Q1 2024 Service Corp International Earnings Call
Okay.
[music].
Good day and welcome to the F C I first quarter 'twenty 'twenty four earnings.
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Speaker Change: I would now like to turn the conference over to S. T. I management. Please go ahead.
Speaker Change: Thank you and good morning. This is Debbie young we appreciate you joining us today as we talk about our first quarter results were.
Debbie Young: We're gonna have some prepared remarks about border and Eric just on that.
Debbie Young: Before that.
Debbie Young: Let me quickly go over the Safe Harbor language.
Debbie Young: Any comments made by our management team that they have plans beliefs expectations or projections for the future are forward looking.
Debbie Young: These forward looking statements are subject to risks and uncertainties.
Debbie Young: Absolutely.
Debbie Young: Materially from that.
Speaker Change: Thank you.
Speaker Change: Risks and uncertainties include but are not.
Debbie Young: Those factors identified in our earnings release and also in our.
Debbie Young: As with the SEC that are available on our website.
Debbie Young: Today, we might also discuss certain non-GAAP financial measures.
Debbie Young: These measures can be found in the tables.
Debbie Young: Lee.
Debbie Young: Also on our website.
Debbie Young: With that out of the way I'll now turn it over to Tom Science, Chairman and CEO.
Thomas Luke Ryan: Thank you Debbie Hello.
Thomas Luke Ryan: Hello, everyone and thank you for joining us on the call today.
Thomas Luke Ryan: This morning, I'm going to begin my remarks, with some high level thoughts on our business performance this quarter and provide greater detail around our son funeral.
Thomas Luke Ryan: Funeral and cemetery results.
Thomas Luke Ryan: We will then close with some thoughts on our outlook for the rest of 2020.
Thomas Luke Ryan: For the first quarter, we generated adjusted earnings per share of 89%, which compared to 93 cents in the prior year or a decline of <unk> <unk> per share.
Thomas Luke Ryan: We had anticipated a decline in earnings per share from operations for the quarter due to lower funeral volumes.
Thomas Luke Ryan: Lower non funeral home revenue and lower cemetery revenues recognized from leading construction project.
Thomas Luke Ryan: Well, there's trended as we had anticipated.
Thomas Luke Ryan: Stronger than expected Preneed cemetery sales and a slightly better funeral sales average allowed us to reduce the operating shortfall.
Thomas Luke Ryan: <unk> and a better than expected six cents per share decline in operating earnings per share over the prior year quarter.
Thomas Luke Ryan: Below the line the favorable impact of a lower share count and a lower income tax rate more than offset the impact of higher interest expense.
Thomas Luke Ryan: <unk>, a net favorable increase in earnings per share of <unk>.
Thomas Luke Ryan: Resulting in a combined net four cent decrease in earnings per share for the quarter.
Speaker Change: Now, let's take a deeper look into the funeral results for the quarter.
Thomas Luke Ryan: Total comparable funeral revenues declined $9 million or about 1% over the prior year quarter.
Thomas Luke Ryan: That's an increase of $4 million core right.
Thomas Luke Ryan: It was more than offset by an expected 12 million dollar tree.
Thomas Luke Ryan: Non funeral home preneed sales rep.
Thomas Luke Ryan: Although volume.
Thomas Luke Ryan: Aren't we.
Thomas Luke Ryan: We believe due to the Cove Gulfport effects.
Speaker Change: Oh, yes were in line with what we did.
Thomas Luke Ryan: Our core average revenue per service grew over the prior year.
Thomas Luke Ryan: But in the press.
Thomas Luke Ryan: Uh huh.
Thomas Luke Ryan: Even after absorbing the negative effect of a modest 70 basis point increase in the cremation mix.
Thomas Luke Ryan: Sci direct not funeral preneed sales revenue.
Thomas Luke Ryan: Increased by $12 million.
Thomas Luke Ryan: Primarily due to operational changes in our California market with respect to the timing the timing of merchandise delivery.
Thomas Luke Ryan: We would anticipate the quarter over quarter net revenue decline to diminish over the coming quarters as compared to the first quarter of 2024.
Thomas Luke Ryan: It is our intention over the next several quarters to implement this and other operational changes across the remaining non funeral home market as we began offering an insurance funded product for Sci direct service and merchandise sales.
Thomas Luke Ryan: As well as shifting certain travel protection sales to an insurance funded product where it makes sense.
Thomas Luke Ryan: While these changes will defer recognition of these revenue streams until the at need cremation service perform if.
Thomas Luke Ryan: It will also generate significant general agency revenue upon the sale of the preneed contract, which we expect to mitigate the effects of the revenue decline from these operational changes.
Thomas Luke Ryan: Over the coming years, we would expect to grow General agency revenues at a very healthy and sustainable growth rate.
Thomas Luke Ryan: And when combined with organic growth in the number of contracts maturing from the preneed backlog for Stis, Iraq should result in very impressive revenue and profit growth rate.
Thomas Luke Ryan: For Sci direct.
Thomas Luke Ryan: From a profit perspective funeral gross profit declined $18 million while.
Thomas Luke Ryan: While the gross profit percentage declined by 270 basis points to about 22%.
Thomas Luke Ryan: This decrease is primarily due to the decline in revenue and an increase in annual incentive compensation costs over the prior year quarter.
Thomas Luke Ryan: Preneed funeral sales production decreased by $8 million or about 2% over the first quarter of 2023.
Thomas Luke Ryan: This was primarily due to a decline in our core sales production is non funeral home sales production was relatively flat over the prior year quarter.
Thomas Luke Ryan: Now shifting to cemetery com.
Thomas Luke Ryan: Comparable cemetery revenue increased by an impressive $21 million or about 5% compared to the prior year first quarter.
