Q3 2024 Service Corp International Earnings Call

Speaker: and other revenue was offset by a $5 million decrease in core revenue. The $5 million decline in core revenue was primarily the result of a $4 million decline in at-need revenue combined with a $1 million decline in total recognized pre-needs.

It was offset by a $5 million decrease in Korea.

The $5 million decline in core revenue was primarily the result of a $4 million decline at need revenue combined with a $1 million decline in total recognized preneed revenue.

Speaker: Breaking the components of recognized pre-need revenue apart. Recognized pre-need merchandise and service revenue, growth of $10 million, from higher quality contract sales averages being delivered out of the backlog, was offset by a decline of 11 million in recognized pre-need property. Other revenue grew by $5 million compared to the prior year. primarily from an increase in endowment, care, trust fund. as we continue to expand our total return investment strategy.

Breaking the components are recognized preneed revenue apart.

Recognized preneed merchandise and service revenue growth of $10 million from higher quality contract sales averages being delivered out of a backlog was offset by a decline of $11 million in recognized preneed property revenue.

Other revenue grew by $5 million compared to the prior year quarter, primarily from an increase in endowment care Trust fund income.

We continue to expand our total return investment strategy through successful industry and legislative efforts.

Speaker: Successful Industry and Legislative. Comparable pre-need sales production decreased by $8 million, or about 3%, primarily due to a decline in large sales, while our core production was relatively flat. For each of the last three quarters, we've generated around $40 million in large... Prior to 2023, we had only achieved this milestone once in our history. Last year, we averaged about $48 million per quarter in the second, third, and fourth quarters.

Comparable preneed sales production.

Kris by $8 million or about 3%, primarily due to a decline in large sales while our core production was relatively flat.

For each of the last three quarters, we've generated around $40 million and large sale.

And in 2023.

We had only achieved this milestone once in our history.

Last year, we averaged about $48 million per quarter in the second third and fourth quarters.

Speaker: In the face of these very challenging comparisons, our sales results remain very strong.

In the face of these very challenging comparisons ourselves or our results remained very strong.

Speaker: At our largest location, Rose Hills, our customer access to some of our new premium sections has been limited.

Speaker: The Ongoing Development Act. We anticipate we will return to low to mid-single-digit growth in 2025 if we continue to see long-term strength in our premium cemetery inventory and sales. The cemetery gross profits in the quarter increased by $1 million, and the gross profit percentage increased by 10 basis points. Generating an operating margin of $35,000. While revenues were flat, growth in higher margin trust fund income and managing our fixed cost expense growth below 3% allowed us to grow gross profits modestly.

Speaker: Now let's shift to discussion about our outlook for the remainder. Our current outlook for the fourth quarter of 2024 for adjusted earnings per share is $1 to $1. representing expected growth of 8 to 18. prepared to $0.93 of adjusted earnings per share in the fourth quarter of 2023. We expect to grow both comparable funeral and cemetery margins in the fourth quarter. primarily from the impact of higher general agency revenues from our new pre-need marketing agreement on the funeral site. Then on the cemetery segment, from the favorable impact stemming from the servicing of our merchandise and service pre-need packages.

Speaker: coupled with endowment care fund trust. Increased profits from recent acquisitions and lower corporate general and administrative costs will be somewhat offset by higher taxes. As we think about 2025, we are optimistic that we can return to earnings-per-share growth towards the higher end of our historical annual guidance of H-12%. We anticipate funeral volumes to stabilize as compared to 2024 levels. and Preeney Cemetery sales production to return to low to mid-single-digit percentage growth. We are highly confident we can grow general agency revenues impressively with our new pre-need insurance market. The negative effects of comparably higher interest rates and lower SDI direct profits from operational changes in 2024 should trim positive.

Speaker: And finally, the contributions from the fantastic class of acquisitions of 2024 should provide another positive trend for 2025.

Speaker: Beyond that is where I truly get excited, with our vast North American network containing market-leading brands. a world-class workforce, and a robust $16 billion pre-need background. We are poised to capture incremental value for our shareholders as future demographic trends have a very positive impact.

Speaker: In conclusion, I want to acknowledge and thank the entire SDI team for their daily commitment to our customers, our communities, and one another. Your dedication is the foundation of our...

Speaker: Thank you for making a difference every And with that, operator, I'll now turn the call over.

Speaker: Thanks, Tom.

