015 ranging from 310 million to 370 million or 340 million as the midpoint of this guidance range. When you normalize for the impact of cash taxes by excluding them in both periods, free cash flow before cash taxes is growing with the base business approximately 50 million or an impressive 12% in 2015. As we move forward, we do recognize that the entire cash taxes in 2015 are temporarily limiting are impressive historical growth in cash flow, but looking forward to 2016 we remain confident that we’ll be able to resume our pattern of delivering growth in free cash flow that our shareholders have come to expect. So in conclusion, we’re excited about 2015, we remain focused on growing our base business, achieving the remaining synergies from Stewart and deploying capital to enhance shareholder value. We have significant liquidity to continue to grow through acquisitions and also return excess capital to our shareholders. Ultimately we will employ a balanced approach to enhance shareholder value by focusing on deploying capital to the highest relative value opportunity. This has been our track record and you can expect us to continue this value enhancing approach well into the future. So with that operator, that concludes Tom and I prepared remarks and now we like to turn it over for questions.
  • Operator:
    Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question on line comes from Chris Rigg from Susquehanna Financial. Please go ahead.
  • Chris Rigg:
    Good morning. Just wanted to better understand sort of the capital deployment, I understand high level message, but I know you're not specifically given EBITDA for this year, but if we think the consensus is somewhere close to correct, is it right way to think about that you're actually going to take up your absolute debt outstanding to maintain a 3.7 times leverage multiple?
  • Eric Tanzberger:
    Yes, Chris it's definitely a possibility and I think we’ve said that try to say somewhat clearly, we do not think that we’re going to continue to delever with the increase of EBITDA expected from the growth of the base business as well as the additional synergies during 2015. So that EBITDA grows as I said you're already in the range of 3.5 to 3.7, so yes it's a good assumption that over time we will do appropriate actions to essentially keep ourselves within that leverage range.
  • Chris Rigg:
    And then on the volumes in the quarter, I know at times in the past when you’ve had good in period volumes you would say that hey maybe that was a pull forward of some volumes that you would have expected later in the year because of the nature of the volumes i.e. flu or frail elderly, is that sort of the dynamic you saw in the quarter or do you actually think these were market-share gains and you really didn’t see that much from the flu?
  • Tom Ryan:
    Chris its Tom. I think it's more of a former it generally is driven by flu, so I’d say the biggest driver of this we think is flu and again it has a bigger impact on the elderly. I think this flu stream quite honestly was I heard that the is 23% effective, the flu shot this year which is very, very low and the flu that went through was very harmful to the elderly particularly. So I think we do think the 1.8 is driven by flu, having said that we're continuing to see that into January. We saw volumes up for the month of January and so I'd expect that to continue and then again if history tells us we'd expect the summer months to probably be a little light.
  • Chris Rigg:
    Right, okay and then last one I apologize if I missed this but just on the decline in taxes in 2015 relative to earlier guidance, should we expect that to step back up in 2016 or is this sort of a permanent or at least more a multiyear improvement in the tax outlook? Thanks and I'll leave it at that.
  • Tom Ryan:
    No, Chris. I think the way to think of it is, it's more of a onetime event. The guidance that I said in October was about 150 million of cash taxes for the level of income that we're expecting in 2015 based on our models and your models as well. This was something that we dug into that goes way back in time relating to some tax planning strategies at Alderwoods and we're able to take this $25 million NOL benefit during 2015 but it's a onetime event that's how you should think about it.
  • Operator:
    Thank you. Our next question comes from A.J. Rice from UBS, please go ahead.
  • A.J. Rice:
    Hello, thanks. Sorry for maybe a little background noise but first of all the pick-up in construction revenues in the core obviously helped the cemetery business and the margins, would you say that’s an underlying market pick-up, would you say -- how would you describe what's happening there and is that undoubtedly staying at the same level but should we expect some of that to continue in the '15?