Thomas Luke Ryan: Recognized preneed revenue accounted for the preponderance of the increase growing by $20 million or 7%.
Thomas Luke Ryan: Growth in Preneed cemetery sales production of $24 million or almost 8% over the prior year quarter deliver.
Thomas Luke Ryan: <unk> delivered eight of the $20 million of recognized revenue increase.
Thomas Luke Ryan: As the preponderance of our sales production increase was deferred and will be recognized in subsequent quarters.
Thomas Luke Ryan: Preneed merchandise and service revenue delivered $12 million of the recognized revenue Ingram.
Thomas Luke Ryan: Robust increases in contract.
Thomas Luke Ryan: Yes.
Thomas Luke Ryan: Impacted by increased merchandise and service Trust income combined.
Thomas Luke Ryan: Onto the slightly higher average unit.
Thomas Luke Ryan: Delivered 14% growth as compared to the prior year quarter.
Thomas Luke Ryan: Yeah.
Thomas Luke Ryan: $17 million of the $24 million increase in Preneed Cemetery sales production was generated from a 6% growth in core cemetery sales over the prior year quarter.
Thomas Luke Ryan: Large sales accounted for the other $7 million of the increase which was a 19% increase over the prior year total.
Thomas Luke Ryan: Cemetery gross profit in the quarter increased by $3 million from increased revenues and the gross profit percentage declined by 100 basis points still generating margins over 32%.
Thomas Luke Ryan: This decline in gross profit percentage was primarily due to an increase in annual incentive compensation costs as compared to the prior year quarter.
Speaker Change: Now, let's shift to discussion about our outlook for 2024.
Speaker Change: As you saw in our earnings release, we're confirming our normalized earnings per share guidance range of $3 50 to.
Thomas Luke Ryan: The $3 80 for 2024 or a midpoint of $3 65.
Thomas Luke Ryan: Remember the first quarter was their most challenging year over year comparison, because we had expected the most difficult comps to occur in the quarter in both revenue recognized from cemetery completed construction projects and non funeral home preneed sales revenue.
Thomas Luke Ryan: We also knew our most challenging comparison of variable interest rates on our floating debt would occur in the first quarter.
Thomas Luke Ryan: As we think about comparing the rest of 2024 earnings per share expectation.
Thomas Luke Ryan: Against our last nine months of 2023 normalized earnings per share.
Thomas Luke Ryan: We would expect year over year growth in earnings per share in each of the subsequent quarters.
Thomas Luke Ryan: Driven by increased profitability in both the funeral and cemetery segments.
Thomas Luke Ryan: We would expect low single digit increases in funeral revenues.
Thomas Luke Ryan: And we would anticipate increased sales production and increased revenue recognized from completed construction projects combined to drive mid single digit increases in cemetery revenue over the coming nine months.
Speaker Change: In conclusion I'd like to thank the entire SDI team for all that you continue to do every day for our customers our communities and each other.
Speaker Change: You are what makes our company great.
Thomas Luke Ryan: With that operator, I'll now turn the call over to Eric.
Eric: Good morning, and again, a warm welcome to everybody joining today's earnings call and similar to the way Tom.
Eric: And in his remarks before I get into my prepared remarks, I want to take up on that as it customarily do but again never without genuine gratitude to extend my sincere appreciation to our dedicated team of over 25000 associates that's yeah.
Eric: Your constant commitment to serving each and every one of our client families with empathy and unwavering excellence is truly remarkable.
Eric: We take immense pride in the fact that our associates and body our fundamental values of respect integrity service excellence and fostering enduring relationships. So thank you.
Eric: So now let's go ahead and ship to my remarks for the quarter I'm going to first discuss our cash flow results before moving to capital investments during the quarter, along with providing some forward looking commentary on our outlook and also finished with talking about our current financial.
Eric: So in the first quarter, we generated an impressive adjusted cash flow from operations of $220 million. This was flat compared to the prior year and was in line with our expectations.
Eric: Lower operating income and higher cash interest payments were more than offset by slightly lower cash taxes and favorable working capital. So let me give you a little bit more color on those items.
Eric: Operating income declined by about $13 million quarter over quarter due to an expected decline in earnings that Tom just walked us through.
Eric: Additionally, we saw $14 million of higher cash interest payments during the period as anticipated and as a result of higher weighted average interest rates and balances on our floating rate debt during the quarter.
Eric: Cash taxes in the quarter were slightly lower than the prior year by about 4 million.
Eric: Now I'll fire.
Eric: Cash tax payments are generally not made in the first quarter I want to reiterate from my previous comments that we expect our 2020 for cash taxes to range between $25 million to $35 million.
Eric: 2024 is being impacted from a temporary benefit of about $150 million of reduced cash tax payments as a result of the tax accounting method change that I've now discussed over the last several quarters and as we look to 2025 and beyond we expect.
Eric: Cash taxes to revert toward a more normalized trend that again would not include this $150 million benefit beginning in 2025.
Eric: And finally, working capital provided a net $23 million source of cash during the period and this was primarily driven by favorable impacts associated with lower 2023 incentive comp cash payments that were actually paid this quarter and 2024 and I think I did mention that in the last.
Eric: Quarters call as well.
Eric: So I'll now touch upon our capital investments in the first quarter.
Eric: We invested a total of $103 million in to improvement of our existing funeral homes and cemeteries new growth opportunities in real estate for future expansion. So let's break this down a little further.
Eric: We invested $70 million of maintenance capital back into our current businesses with $39 million of cemetery develop at $25 million into improvements to our various funeral and cemetery location.
Eric: And $7 million into our digital strategy and other corporate investments.
Eric: The cemetery development spend increased on a year over year basis, as we continued to execute on opportunities to invest in high returning cemetery construction projects.
Eric: And remember these projects generate high quality cemetery property for our customers that help to drive the strong Preneed Cemetery results. We've seen this quarter in recent quarters.