Thomas Ryan: Good morning, everyone. I'm going to kind of start the way Tom just ended. So before we get too much into the financial prepare remark. I want to address all of our associates tuning in this morning and want to express my sincere gratitude. and your unwavering dedication to our communities, as well as the client families that you serve, and let's face it, during their most challenging times. What you are doing is truly amazing, and whether you're on that family-facing front line or in a home office support role, your commitment and hard work truly make a difference and are deeply appreciated by all of us in senior management.

Speaker: So thank you for everything that you do. So with that, I'm gonna start the prepared remarks by discussing our cashflow results and then move into capital investments during the quarter. I'll then make a few comments on corporate G&A expense and our current financial position before concluding with some updates on some guidance specifically related to cash flow. So during the quarter our adjusted cash flow remained strong as we reported adjusted operating cash flow of $269 million. This exceeded our expectations internally and is an increase of more than 41 million or 18% over the prior year. These are the primary drivers for the strong cash flow growth.

Speaker: were favorable working capital sources of $54 million in the quarter. This continued to benefit from higher customer cash receipts derived mainly from previous pre-need cemetery installments. So over the last couple of years, we've seen a significant increase in our printing cemetery sales, particularly during COVID. We generally finance these sales over a 4 to 5 year period and continue to see the benefits of the strong installment cash receipts as a result. These higher working capital sources were partially upset by our lower adjusted operating income of about $12 million during the quarter and higher cash interest of about $6 million, which is primarily related to higher debt balance.

Speaker: Cash taxes in the quarter were flat year over year, and as we've discussed several times now over the past several quarters, this year has benefited from a tax accounting method change related to the timing of recognition of cemetery property revenue. Looking forward beyond 2020.

Speaker: We expect cash taxes to revert toward a more normalized level which will result in an anticipated increase of about $150 million in annual cash tax payments in 2025 compared to 2024, and then it will continue at that more normalized level in the years beyond that.

Speaker: So let's talk about the capital investment during the quarter. We're very excited about the investments that we made. We invested a combined $320 million of capital, which was allocated back into our existing businesses, purchased or constructed new businesses, and returned capital to our shareholders. This is the highest quarterly investment rate for 2024, and $40 million higher than our prior year quarter. Specifically, we invested $88 million into maintenance capital in the quarter, which is slightly higher than our expectations due to some timing of some projects. So let's break that down a little further. We deployed 44 million to high-yielding cemetery inventory development projects.

Speaker: And again, that supports future pre-need cemetery sales growth. $37 million of maintenance capital to maintain our current best-in-class facilities and $7 million into digital investments and corporate initiatives.

Capital to maintain our current best in class facilities, and $7 million into digital investments and corporate initiatives. Additionally.

Speaker: Additionally, we also invested $13 million in growth capital to expand some of our existing funeral homes and construct some new funeral homes as well.

Additionally, we also invested $13 million in growth capital to expand some of our existing funeral homes and construct some new funeral homes as well.

Speaker: So now let's talk about the acquisitions, which was a particular highlight for us during the quarter. As Tom has already mentioned, we successfully closed on several significant businesses and major markets for a total of $123 million dollars spent. This brings our 2024 investment on acquisitions to $162 million, which significantly exceeds our typical range of $75 to $125 million on an annual basis.

Let's talk about the acquisitions, which was particular highlight for us during the quarter as Tom has already mentioned, we successfully closed on several significant businesses in major markets for a total of $123 million of spend.

This brings our 'twenty 'twenty four investment on acquisitions to $162 million, which significantly exceeds our typical range of $75 million to $125 million on an annual basis we.

Speaker: We are happy to welcome all of these new associates from these acquisitions to the SCI family. In addition to acquiring these businesses, we also spent $31 million purchasing real estate in California, Florida, and Texas, some of our largest states as you know, for future development of cemeteries and funeral homes.

We are happy to welcome all of these new associates from these acquisitions to the Sci family.

In addition to acquiring these businesses. We also spent $31 million purchase in real estate in California, Florida, and Texas. Some of our largest states as you know for future development of cemeteries and funeral homes.

Speaker: Lastly, in terms of capital return to shareholders, we return nearly $65 million of capital to shareholders in the quarter, and this is through $44 million of dividends and $21 million of share appreciation. Let's talk about those repurchases for a second. Year-to-date, we've purchased about 2.7 million shares at an average price of just around $71, resulting in just under 145 million shares outstanding as of the end of the quarter. Subsequent to the quarter, we've also repurchased another $25 million in shares, bringing the total year-to-date capital return to shareholders to $353 million, about a little over $130 million in dividends and a little over $220 million in shares.