  • Tom Ryan:
    Yes, I think so A.J. this is Tom and the way to think about it, it is somewhat confusing, I'll admit and I think we're trying to make it more clear but historically we've had quarters where our GAAP revenues for instance might be way up but our production is down I mean using an example of GAAP revenues up 10% production up 3% and so we have to talk about the fact that hey we constructed a lot of stuff that was sold in prior periods that got recognized now. What you're beginning to see now because we've probably done a good job of building readily available inventory, you'll notice this time that our sales growth was around 9% or 10% and our GAAP revenues were about 9% or 10%. So, what's really happening is because we're good at getting things constructed on time we're able to sell it and recognize it pretty efficiently. So, this quarter I think the thing to really focus on is that the sales growth was commensurate with the GAAP revenue growth and we'd expect that to continue because we have completed a lot of construction projects that have readily available deliverable property and as long as we're getting 10% down we're going to record that in the income statement. So to your point, we feel good about our ability to sell into next year and I think the recognition will be strong because again we've got a wide array of products to deliver upon those sales.
  • A.J. Rice:
    Okay, last quarter there was quite a bit of discussion about the restructuring of the preneed selling effort in the funeral business not pay commissions anymore in this [terminally ill] M&A contracts, if you just give us a flavor as how that's played out in the quarter, it looks like before preneed funeral sale volumes is pretty good, so it maybe something we'll responded to maintain their commission levels has stepped up but give us your flavor on what you saw?
  • Tom Ryan:
    Sure A.J. I think you hit the nail on the head, it is a process change and again you'll recall from last time to give credit where credit is due, this is something that Stewart did a best practice that we adopted and the concept being that when we have these situations which are tough ones, we're going to instead of writing a contract that's going to go in the backlog and turnaround and come out, we're going to effectively make those arrangements and treat it more as a near at need transaction. You will notice that we still have some contracts that go into the backlog, it isn't 100% implemented because again every situation is going to be slightly different but I think that's going very well and your observation is true to the extent that is a commissionable sale, our sales people are good, they're going to get out there and radiate and drive new sales and that are true preneed that are going to go in the backlog and stay there for some period of time. So we think that's going really well, it's lowering a cost a little bit as it relates to our funeral margins but I think more importantly allowing our sales force to really go out and radiate and drive future market share for the company. So, so far so good and I think that will really lap itself next year and be less of an item we need to talk about.
  • A.J. Rice:
    Okay, then my question would be around the Stewart synergies, it sounds like you guys have run ahead of your original expectations both obviously you raised the synergies guidance couple of times but you're also maybe in timing have realized some sooner so if you could, what do you think the run rate of synergies you're exiting 2014 as? And what is left to capture as you move into 2015?
  • Tom Ryan:
    I think from a run rate perspective if you go back to our guidance, we got about 80 million in cost I think and 20 million in revenue synergy there, is that correct? So I think for the most part the 80s and the run rate. Now, how much got recognized in '14 I don't have in front of me, probably about $50 million there.
  • Eric Tanzberger:
    50-55, yes.
  • Tom Ryan:
    But as we start off the year with the 80 running for us and the 20s really still something we’ve got to implement and execute on and again that’s remember that’s going to be around getting the average revenue per case on the funeral side up a bit from the packages and the presentations that we do around that, the additional products and services like catering that again we’ve initiated but really haven’t gone full board yet on the Stewart locations. And then on the cemetery side the little bit of a longer opportunity and because remember really our benefit there is going to be around the fact that we’re going to offer a wider array of products and services in those cemeteries so it’s going to take building the inventory that we need and then applying our pricing model to that. And so with more choices raising the satisfaction scores of our customers along with the profitability and how we run those cemeteries. So that’s probably a way 2015 into 2016 type of impact rolling in.
  • Operator:
    Thank you. Our next question in line comes from Robert Willoughby from Bank of America. Please go ahead.
  • Robert Willoughby:
    Tom or Eric, can you, and you may have touched on it briefly Eric in your comment just the need and timing of the trust restructuring something you started a couple of years ago. What drove that? Was there any kind of regulatory or tax pressures to do so or was it just an efficiency situation if it’s just efficiency what kind of savings can we bring from that going forward?