Eric: We also invested $16 million of growth capital in the quarter towards the purchase of real estate.
Eric: Instruction of new funeral homes, and the expansion of existing funeral homes and cemeteries.
Eric: Finally, we made several accretive acquisitions in the quarter closing on $16 million in total we remain optimistic about the activity, we're seeing in the second quarter and the pipeline through the remainder of the year and with that we now believe we will be at the high end.
Eric: Of our $75 million to $125 million acquisition investment target for 2024.
Eric: In addition to the investments into our business and the acquisition.
Eric: We returned $93 million of capital to shareholders in the quarter through $44 million of dividends.
Eric: And just under $50 million to share repurchases.
Eric: We purchased about 700000 shares at an average price of about $70 during the quarter.
Eric: And this ended the quarter with just over 146 million shares outstanding.
Eric: Now subsequent to the quarter, we continue to be active on the repurchase of shares.
Eric: Client about another $700000 shares or just under a 50 million dollar investment.
Eric: So in the press release, while we have confirmed our 2024 adjusted operating cash flow guidance, which remember is a range of $900 million to $960 million with a midpoint of $930 million and we deemed this again as appropriate.
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Operator: Good day, and welcome to the SCI first quarter 2024 earnings conference call. All participants will be in listen-only mode.
Eric: When we deduct $325 million of expected maintenance capital. This results in an impressive adjusted free cash flow of just over $600 million or over $4.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on a touch-tone phone. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to S.C.I.
Eric: Adjusted free cash flow per share for 2024.
Eric: In addition to this strong cash flow Foundation, we also have a very favorable debt maturity profile.
Eric: And liquidity of just over $900 million at the end of the quarter, which consists of a cash balance just over $200 million as well as approximately $700 million available on our long term bank credit facility.
Eric: Our leverage at the end of the quarter remain close to the year end number at 359 times net debt to EBITDA.
Debbie Young: Thank you and good morning. This is Debbie Young.
Eric: And again, we maintain our near term bias towards the lower end of our targeted leverage range of three five to four times until we have a little bit more clarity as to where interest rates will go from here for the rest of the year.
Debbie Young: We appreciate you joining us today as we talk about our first quarter results. We're going to have some prepared remarks about the quarter from Tom and Eric in just a moment, but before that, let me quickly go over our safe harbor line. Any comments made by our management team that state our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such cases. These risks and uncertainties include, but are not limited to, these factors.
Eric: So in closing I'd like to reiterate that our solid balance sheet, our ample liquidity and our predictable cash flows will continue to fortify our capital investment strategy of investing to the highest and best use in order to maximize shareholder value.
Speaker Change: So before we open the call outs to.
Eric: The questions I have one more topic I'd, just like <unk> mentioned very briefly.
Speaker Change: And I'd like to complement and recognize Debbie young.
Debbie Young: Today we may also discuss certain non-GAAP financial measures. A reconciliation of these measures can be found in the tables at the end of our earnings release and also on our website. With that out of the way, I will now turn it over to Tom Ryan.
Speaker Change: Who most of you on the call know Debbie very well.
Speaker Change: All of you on the call as I look at these questions with AJ, perhaps France and that's been around.
Speaker Change: For the last.
Speaker Change: Many many years, where Debbie has led of her 37 years at our company has led Investor relations for over 25 years or as I like to say over 100 quarters. She has led our investor relations.
Thomas Luke Ryan: Thank you, Debbie. Hello everyone, and thank you for joining us on the call today. This morning, I'm going to begin my remarks with some high-level...
Thomas Luke Ryan: and provides some greater detail around our solid funeral and cemetery results. I will then close with some thoughts on our outlook for the rest of 2016.
Speaker Change: Program here has done a remarkable job.
Speaker Change: He has decided to retire at the end of this quarter and ultimately I will spend more time with her husband, Scott and her son, Matthew and please join US we want to wish Debbie the best of luck and from a personal perspective, what makes a job great is when you were a.
Thomas Luke Ryan: For the first quarter, we generated an adjusted earnings per share of 89 cents, which compared to 93 cents of the prior year, or a decline of 4 cents per share. We had anticipated a decline in earnings per share from operations for the quarter due to lower funeral odds. Lower non-fumaral home revenues and lower cemetery revenues recognized from completed construction projects. While these trended as we had anticipated... Stronger Than Expected Preeminent Cemetery Sales in a Slightly Better
unknown: [inaudible]
Speaker Change: To work with great people that become your friends over the last several years and Debbie.
Speaker Change: You've made a lot of tough times here early on 25 years ago a lot easier.
Speaker Change: We've made a good times a lot better except for that I. Thank you and we all thank you.
Speaker Change: Sure.
Speaker Change: [noise] so with that operator, we'll go ahead and pass it back to you and open up the call for questions.
Speaker Change: We will now begin the question and answer session.
Thomas Luke Ryan: Below the line, the favorable impact of a lower share count and a lower income tax rate is more than offset by the impact of higher...
Speaker Change: To ask a question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up your handset before pressing the keys.
Thomas Luke Ryan: Producing a net favorable increase in earnings per share of two cents, and resulting in a combined net 4 cent decrease in earnings per share for the board. Now let's take a deeper look into the final results of the quarter. Total comparable funeral revenues declined $9 million, or about 1% over the prior year quarter, and an increase of $4 million in corporate revenue was more than offset by an expected $12 million decrease in non-human home 3D sales revenue.
Speaker Change: If at any time for your questions. That's been addressed and you would like to withdraw your question.
Speaker Change: Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: Yeah.
Speaker Change: Our first question comes from a J rice of UBS go ahead. Please.
Albert J. William Rice: Thanks, Hi, everybody, our best wishes to you Debbie I'm glad Eric didn't try to.