Lastly in terms of capital returned to shareholders, we returned nearly $65 million of capital to shareholders in the quarter and this was through $44 million of dividends and $21 million of share repurchases. So let's talk about those repurchases for a second.

Year to date, we purchased about $2 7 million shares at an average price of just around $71, resulting in just under 145 million shares outstanding as of the end of the quarter.

Speaker: So now let's shift to corporate G&A, where we incurred $44 million in the quarter, which is a little bit higher than our $38 to $40 million that we expected as the normally quarterly range of 2024. The increase was primarily due to higher long-term incentive compensation on plans that were supported by growth in total shareholder return, or TSR, during the quarter. We remain comfortable with a fourth quarter range in 24 of 38 to 40 million for normal corporate G&A expense.

Speaker: So I'd like to share a few updates also on our solid financial. And in September, just to remind you, we issued an 8-year, $800 million note at a 5.75% rate, which we used to repay about $780 million of our long-term bank credit facility. This transaction was immediately accretive as we effectively swapped 7.4% debt for 5.75% debt which calculates to about an $11-12 million savings on an annual basis. Additionally, this transaction also meaningfully increased our liquidity because it freed up availability on this long-term bank credit. At the end of the quarter, we had liquidity of about $1.5 billion, made up of $185 million of cash on hand, plus about $1.3 billion now available on this long-term bank credit facility.

Speaker: Our leverage at the end of the quarter increased slightly to 3.78 times on a net-debt-to-EBITDA basis, putting us near the midpoint of our 3.5 to 4 times targeted range.

Speaker: So now let's shift a little bit to going forward and cash flow guidance. Cash flows remain strong, driven by better-than-expected cash flows from printed cemetery installment receipts as well as the somewhat lower cash taxes. As a result, as you saw, we're raising the midpoint of our 2024 adjusted cash flow from operation guidance range from a midpoint of $930 to $950 million. This resulted in a 2024 range of $940 to $960 million and specifically a range of $230 to $250 million for the fourth quarter. Also, our expectation for total maintenance CapEx guidance remains unchanged for the full year of 24 at about $325 million.

Speaker: So looking beyond 24, I'd now like to give you some high-level color on our 2025 cash flow expectation. To neutralize cash taxes for a second and talk before cash taxes, our cash flow in 2025 should be positively impacted by our expected earnings growth that Tom just discussed, as well as expected continued strength in these pre-need installment cash receipts. From a CapEx perspective, while we're initially expecting the capital to maintain our field locations and cemetery development spend to be slightly higher than 24 levels, we expect continued moderation in our digital investments and corporate initiatives headed into next year, which really results in our overall maintenance capital will be generally flat in 25 to 24 levels.

Speaker: So in closing, our cash flow remains a key strength at our company and combined with our strong balance sheet should allow us to maintain the financial flexibility to keep providing value to our shareholders.

Speaker: I want to once again thank our entire SCI team for their invaluable contributions each and every day.

Speaker: So with that operator, this wraps up our prepared remarks, and now we'll pass it back to you and open the floor up to questions.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster.

Scott Schneeberger: And the first question comes from Scott Schneeberger with Oppenheimer. Please go ahead. Thanks. Good morning, everyone.

Speaker: I'd like to start out discussing cemetery pre-need sales. Just want to get a sense for maybe recognized revenue here into the end of the year and into 2025 and more so in 2025. Thinking about where, you know, based on what you're seeing ending 24, what type of levels you think would be reasonable with any commentary about sales appreciated as well. Thank you, Scott. So, if you think about the fourth quarter, again, we've got a really tough comparison, particularly in the, when you think about large sales, I think it was around 48 million. So, that's a big one to overcome when you think about production.

Speaker: On the recognition front, last year we had a pretty big influx, and this is typically seasonal, in the fourth quarter of recognized projects that get completed, and I think this year will be slightly below last year, but in line with that, and so a lot bigger than the third quarter, but when you compare back to the fourth quarter, it's pretty comparable, slightly below. As you think about 25, I think from a sales production and recognition basis, we feel pretty confident again that we can get back to traditional growth levels, and again I It's been a long time, but we kind of model that in the load of it.

Speaker: percentage range. I do think, you know, we know that the COVID epidemic, you know, had an impact on funeral volumes. Funeral volumes are lead sources for cemetery. And so we kind of feel like 25 is the year. Volume stabilized, and we believe pre-need cells should stabilize and get back to traditional growth. And Tom, just on large sales, I heard you mention Rose Hills has some ongoing construction that may prohibit timing on that. Does that play into what we saw in the quarter or was it purely just year-over-year comps being so challenging? Yeah, you know, if you look at, for instance, just take Rose Hills, I mean, to show you how significant it is, traditionally, large sales, you know, last year, probably ran $9-10 million in a quarter.