  • Tom Ryan:
    It’s something Robert that was not regulatory it’s something that the trust structure that we had was somewhat convulated as we grew through acquisitions for 40 years and it’s something we were working with our trustees to make it very simple so we have one trustee now over prearranged funeral, one trustee over preneed cemetery and one trustee over the internal care funds. It does have some tax advantages but that’s not primarily why we did it we really did it for this made our back office a lot more efficient as well. We ultimately most of those synergies are included in the Stewart synergies related to this back office because while this project started a couple of years ago we kind of wrapped it in and did it with the Stewart integration as well.
  • Robert Willoughby:
    Okay, and are there any other kind of similar kind of good guys out there remaining that we just can’t see that clearly from the outside looking in?
  • Tom Ryan:
    From a cash tax perspective or cemetery…
  • Robert Willoughby:
    You guys have always surprised us with the low cash tax rate or an initiative such as this that we do not know is ongoing. Are there other projects underway where we could see something of same comparable size or do you pretty much exhausted that pipeline of internal opportunities?
  • Tom Ryan:
    I think on that Robert we always are looking and I think the way to think about it is this until we tell you differently we’re probably a full cash tax payer around the edge I think we’ll my guess is we’re going to find limited opportunities so lower that a bit but I think of the size and significant as you seen us in the past the big rocks and [indiscernible] and now it’s Little Rock that we’re continuing to wobble down. So we hope to surprise you a little bit but I wouldn’t get -- I don’t believe it’ll be a material amount.
  • Robert Willoughby:
    And Tom can you give just a general update on Neptune I know you kind of consolidated the numbers but how should we think about the performance there?
  • Tom Ryan:
    Neptune continues to perform really well Robert we’re excited about as you think about the quarter from a GAAP perspective we’ve grown that the revenues I think in the quarter about almost 7% and so we’d expect to be able to continue to grow that in the mid to high single digit range on the revenue side. And from a margin perspective for the quarter again I think we’re up to 16% for the quarter the fourth quarter is typically lighter I think because of the selling opportunities around the holidays are more difficult. So for the year now our margins are approaching 18% and as you’ll recall we’ve bought in that tune I think from our perspective it was high single digit 8%-9% margin. So continued up the margin and this component albeit it’s not a big piece it’s about 6% of our funeral revenue but it’s growing at a mid to high single digit range so very pleased. I want to thank Marco and his team for continuing to drive success there.
  • Operator:
    Thank you [Operator Instructions]. Our next question in line comes from Mr. John Ransom from Raymond James. Please go ahead.
  • John Ransom:
    One kind of picky question what was the year end [Technical Difficulty] versus the average share count for 4Q?
  • Tom Ryan:
    You said share count you broke up John…
  • Eric Tanzberger:
    Yearend share count versus quarter share count.
  • Tom Ryan:
    We ended the year…
  • Eric Tanzberger:
    What was the weighted average for the quarter weighted average for the year?
  • John Ransom:
    No what I meant was what was the ending share count as of 12/31 versus what we get as the [Multiple Speakers]
  • Tom Ryan:
    300 million shares John.
  • John Ransom:
    I’m sorry?
  • Tom Ryan:
    5 was the end of the year and 2-3 is where we did today consulting to the year as I said on the call we probably have just under another 2 million shares that we repurchased after year end.
  • John Ransom:
    Okay, thank you. Secondly you guys are doing your first Analyst Day next week, just a little bit of a teaser of what you might be talking about number one and number two and what was the motivation to do it?
  • Tom Ryan:
    Well, let me answer the first one, John, we’re not going to -- you got to show up to see what’s going to happen buddy, it is going to be the big show.
  • John Ransom:
    I mean I will be there.