Albert J. William Rice: You estimate how long a John Ramsay, but I've been doing this.
Speaker Change: Average guys.
Thomas Luke Ryan: Although the torque provided a decline of 3% compared to the prior year's torque, we believe this was due to the COVID-19 cold war. Audiences were in line with what we anticipated. Our core average revenue per service grew over the prior year.
Albert J. William Rice: A couple of questions if I could first of all on the I.
Albert J. William Rice: I guess there was an announcement out of the attorney General out of California are reaching a settlement regarding some cremation practice I wonder if you could just give us your perspective on that does it change anything going forward.
Thomas Luke Ryan: Even after absorbing the negative effects of a modest 70 basis point increase in a commercial rate,
Albert J. William Rice: And yeah, just yeah, just your perspective on that would be helpful.
Albert J. William Rice: Okay.
Speaker Change: Sure a J thanks for the question.
Albert J. William Rice: So after about eight years of a back and forth.
Speaker Change: We reached a settlement with the California Attorney General that includes the cost reimbursement and civil penalties of $23 million, which you probably saw the press release issued today and.
Thomas Luke Ryan: decreased by $12 million primarily due to operational changes in our California market with respect to the timing of merchandise delivery. We would anticipate the quarter over quarter net revenue decline to diminish over the coming quarters as compared to the first quarter of 2024. It is our intention, over the next several quarters, to implement this and other operational changes across the remaining non-funeral home market as we begin offering an insurance-funded product for SCI direct service and merchandise sales.
Albert J. William Rice: And provides certain preneed contract customers with the right to receive refunds.
Albert J. William Rice: There is no admission of any wrongdoing or fault by the company or the officers and the board.
Albert J. William Rice:
Albert J. William Rice: We believe that our fourth quarter 2022 accrual that we made in relation to this is Adam covered with a $23 million.
Albert J. William Rice: Civil penalty and reimbursement as well as any estimated cancellations from the customer contracts.
Albert J. William Rice: And a little history here you know the lawsuit was brought by the state. It was primarily based on the interpretation of the short Act, which is Oh under California law or specific to California.
Thomas Luke Ryan: As well as shifting certain travel protection sales to an insurance-funded product where it makes sense, although these changes will defer recognition of these revenue streams until the Ad-Need Cremation Service is performed. It will also generate significant general agency revenue upon the sale of the Frenny contract, which we expect to mitigate the effect of the revenue decline from these operational changes. Over the coming years, we would expect to grow general agency revenues at a very healthy and sustainable growth rate. When combined with organic growth and the number of contracts maturing from the pre-COVID era,
unknown: [inaudible]
Albert J. William Rice: And while we don't agree with you know California's interpretations.
Albert J. William Rice: We've agreed to certain operational changes that allowed us to remedy the dispute.
Albert J. William Rice: And I'd say you mentioned.
Albert J. William Rice: You know any changes in I think in my comments I mentioned that.
Albert J. William Rice: In California, we had stopped delivering merchandise that's warranted.
Albert J. William Rice: But the non <unk> revenues have been down and as we've been.
Albert J. William Rice: Finalizing these negotiations Ajay we started looking at the model and while this is very specific to California and again, we believe in compliance with every law, we saw an opportunity to kind of streamline the Sci direct model.
Thomas Luke Ryan: Southridge, 4S the address. From a profit perspective, Funeral gross profit declined $18 million, while the gross profit percentage declined by 270 basis points to about 22%. This decrease is primarily due to the decline in revenue and an increase in annual incentive compensation costs over the prior year quarter. Creeney Funeral Sales Production decreased by 8%
Albert J. William Rice: So as I mentioned over time here, we're going to transition Sci direct to go from delivering merchandise in advance.
Albert J. William Rice: And delivering PRP P and ship that product to an insurance product in there.
Albert J. William Rice: The reason, we can do that one is to streamline the model to it provides protection for our customers to pay over time, so having an insurance product if I pay over time and dive in and fully paid for so we can add that benefit but also allows us to kind of leverage the value of our insurance sales production strain because we have such a powerful biz.
unknown: [inaudible] This is primarily due to a decline in our for sales production.
Albert J. William Rice: The missile business.
Albert J. William Rice: All of that and it will generate generally.
Albert J. William Rice: General agency revenues, which will offset the effects of not delivering the merchandise and so now we're going to generate these revenues upfront and the average contract revenue coming out of the backlog of Sci direct is going to be significantly higher. So I think it's a win win for everybody.
Thomas Luke Ryan: Now shifting to cinematography. Comparable cemetery revenues increased by an impressive $21 million, or about 5% compared to the prior year's first quarter, recognize pre-revenue accounted for the preponderance of the ruined by $20 million for 7%, in pre-cemetery cells production of $24 million, or almost 8 percent over the prior year, delivered $8 million of the $20 million of recognized revenue income, as the preponderance of our sales production increase was deferred and will be recognized in subsequent quarters.
Albert J. William Rice: We settle a dispute with the HD and we're happy about that so hopefully that covers.
Albert J. William Rice: Covers the questions you guys may have around that topic.
Speaker Change: Yeah, No that's great and.
Speaker Change: I know you commented on the acquisitions and their prepared remarks, a little bit, but I wondered obviously, you've got the exploration of the standstill arrangement related to Stewart Ah that's done that would open up some new market opportunities that havent been available to you for a while and I would also assume.
Thomas Luke Ryan: Pre-merchandise and service revenue delivered $12 million of the recognized revenue increase, and a robust increase in contract average, favorably impacted by increased merchandise service, trust, combined with a slightly higher delivered unit, delivered 14% growth as compared to the prior year. $17 million of the $24 million increase in pre-cemetery sales production, generated from a 6% growth in core cemetery sales over the prior year quarter. Large deals accounted for the other $7 million of the income, which was a 19% increase over the prior year total.