Sales I heard you mention a rose hills has some ongoing construction that may prohibit timing on that does that play into what we saw in the quarters or in the quarter or was it purely just year over year comps being so challenging.

Speaker Change: If you look at for instance, just take Rose Hills, I mean to show you how significant it is traditionally large sales.

Last year, probably around $9 million to $10 million in the quarter.

Speaker: They're running $5 a quarter right now, so that's a pretty big delta, and that's solely based upon, you know, we're not finished with a section and have the ability to take customers up there and see it, but, you know, that'll be open in 2025 as an example, so I'd expect Rose Hills to be a growth opportunity when you think about, you know, large sales. We appreciate that.

They're running at five a quarter right now so that's a pretty big Delta and that's solely based upon.

We're not finished with the section and have the ability to to take customers up there and see it but.

That'll be opened in 2025 as an example, so I'd expect gross yields to be a growth opportunity. When you think about large sales for next year.

Thanks, I appreciate that and then just on the funeral side and I'll turn it over.

Speaker: And then just on the funeral side, and I'll turn it over, what gives confidence for flattish volume growth in 25 as perhaps another year of reversion post the pandemic pull forward? Just want to get a sense of what you're seeing there and tying in that funeral pre-need was a little weaker than we expected in the quarter. Just some thoughts on what the kind of run rate should be on that going forward or the status quo. We've had these models, and again, it's a bit of a guess, but we anticipate that there's still full forward effects, but again we think the markets are growing, we think we're beginning you know, increases in deaths as it relates to the demographics of the population.

It gives confidence for flattish volume growth and twenty-five as perhaps another another year of a reversion post the pandemic pull forward just wanted to get a sense of of what Youre seeing there and tying in that funeral preneed was a little weaker than we expected in the quarter just some thoughts on.

What the kind of run rate should be on that going forward or the status quo. Thanks, so much.

Sure. So on funeral volumes I think it's just we've had these models that we again, it's a it's a bit of a guess but.

We anticipate that there is still pull forward effects, but again, we think the markets are growing and we think we're beginning to see increases in depth as it relates to the demographics of the population. So our model just show it flattening out in 2025, and then getting into slight growth post that.

Speaker: So our models just show it flattening out in 2025 and then, you know, getting into slight growth, you know, post that. And again, you know, that could be off a little bit one way or the other, but we're pretty confident that it's going to be somewhere near that. On pre-need funeral, I would expect that that is going to get a lot better. I mean, we talked a little bit about it. There's so much change going on for both, you know, core sales and SCI direct sales. So the core side, you know, one, we're transitioning to a new, you know, contract, a new provider.

And again that could be off a little bit one way or the other but we're pretty confident that it's going to be somewhere near that.

Preneed funeral I would expect that that is going to get a lot better I mean, we've talked a little bit about it. There's so much change going on for both.

Speaker Change: Core sales and Sci direct sales so on the core side, one we're transitioning to a new contract a new provider.

Speaker: And two, I think we talked about a little bit before, we were uncomfortable with the fact that we sold a lot of what we call a flex product, which didn't give our customers protection during the payment cycle. So we spent a lot of time with our new partner saying, how do we onboard more people into a underwritten insurance product, which gives them that protection? And so that has caused, you know, a little bit of a hiccup as you think about, you know, people before that have a hard time getting, you know, underwritten for a variety of reasons, health and others.

Speaker: It's just a complicated process. We think that's starting to stabilize and so when I think about 25, I think we're going to get back to traditional, you know, levels of growth when you think about the core product. SCI Direct's a little bit different in that, you know, not only are we, you know, we're transitioning from a trust product to an insurance product and so there, if you think about it, to sell an insurance product, you need to be licensed. So we have, you know, quite a few sales counselors that needed to obtain that license and so that may take a little bit longer, I'd say, to stabilize and grow, but I'd expect, you know, back out of 2025.

Speaker: That's back to growing a pretty traditional growth level. So that's the reason, and Scott, there's really no other. I think people want to be protected, and we're gonna provide a great insurance product, a better insurance product.

Speaker: Charlotte College.

Tobey Sommer: And our next question comes from Tobey Sommer with Druis. Please go ahead.