  • Tom Ryan:
    So, I don’t want to give you too much of a teaser but I think one of the things we wanted to do, we’re going to give a more comprehensive deep dive into some of the operations as the company talk specifically to our strategy and how that’s occurring but it's really going to be a bigger deep dive and also allow you guys they have access to more of our management team. We’re going to have I believe five presenters, but even better we’re going to have a larger group of executive management there to mingle with you guys, talk about what we’re doing and give you a real comfort about the people that are doing the work in this company and not just Eric and I which -- I know Eric doesn’t do very much work at all. So, it's important for you guys to see that. But anyways -- and the reason for it is we did a survey of you guys and when I say you guys I mean all our investors some of our bigger ones on both sales side and on the buy side and the feedback was can we see a deeper bench, can we interact with more management, can you take us through some things about cremation and how you guys think about it. So all that we’re going to try to answer all your questions and we’re pretty excited again about the opportunity to talk about it. So that’s a great queue in for its February 17th, it is by invitation only, but it will be webcast and again you’ll find all the relevant information on the website while we’re going through it. So please do show up if you're invited and go on the webcast even if you are not.
  • John Ransom:
    And then the last question, I think we’ve talked in the past in a very small way you guys were doing some de novos in addition to your 50 million to 100 million of M&A, is that something that could ever be more sizeable than where it is now?
  • Tom Ryan:
    I think it can be a little more sizeable, again we may go from historically building two or three year to four or five and I can see doing that number gets into the high single-digits a year. But probably it's better to think along those lines John and again things can change. As an example, there are still states out there they don’t allow you to be in the funeral business and the cemetery business, if that would ever change as an example it may open up some opportunities for us to build locations on cemetery where we’re restricted from doing so today. So, I think that type of thing would probably launch a little more aggressive opportunity to invest in capital. But even without that I think it's not a huge part of what we will do, but we’ll begin to look at how we can grow and I think is important we’re going to talk about this on Investor Day the changing consumer environment. There is a lot of people that want some of the same traditions, but there is lot of people who want some different, so as you think about the funeral home of the future we may begin dive into that and try some things in different market. So, yes I think if it is a growth but not a tremendous growth opportunity.
  • Operator:
    Thank you. [Operator Instructions]. We have a question online from Duncan Brown from Wells Fargo. Please go ahead.
  • Duncan Brown:
    Hey, good morning. Maybe just going back to volumes, I think you said that Stewart legacy funeral volumes were down slightly versus obviously SCI being up a little bit. Anything you can maybe highlight to explain the difference maybe some concerns around Stewart market-share loss or just local market issues?
  • Tom Ryan:
    Yes, I think a lot of is just the geographic footprint, they are not in all the markets that we were in, so if you go into regions or certain states, you’ll see that we had tremendous volume growth in one state and might have been off in another and again allow that’s probably tied to what’s going on with the flu. So, no we didn’t -- there is no discernible issue as it relates to market-share, I think we -- because again they were just slightly down and as you saw we were up 1.8%. So, I think it's just a function of geography.
  • Duncan Brown:
    And my last question is more of a high level question maybe something we’ll learn more about on the 17 to it, seems like the game plan for you all is pretty straightforward, run the business keep leveraging the 3.6, 3.7 range and do some M&A, I guess just where does that leave you with some of your thoughts regarding potential strategic initiatives, obviously the REIT options have been thrown out there before, are those still under consideration or are those potential options tabled for now?
  • Tom Ryan:
    I think the one that we said, we’d always continue to look at the opportunity would potentially be the REIT. There are reasons why the REIT doesn’t work as well, some of which are tax cash cost as it relates to tax, as it relates to capital structure and moving out of there, but there is some obviously tax yield in converting to REIT. The other thing that I think we feel is that as long as we believe our stock is not fully valued it makes sense for us to continue to shrink that equity base. And once you made a conclusion that your stock is fairly value and your opportunities are limited. And now we got to go to a very high yielding dividend payout a REIT might make a lot more sense. So, I'll tell you right now it doesn't make sense but it's something that we'll continually monitor as we get through the strategy of the company but that isn't something that's on front of mine for us today.
  • Operator:
    And at this we have no further questions, I would like to turn the call back over to SCI management for closing remarks.
  • Tom Ryan:
    Thank you guys again for being on the call and as John already mentioned we've got the Investor Day on the 17th next week. So, we look forward to seeing a lot of you there and getting to join us and take a deeper dive into our business and as well as our strategy that we are going to be executing over the coming years. So, thanks again and have a great weekend and we'll see some of you next week.
  • Operator:
    Thank you ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.