Speaker Change: And I just wanted to confirm that to the extent that you can do any transactions and some of those markets that hadn't been available to you for the last 10 years.
Speaker Change: Would those not be some of the more accretive deals that you can do because you already have some facilities in those locations.
Speaker Change: Yeah, I think again.
Speaker Change: Because you did it yourself by saying you Debbie when she was a teenager [laughter] youre exactly right a J I do think the market.
Speaker Change: That will open up are ones that that we really like that.
Speaker Change: We've got a presence there and I think to take your question in different pieces Eric.
Speaker Change: Eric mentioned, we feel really good about the rest of the year and that means we've got a number of deals that are under a letter of intent. Other offers that are in kind of final stages of negotiation I think the way to think about these markets. So a J to your point.
Thomas Luke Ryan: Cemetery gross profits in the quarter increased by $3 million from increased revenues, and the gross profit percentage declined by 100 basis points, still generating margins over 30. This decline in gross profit percentage was primarily due to an increase in annual incident compensation costs as compared to the prior year.
Speaker Change: As we've always said business has come for sale with a celebrated itself. So so while it seemed like a floodgate opens it isn't really true what we've found over the last 10 years, there's been times, where it would come up that we would love to participate in <unk> preclude us from participating because.
Thomas Luke Ryan: Now let's shift to the discussion about our outlook for 2020. As you saw in our earnings release, we're confirming our normalized earnings per share guidance range of $3.50 to $3.80 for 2024. We're at a midpoint of $3.65. Remember, the first quarter was the most challenging year-over-year comparison because we expected the most difficult costs to occur in the quarter in both revenue recognition and cost of sales.
Thomas Luke Ryan: and Non-Funeral and Pre-Detailed Revenue. We also knew our most challenging comparison of variable interest rates on our floating debt would occur in the first place. As we think about comparing the rest of 2024 earnings per share expectations
Speaker Change: Our negotiations we have to say hey by the way we have to wait on the federal Trade Commission to approve this well we're not a very attractive buyer at that point. So what this is going to allow us to do for transactions under I think it's $120 million.
Speaker Change: Just don't have that.
Speaker Change: <unk> go into the FTC bye.
Speaker Change: By by our prior notice that's out there. So so again I think it's it's a plus.
Speaker Change: We think it's going to be good but.
Speaker Change: You know I'd say today absent that we still feel very good about the pipeline of acquisition.
Speaker Change: Yep, alright, thanks, a lot.
Speaker Change: Our next question comes from Parker Snook.
Parker Snook: <unk> of Raymond James Go ahead. Please.
Parker Snook: Hey, Good morning, you about Parker on for John Ransom.
Thomas Luke Ryan: We would expect year-over-year growth in earnings per share in each of the subsequent quarters, driven by increased profitability in both.
Parker Snook: Maybe just talk about the cemetery preneed production was up almost 8% anything notable to call out there was there any bounce back in the Ching Ming sales that maybe you lost last year or anything notable in terms of geography, and then maybe the high end versus the low end things.
Parker Snook: Sure.
Parker Snook: You know Ching Ming.
Parker Snook: Again, as you know kind of crosses quarters, we have an impact typically happens in the in the last couple of weeks of March and probably will have a few weeks in April.
Parker Snook: We would tell you that we're very pleased with you know Ching Ming this year, it's been and I think you know again it shows in the first quarter results too. So yeah, we feel great I mean, the nice thing I think Parker about the first quarter is not only do you have.
Parker Snook: Card sales grew 19% but are poor.
Parker Snook: <unk>.
Parker Snook: Products grew by 6%, so we're really hitting on all cylinders and there's a lot of different markets.
Speaker Change: And really feel good about the direction and momentum that our sales team.
Speaker Change: But again, we want to caution the one thing that we talked about this year is a big lead source for our Preneed cemetery sales as funeral volume and therefore variable here and yes, we still have a little bit of a hangover as you as you think about the pull forward effect and so I think you can put a little bit of pressure, but a tiny bit of pressure.
Speaker Change: On that lease source. The good news is our sales team drove her coming that with increased digital leads better follow ups great products in our cemeteries that they're available so.
Speaker Change: So we feel great about the momentum.
Speaker Change: It's still the first quarter. So we don't want to spike the ball on the 40.
Speaker Change: But but I feel confident about where we're headed and the rest of 2024 and maybe even more confident about 25 in 'twenty two.
Speaker Change: Okay.
Speaker Change: And then just any updated thoughts on the FTC funeral rule any you know any updated thoughts on timing of when we might see that.
Speaker Change: Hey, Parker, Eric No, we really don't have any updated thoughts.
Eric: Been very consistent with that.
Speaker Change: We continue to have a very good relationship with the staff of the FTC and helpful to work through it.
Thomas Luke Ryan: But we've submitted stuff all the way back in October of 2023, which is kind of official last day that we have done.
Speaker Change: With them and.
Speaker Change: I think the whole industry is waiting around for Finalization important thing to remember though is.
Speaker Change: We don't think there's anything that's coming out of the rule.
Speaker Change: Our vision in place that's going to have a material effect or something one way or the other.
Thomas Luke Ryan: And we think ultimately it's a good rule for the industry.
Thomas Luke Ryan: But nothing thats going to materially move any of our projections from a financial impact or anything.
Speaker Change: Alright, great. Thanks, so much and congrats Debbie.
Speaker Change: Our next question comes from Joanna <unk> of Bank of America go ahead. Please.
Joanna: Hi, good morning. Thank you so much for taking the questions here.
Speaker Change: Just a couple of Oh Wow.
Joanna: So I guess, that's not the last time, but the one before around some of their T cells production sounds.