Speaker: I was hoping you could dig into this new insurance relationship and maybe, given, like you said, some of the changes in selling and products and organization, maybe talk about the lower efficiency that you might have had here near term and what kind of delta you could have in the sales force as you go into next year and things are a little bit more settled, so to speak. Yeah, I think Tobey, like we said, if you look back historically, if you take, you know, cemetery, we grow in the low to mid-single digits. I think core funeral, you know, we'd expect to be able to get back to that low to mid-single digit.

Speaker: And when you look at SCI Direct because of the way it sells, you know, traditionally it's probably more like a mid-single to potentially high-single. type of growth production, and again, I think those are going to phase in at different times.

Speaker: I would expect SEI Direct to take a little more time because of the whole licensing complication, but all of this, like I said, we chose to take this You know, pause, if you will, and, you know, we've, if you think about SCI Direct, you know, we're losing somewhere close to, what, Eric, $11, $12 million of profitability historically by having some of these changes. The good news is we're really setting ourselves up for some tremendous growth. I mean, when you think about SCI Direct, we're going to be deferring, you know, we delivered merchandise before, we're not going to deliver it, you know, anymore once we're done.

Speaker: So a contract out of the backlog of SCI Direct, pre-need going at need, might have been $1,200. It's going to be, it's going to grow to, you know, $2,500, $3,000. You're going to begin to see these contracts flow through funeral operations and have a natural growth pattern because we have such a tremendous backlog. So, again, it's temporary, I think, from a sales production perspective, back to those low to mid-single digit on the core side, and mid to high when you think about SEI Direct functioning. Thank you.

Speaker: The acquisitions were pretty sizable in the quarter.

Speaker: Does the does the pipeline remain remain strong? And are you in this post COVID period? Are you seeing mom and pops sort of more willing to sell? Do you have an expectation of this trend to continue?

Speaker: Yeah, Toby, this is Eric. I think we continue to be excited about the pipeline in the industry. I think every seller's decision is a little bit different. And I don't think I can kind of generalize it to just talk about COVID. But I think there's a good healthy pipeline of the type of independence and acquisition opportunities that we'd be very interested in. You know, a lot of that is major metropolitan areas, it's larger combination facilities, those types of things are what we're excited about. That's what we were able to close on during this particular quarter.

Speaker: Those deals have been in the pipeline for a while. And we're very glad to have them. But there's there's more to come. I think the official guidance is going back to the 75 to 125 million spend next year, like I said in the in the remarks, but you know, we certainly hope to be at the high end or even exceeded next year like we did this year. But it ebbs and flows. And a lot of that is the seller's decision, not necessarily our decision on when we want to do it. But when the seller does raise the hand and are ready for a liquidity event, as you can tell, we have a significant amount $1.5 billion of liquidity that we're able to move very quickly, very fast, and a favorable environment.

Speaker: Thank you very much.

Joanna Gajuk: And the next question comes from Joanna Gajuk with Bank of America. Please go ahead. Hey, hi, good morning. Thanks so much for taking the question. So maybe first, I'll just clarification on the comment on the phenol volume snacks here to be flattish. That's organic, isn't it? Yes, that's the same store, organic, yeah, COMP. Okay, right, exactly, because we're just talking about all these acquisitions, so I just want to clarify that. I guess two other questions, so when you talk about, switching to seminary, you talk about these large pre-need cells, you know, head, top, comp, and then I guess the rose hills, some, you know, limitations there.

Speaker: When you talk about these large pre-need cells compared to 2019, so I understand, you know, last year was very active, and also when thinking about these large cells, you know, are those delayed? Is there any indications that these clients, you know, might come back, you know, in Q4? Yeah, so if you go back to 19, my memory serves me, it's, we're probably around 100 million annually in large sale production. And now we're running at a rate of, you know, close to 160, 170. So when you think about pre-COVID, we've had 60, 70% type of growth.

It is a large b cells are compared to 2019. So I understand you know last year was very active and also when you when thinking about these large cells.

Are those delayed is there any indications that these clients you know my come back you know in Q4.

Yeah. So if you go back to 19 my memory serves me, it's probably around 100 million annually.

And.

Large scale production.

And now we're running at a rate of closer to $1 61, 70. So when you think about pre Covid. We've had 60, 70% type of growth and that's why I tried to say in the comments, even though we're down year over year and we can get down ourselves. We're really operating at a very high right now a lot of that is because we've taken the concept of.