Thomas Luke Ryan: Sounds like the fact that the large.
Joanna: Poor.
Joanna: So did I read it right that Oh, what's that.
Thomas Luke Ryan: Pricing and I guess, what keeps you are absolutely too.
Speaker Change: Right I guess well you know.
Joanna: And I guess interest rates go higher can you kind of talk about maybe some more detail.
Speaker Change: You know humor.
Joanna: Humor, I guess perception and demanding info that gets cooler and also a large scale.
Joe: Sure Joe.
Thomas Luke Ryan: Again like I said that the large sales continue to go with a very nice.
Joe: Nice clip I mean, if you look back in time.
Thomas Luke Ryan: <unk> higher than they were just five or six years ago and a lot of that is again back to the product that we're able to put in front and our sales force ability to close.
Joanna: So as you think about that high sale.
Joanna: Sale.
Joanna: Depending on seasonality I think second quarter is typically stronger fourth quarter.
Speaker Change: We're going to do about probably $40 million to $50 million a quarter I mean, that's kind of the.
Joanna: The pace and again that I think is more contingent with where the economy is where the stock market is because those buyers are typically not borrow money to buy them. There. They are putting cash in later feel good about or they don't.
Joanna: That's there.
Thomas Luke Ryan: <unk> been very consistent and we feel good about.
Joanna: The temperature of that customer.
Joanna: Other and we saw great activity again, our activity for the quarter was relatively flat from a units perspective, but keep in mind you know.
Speaker Change: I think we're somewhere around 10 or 11% higher than we were in 2019.
Thomas Luke Ryan: So the word elevated levels of volume and you are right most of the increase in the quarters related to average, but remembered Jan and you know this from being in a lot of our cemeteries and seeing it some of that is inflationary pricing.
Thomas Luke Ryan: But that's not an insignificant portion of that is a one off.
Speaker Change: I'll call it trade up and what that is by investing in.
Thomas Luke Ryan: Different tiers in the cemetery youre seeing customers come in and buying and an enhanced product we spent some money.
Joanna: <unk> made a better product and people are trading from you know this level of product what it that has I expect on average sale. So so it's really a combination of the things that we think will continue inflationary pricing and enhanced offerings in our cemeteries. We continue to invest at the levels of a hunter to.
Joanna: $130 million a year in bringing on new inventory property.
Speaker Change: No in fact, that's what I was saying.
Speaker Change: Thank you for that's been 11th and higher I mean, I don't have the breakdown galactic, but looking at that could you just go back to the dollar.
Thomas Luke Ryan: It's like a nine to 10 gig.
Thomas Luke Ryan: First quarter was 19.
Speaker Change: To me it sounds like yeah.
Thomas Luke Ryan: Definitely Tonight.
Thomas Luke Ryan: Demand and people willing to spend money.
Speaker Change: That's good there.
Speaker Change: And if I may a couple of other follow up on your comments around that deal spending for the year.
Speaker Change: You I guess confidence increase when you think you're going to be at the higher.
Thomas Luke Ryan: Does it mean anything meaningful but the guidance for the year in terms of accretion.
Thomas Luke Ryan: Accretion from these deals moving from you know what.
Thomas Luke Ryan: Iron ore I guess, that's maybe not big enough to make a.
Thomas Luke Ryan: Yeah.
Speaker Change: Yes, you're right.
Speaker Change: We're excited about it.
Thomas Luke Ryan: Have a material impact on our guidance.
Thomas Luke Ryan: Please give us a little bit of a full house and Senate.
Thomas Luke Ryan: Keeping the range.
Speaker Change: Like normal you know its the first quarter of this year I think as we get through a half year, we'll have a better idea of that pipeline will have a better idea of sales. Its just you know three months a year Mike.
Speaker Change: And maybe I can also give us a sense of the assets acquired.
Thomas Luke Ryan: In the quarter and also you know what.
Thomas Luke Ryan: Pipeline.
Speaker Change: Yeah, I think Eric mentioned that the assets, we bought in the first quarter probably.
Speaker Change: I don't think we got cemeteries.
Thomas Luke Ryan: As you think about the pipeline and again I always hesitate to say anything until they're closed but we do have two deals that are under letter.
Thomas Luke Ryan: Process flows.
Thomas Luke Ryan: And we also have I'd say some deals that are you know very close to getting under letter of intent.
Thomas Luke Ryan: It's a nice fit with both general and I think you've got some investments also in cemeteries will.
Thomas Luke Ryan: It will be coming online so.
Thomas Luke Ryan: Both of the two deals you know some of us.
Thomas Luke Ryan: But I'd say based on the level of activity, we feel like there.
Thomas Luke Ryan: Pretty confident achieving the range.
Thomas Luke Ryan: Probably towards the high end right.
Speaker Change: Okay and I guess also relates to my other question on capital deployment.
Thomas Luke Ryan: So this confidence that a reason why you did not really buy that much stuck in the quarter I mean, it sounds like Q.
Thomas Luke Ryan: So you're already but maybe.
Thomas Luke Ryan: Maybe what's the timing of things, but anything to read into that I guess, if you wanted to 550 million was the lowest since like 2019.
Thomas Luke Ryan: Yeah.
Thomas Luke Ryan: I'd answer it two ways I think we continue to have a track record of.
Thomas Luke Ryan: Based on our opinion of the value of ramping up and ramping down so you're always going to see volatility in months or quarters. As we are as we form that opinion.
Thomas Luke Ryan: We definitely believe heavily in its share repurchase program right now so I don't want you to take that any differently, including what we did in the quarter and partly what I said, we've already done in this quarter already today.
Thomas Luke Ryan: To date, but the second piece to that as you know last quarter.
Thomas Luke Ryan: Q1 of last year, you know, we actually took on debt to do some of the shares in some do some acquisitions and stuff.
Speaker Change: And we paid down debt and it's about $100 million swing and that's kind of where that capital went this quarter, where we pay down debt and again I don't think that's a pivot in strategy three months doesn't make a year as Tom just said, but from a timing perspective, we continue to have a little bit of a buy.
Thomas Luke Ryan: <unk> towards the 3.5 side, if the three five to four times leverage that's not new that's what we've said.
Thomas Luke Ryan: Obviously, I think everyone was in the boat of expecting some floating rate relief as we went through the year that relief appears to us it appears to the market as well.
Speaker Change: It does come it's going to come in the back half of the year and I think that went into some of the thinking during the first quarter, but.
Thomas Luke Ryan: But I would also reference again the momentum we have in its share repurchase program. Subsequent just in the first month is very strong. So here very clearly about how how we view it very favorably at these levels right now.
Thomas Luke Ryan: George just to add a little bit there.
Thomas Luke Ryan: As a technical reason too.
Speaker Change: Obviously, when we're in a quiet period.
Speaker Change: We can't make decisions day to day, we have to put a formulaic number in there.
Thomas Luke Ryan: We want to be able if it's super cheap under formula to buy it, but maybe not as aggressive and we cant change that if you think about the first quarter, we go quiet and probably like November 15th.
Thomas Luke Ryan: And it goes all the way through your release earnings was the longest period of time, where you really don't have a lot of discretion.
Speaker Change: I think that's probably to Eric's point.
Thomas Luke Ryan: You didn't spend as much as you might think and now that you know as you get into this.
Thomas Luke Ryan: These months shorter shorter windows.
Speaker Change: Okay, Yeah that makes sense and I guess, if I may just.
Speaker Change: Thank you Oh when it comes to just looking out.
Speaker Change: On the last call you made some comments about 2025 and I guess.
Speaker Change: When talking around Oh, that's good.
Speaker Change: That's gonna cemeteries.
Speaker Change: You bet.
Thomas Luke Ryan: <unk> seen great momentum this year and heading into next year. So should I read into this kind of feel the same way I think that the.
Thomas Luke Ryan: Maybe less than two months ago, when you reported Q to Q4, and you talked about you know returning.
Thomas Luke Ryan: Turning to 825 and kind of any commentary. Thank you.
Speaker Change: Yeah, I, just think Joanna we'd say that we felt confident then and I'd say I feel a little more confident now because I think the first quarter from an expectations perspective, and the trends that we're seeing are really positive.
Thomas Luke Ryan: I also think they're bidding.
Thomas Luke Ryan: Getting this.
Thomas Luke Ryan: A G matter behind us and allowing us to transition to our new Sci direct strategy, which should as we get through the first couple of years provide us.
Thomas Luke Ryan: A real robust growth.
Thomas Luke Ryan: Platform for that business, because again, we're going to generate general agency revenues and be filled up the backlog with.
Thomas Luke Ryan: More robust.
Thomas Luke Ryan: Oil averages so.
Thomas Luke Ryan: So we really feel great about where we are in and are excited about getting into these months and again digital leads continue to grow at a pretty pronounced split our sales teams are super effective super productive.
Speaker Change: You know I think Jerry is running the sales team at 600 people lighter than it was before.
Thomas Luke Ryan: We went into a coast to coast.
Speaker Change: And as you mentioned, we've got time.
Thomas Luke Ryan: Right over the period with 600 fewer couches and we had 2019 and I'd say, that's great leadership in sales great leadership in marketing and.
Thomas Luke Ryan: We just appreciate the effort and are excited about going forward.
Thomas Luke Ryan: Great.
Thomas Luke Ryan: Okay.
Thomas Luke Ryan: Our next question comes from Scott Schneeberger of Oppenheimer go ahead. Please.
Thomas Luke Ryan: Thanks, very much congratulations Debbie hundred quarters, there's a lot of quarters, Oh, a career well done.
Speaker Change: I I guess I'd like to start out.
Speaker Change: Funeral volume kind of a high level question, Tom probably for you.
Thomas Luke Ryan: From the pandemic pull forward, we've been going through this reversion period there've been a lot of puts and takes impacting it where are we in that were like what inning would you say we're in in that reversion when do you expect.
Speaker Change: You know, maybe we see normalization and and maybe some improvement to to funeral volume. Thanks.
Thomas Luke Ryan: Yes, Scott I think we felt like based again and this is Chris a little bit of Crystal ball, but.
Thomas Luke Ryan: We felt like this was the 24 was kind of the last year that we had the net true hangover as you think about the impact.
Thomas Luke Ryan: So I think the way to think about 25 did you still have a few things in your face, but theres. So slide that we believe our market share gain in the natural death rate will overcome it. So as we think about 25, we feel good about flat to.
Thomas Luke Ryan: You never know what happens is flu seasons, but we feel like it's.
Thomas Luke Ryan: A positive comparison as you move out past 2024, and then as you get into the back half of the 20th a lot of things are moving in your direction, including demographics I.
Thomas Luke Ryan: I think you're through the the headwinds of Covid and again with our growth in preneed.
Thomas Luke Ryan: We believe continuing to capture market share that that should be reflected in our funeral volumes as you think about.
Thomas Luke Ryan: The back half of the decade.
Thomas Luke Ryan: And for Eric One for you just and then and then a quick final one after but Eric Wonder what are you thinking about it interest rates are in the in the variable for the back half of the year just any change to what you were thinking last quarter's update.
Speaker Change: Yeah, you know, we have a guidance update but specifically on that line. Thanks.
Speaker Change: Yeah, I mean, we're about seven 4% ish right now on the on our floating debt.
Thomas Luke Ryan: Most of the comparison first of all the tough comparison is going to be the first half of this year because it was already up about that point is you got to the second half of 'twenty three when you look forward though.