Speaker: And that's why I tried to say in the comments, even though we're down year over year, and we can get down on ourselves, we're really operating at a very high rate. Now, a lot of that's because we've taken the concept of these beautiful high-end gardens in the States, and we've put that in different parts of the country. We've got a great team that's developing that inventory, pricing that inventory, training, so we've been able to expand the places to do it. Now, Rose Hills, I go back to, it's probably 25% of our high-end production every year, so that's why you may say, why do we bring it up?

These.

Beautiful high and gardens in the states and we've put that in different parts of the country. We've got a great team is developing that inventory pricing that inventory training. So we've been able to expand the places to do it now rochelle's I'd go back to it's probably 25% of our high end production every year.

So that's why it makes it what do we bring it up because it's big and if its down its hard to overcome.

Speaker: And if it's down, it's hard to overcome. It's a good problem to have, take it every week.

It's a good problem to have take it every week. So so that's where operating I'd say again out of it.

Speaker: So that's, we're operating I'd say again at a very high level, and I'd expect those type of levels to continue, Joanna. look forward. We're seeing deals out there, so there's nothing that we believe is going to impede, at this time, our ability to... Okay. third quarter, and have another tough one, by the way, in the fourth quarter. Beyond that, I feel really Okay, that's good color, thank you.

High level and I would expect those type of levels to continue Joanna as we look forward.

We're seeing deals out there. So there's nothing that we believe is going to impede at this time, our ability to execute that.

Speaker Change: Okay all right.

Second and third quarter and have another tough one by the way in the fourth quarter, but.

Beyond that I feel really good.

Okay. That's good color, thank you and Don and I guess on funeral margins rates, the improved nicely from Q2, especially and its 19% in this quarter is much better than call. It 16 and in 2019 in the third quarter, Microsoft has particular with though.

Speaker: And I guess on funeral margins, right, so they improved nicely from Q2 especially, and it's 19% in this quarter is much better than, call it, 16 in 2019, in the third quarter, right, because that tends to be the lowest. So is this, I guess, a new? One way, and I guess, is this already benefiting from this new insurance contract? So how should we think about going to, you know, full year funeral margins considering, you know, the benefits of this new insurance contract? Yeah, I mean, a lot of the improvements that you're referring to, back to 19, is really from the core business and from SCI Direct, it really has nothing to do with their latency.

Is this a new.

And I guess is this already benefiting from this new insurance contracts, how should we think about kind of you know.

Full year funeral margins, considering you know the benefits of this new issuance contract.

Yeah, I mean, a lot of the improvements that youre, referring to back to the 19th really from the core business and from Sci direct and really has nothing to do with zero latency.

Speaker: We're seeing a little bit of that in the quarter helping us, but we'd anticipate it'll be a much bigger factor to the positive when you think about funeral margins in 2025. So we'd anticipate our margins to go up. maybe a hundred, 150 basis points. a fair way to think about if we execute the way that we... Great, thank you.

A little bit of that in the quarter, helping us so we'd anticipate that it'll be a much bigger factor. So the positive when you think about funeral margins in 2025, So we would anticipate our margins to go up.

Again.

Speaker Change: Maybe 100 150 basis points is a fair way to think about if we execute the way that we think we can.

Bob.

Great. Thank you if I may squeeze the last one on funeral cremation shift where it was only 40 Bucks. That's I guess its fourth consecutive quarter of that should be below what you had been described previously.

Speaker: If I may squeeze last on funeral decremation shift, where it was only 40 beds, that's, I guess, fourth consecutive quarter of that shift being below what you had been describing previously, you know, being like a trend of 100, 150. So is that enough to call it a new trend? As in, are we kind of, you know, in the new paradigm where maybe that shift headwind is smaller now? Thank you. I debate that internally all the time. I think, you know, my personal opinion is it does ebb and flow. I still, I'm not sure, you know, maybe 150 basis points that we used to say is, you know, not in the reality realm anymore, but I still think it could be 100 basis points a year.

Being like a kind of a 100 150, so is that enough to call. It of a new trend or are we kind of.

The new paradigm, where maybe that shifts a headwind is it smaller now thank you.

We debate internally all the time I think you know my personal opinion is it does ebb and flow I still I'm not sure you know.

Maybe 150 basis points that we used to say it is not.

And the reality realm anymore, but I still think it could be 100 basis points a year some of that so that's just the fact that we have so much cremation now you know in order to move the needle it takes quite a bit of a large base of business.

Speaker: Some of that, some of that's just the fact that we have so much cremation now, you know, in order to move the needle, it takes quite a bit. It's just a large base of business. Thank you.

Okay.