Speaker Change: The rest of the year, you know I think like everybody else, we thought there could have been.
Thomas Luke Ryan: Three or four rate cuts and now we're probably thinking that it's more like two ish rate cuts in the back half of the year, obviously, we could be wrong, but the one thing that I would tell you. Scott is that's not very material you know are.
Thomas Luke Ryan: It says the floating rate that's about 30% of our total debt and when you just take it out with 25 bps cut.
Thomas Luke Ryan: And the floating rate expected to follow it just happened in the last couple of months of the year, it's not going to be very material with us at all so it's not going to move the needle.
Speaker Change: I'm not going to move any of the guidance or anything like that but it said that you know in the modeling, though we obviously.
Thomas Luke Ryan: Took a little bit of a lighter point of view in terms of cuts like most people have read the reason they are reading the market and some of the comments out there.
Speaker Change: Thanks appreciate that and then that last one just cremation mix.
Thomas Luke Ryan: The year over year.
Speaker Change: A little lighter than historic trend is this is it just a factor of comps or a year over year comps or anything else, we should be considering there. Thanks.
Speaker Change: Got you know I'm thinking J weren't called you may revert.
Thomas Luke Ryan: I think our belief is that the trends will probably revert to the mean I think what you've seen over a number of years, sometimes we've experienced 200 basis points experienced 50 basis points.
Thomas Luke Ryan: And so it can ebb and flow and we still think more likely than not we're somewhere in the 100 to 150 basis point change a year.
Speaker Change: We have noticed that in our numbers and we're excited about it I think it's great.
Speaker Change: I just don't know if it's a trend yet to go.
Thomas Luke Ryan: Yeah.
Speaker Change: Alright, Thanks, guys appreciate it.
Thomas Luke Ryan: Yes.
Thomas Luke Ryan: The next question comes from Tobey Sommer of truly go ahead. Please.
Speaker Change: Thank you Debbie the century, Mark it seems like apropos tell it.
Thomas Luke Ryan:
Thomas Luke Ryan: The could you comment on your expense inflation, how you see that trending in 'twenty four versus last year, particularly on.
Thomas Luke Ryan: The labor and merchandise side.
Speaker Change: So yeah.
Thomas Luke Ryan: On the merchandise side again, we've got long term agreements that have you know inflationary caps on them. So I feel like we have a good handle on knowing what our inflation will be and generally I would tell you it's been trending lower than general inflation. So I think we've been able to hold merchandize.
Thomas Luke Ryan: Costs through those contracts also I think just kind of proactive.
Thomas Luke Ryan: Transition to different products, which are you know.
Thomas Luke Ryan: <unk> and products team do a great job of flexing in so really not seeing anything that.
Speaker Change: You know, we're not happy with their on the wage front you know, we're like everybody else and I think we have experienced over the last few years wage inflation as you know above 4% and what I'm. What I'd tell you is we're starting to see in 'twenty for that to normalize a little more and reach back in.
Thomas Luke Ryan: Into the high threes. So I think we're seeing some wage inflation society, but obviously since wage inflation was probably closer to two.
Thomas Luke Ryan: Over the last 10 years or so.
Thomas Luke Ryan: It's still elevated as you think over history, but but we're definitely seeing it subside a bit pushed back towards the threes and out of the floors.
Thomas Luke Ryan: Thanks.
Thomas Luke Ryan: If you were to look at your customer base and your sales experience.
Thomas Luke Ryan: Low mid and high end customer basis.
Thomas Luke Ryan: What what sort of story would the revenue trends tell us in in cemetery and funeral if looked at through that lens.
Speaker Change: Yeah, you know I think it's it's less an issue on funeral or probably a little more of an issue on cemetery and then it really gets back to the premium nature of cemetery versus acne. So from an R&D perspective, I think people.
Thomas Luke Ryan: Make decisions and spend money and they find their way right there.
Thomas Luke Ryan: They pass the hat they do what they got to do and it's something that's important and emotional forum.
Thomas Luke Ryan: Buying preneed cemetery property is a lot less emotional and so I think when you get into periods.
Thomas Luke Ryan: Where interest rates go up or things like that happen, you're going to be a little more price sensitive.
Speaker Change: I'd tell you again at the high end, we see a lot of demand.
Thomas Luke Ryan: And continued success at the mid in the mid level I'd say, we continue to see a lot of interest and good activity and even at the low we're still seeing good activity I think I think I would tell you by looking at the data that consumer is a little more challenged than the mid level consumer. Thank you.
Thomas Luke Ryan: We're seeing other industries talk about and again I just.
Thomas Luke Ryan: I think that gets back to inflation and not our product, but their everyday lives and how they're being impacted by the price of gasoline prices.
Thomas Luke Ryan: Groceries, so yes, I think there's probably a little.
Thomas Luke Ryan: More difficulty do you think about the low end customer and their willingness to engage in a product because they don't need exactly right. Now so we try to as you know we've put together some plans and strategies to help them get into those contracts, whether it's term or interest rates, but keep that consumer active and I think we've.
Thomas Luke Ryan: A pretty good job of it.
Speaker Change: Thank you very much.
Thomas Luke Ryan: Yeah.
Speaker Change: This concludes our question and answer session.
Sci management: I'd like to turn the conference back over to Sci management for any closing remarks.
Speaker Change: We want to thank everybody for being here today I want to reiterate Debbie young superstars who's been to US we love her very much we're going to miss her but.
Thomas Luke Ryan: So happy for her next chapter so Debbie.
Speaker Change: Continued success and we're gonna, Michigan, Thanks, everybody.
Thomas Luke Ryan: Oh.
Speaker Change: The conference has now concluded.
Speaker Change: Thank you for attending today's presentation you may now disconnect.