Thank you.

A.J. Wright: Our next question comes from A.J. Wright with EVS. Please go ahead. Hi, everybody. A couple questions, if I could. So, the anticipation that volumes might start to trend a little more positive, obviously, we've been through a period of time where the forecast has been flattened down on ADNE volumes. What would you say is underpinning your thought that we'll start to see that turn more positive? I think it's a combination of things, AJ, but first and foremost is, I just think the pull-forward effect lessens. model that out, that, you know, it's going to get smaller and smaller as we go forward.

And our next question comes from a J rice with UBS. Please go ahead.

Hi, everybody.

Speaker Change: Questions if I could.

So the anticipation the volumes might start to trend a little more positive obviously, we've been through a period of time, where the forecast has been flat to down on a N D volumes.

Any what would you say is underpinning your thoughts it will we'll start to see that turn more positive.

Yeah.

I think it's a combination of things Ajay, but first and foremost is I just think the pull forward effect from lessons every year as we model that out that you know, it's it's going to get smaller and smaller as we go forward and then the second thing is you know again the populations growing demographics are shifting that direction.

Speaker: The second thing is, again, the population's grown, demographics are shifting that direction, we feel like we're competing pretty aggressively in our markets, we've got a great pre-need backlog. So all these things kind of roll into our... The biggest one probably is that, is the pull-forward effect. Many thanks.

We feel like we're competing pretty aggressively in our markets. We've got a great preneed backlog. So all these things kind of roll into our thinking but the biggest one probably is that is that there's a pull forward effect just continues to diminish as we model. It out now it doesn't go away, but oh.

<unk> come up with the other things that that are you.

Speaker Change: You know I mentioned.

Speaker: And just to think about, I haven't asked you about this in a while, but with some of the volatility and volumes this year, and also, frankly, on the cemetery production side, when you think about that pull forward dynamic, the lingering effects of COVID, either in how it might affect the demand for pre-need cemetery property sales or in the at-need funeral side, have you changed your thinking? What's the updated thinking versus what you guys laid out at your invest today a couple years ago about the pull forward effect and where we're at at all? No idea.

Speaker Change: And just to think about Oh I haven't asked you about this in a while but with some of the volatility in volumes. This year and also frankly on the cemetery production side. When you think about that pull forward dynamic the lingering effects of COVID-19.

Either and how it might affect the demand for pre need cemetery.

Property sales or in the at the funeral side have you changed your thinking with update of taking versus what you guys laid out at your Investor Day, a couple years ago about the pull forward effect and where we're at and all of that.

Speaker Change: Yes.

Speaker: I think. Transcription by Trans-Expert at Fiverr.com And that's been true for, you know, really the last... So there's definitely that. So that's why we feel if we say volume is gonna flatten out, that makes us feel better about cemetery sales production, particularly as it relates.

No I do I think it's kind of trending the way, we think and I think when you when you have a little less volume on the funeral side, we'd anticipate a little less leaves when you think about kind of the core funeral sale it shouldn't impact large sales quite honestly, but but more along the lines of the core business. You just have less leads to follow up on I think the court.

She was like 50, 354%.

Speaker Change: And that's been true for really the last 10 years. So so there's definitely that so that's why we feel if we say volume is going to flatten out that makes us feel better about cemetery sales production, particularly as it relates to two good leads that we get through our at need business.

Speaker: Okay, great. And then on the acquisitions, the step-up in pace there, it, uh... It sounded like maybe some of these transactions are in markets where you already have a presence, which would presumably make them potentially even more creative than just an outright purchase. Is that true? Can you talk about pricing, ability to contribute? Is that part of your? Comfort with expressing a return to sort of a high end of the growth targets, which you've seen on acquisitions more recently. The growth target itself, acquisitions, will be a piece to that, and obviously when you're able to spend...

Speaker Change: Okay, Great and then on the acquisition the step up in pace there at.

It sounded like maybe some of these transactions are in markets, where you already have a presence, which would presumably make him a potentially even more accretive than just an outright purchase is that true can you talk about pricing our ability to contribute is that part of your.

Comfort with expressing a return just sort of the high end of the growth targets, what you've seen on acquisitions are more recently.

No that's it.

Gross target itself acquisitions will be a piece to that and obviously when you're able to spend.

Speaker: money that's well above $160, $170 million. Not sure what we'll close before year end. It could be a little bit higher, AJ, versus the target of roughly a midpoint of $100, that's going to have a nice accretive perspective in these deals. You can assume and we're, Precluded in some of these contracts to talk too much about it right now in terms of it But you can assume as I've mentioned that they're in major markets and as you and I and many others have talked about before There are definitely some cost synergies that we're able to apply to that But for the most part these are good businesses that had good revenue streams And there's there's no need and no desire to go in and change any type of the top line dynamics whatsoever And a lot of these owners are still involved and they're expected to continue to do more of the same and there won't be a just You know, moving forward from that perspective, we're just happy to have these very high-quality businesses, especially in tuck-in situations, which, as you said, makes it more ultimately accretive for our shareholders.

Money, that's well above 106 hundred $70 million not sure what we'll close before year end and so it could be a little bit higher a J versus the target of roughly the mid point of 100, that's gonna have a nice accretive perspective in these deals you can assume in work.

Speaker Change: Yeah.

Precluded in somebody's contracts to talk too much about it right now in terms of it but you can assume it's I've mentioned that they're in major markets and as you.

Many others have talked about before there are definitely some cost synergies that we're able to apply to that but for the most part. These are good businesses that had good revenue streams and theirs.

No need and no desire to go in and change any type of the topline dynamics whatsoever and a lot of these owners are still involved and they are expected to continue to do more of the same and there won't be adjustments you know moving forward from that from that perspective, we're just happy to have these very high quality businesses, especially.

Actually in tuck in situations, which as you said it makes it more ultimately accretive for our shareholders.

Speaker: Great. And then maybe last thing, we don't often ask you about this, but in your quarter, there was an announcement about some management changes, updates, etc. Any perspective you can provide us on what you guys are doing there? Yeah, AJ, this is a, you know, as you well know, a lot of companies are the same way, but I think we've taken it very seriously with the board, you know, succession planning, because inevitably, it's going to occur. And, you know, with Steve's, you know, wanting to take a step back and as he approaches retirement, that kind of triggered a lot of decisions, but it was pretty easy to do, because we had a succession.

Speaker Change: Great and then maybe last thing we don't often asked you about this but intra quarter. There was an announcement about some management changes updates et cetera. Any perspective, you can provide us on a what would you guys are doing there.

Speaker Change: Yeah. Jay This is a you know as you well know a lot of companies are the same way, but I think we've taken it very seriously with the board succession.

Succession planning because inevitably is going to occur.

With Steve's wanting to take a step back in and as he approaches retirement.

That's kind of trigger a lot of decisions, but it was pretty easy to do because we had a succession plan and so are we.

Speaker: So we're excited about the elevated responsibilities for the executives that we named in there, and I think it's gonna add a lot of value and different perspectives. So I think the whole company's excited about it. And again, I don't think there's any big surprises. We're part of a long-term plan we've been working on for quite some time.

We're excited about the the elevated responsibilities for executives that we named in there and I think it's going to add a lot of a lot of value in a different perspective. So.

I think the whole company is excited about it and again I don't think there's any big surprises either.

Part of our long term plan and we've been working on for quite some time.

Speaker: Okay, great. Thanks a lot.

Speaker Change: Okay, great. Thanks, a lot.

Parker Snure: And the next question comes from Parker Snure with Raymond James. Please go ahead. Hey, good morning. Yeah, this is Parker on for John Ransom.

And the next question comes from Parker scenario with Raymond James. Please go ahead.

Hey, Good morning, Yeah. This is Parker on for John Ransom, and Ah sorry, if I ask anything that will sit on I missed the beginning of the call, but the the pre need cemetery selling I know you noted the lower end consumer is just kind of hold it and they're flat year over year. I know you guys have done some changes over the past couple of years or maybe just loosening some of the payment terms on some of those.

Speaker: And sorry if I asked anything that was said on, I missed the beginning of the call. But the pre-need cemetery selling, I know you noted the lower end consumer is going to hold it in their flat year over year. I know you guys have done some changes over the past couple of years, or maybe just loosening some of the payment terms on some of those contracts. What would you, I guess, attribute the lower end stability to? Is it this kind of core resilience in the lower end consumer? Is it some of the loosening of the payment terms?

Contracts, what would you I guess attribute the lower end stability to is it just kind of core resilience in the lower end consumer.

Speaker Change: Some of the loosening of the payment terms is there anything else that you would know just on that segment.

Speaker: Is there anything else that you would note just on that segment?

Speaker: There's not any type of loosing of payment terms or anything along those lines. There's really not even unusual incentives that are in there that are creating a situation where it's compressing the margin of these sales. You know, there's some pull-forward effect going on as we've said, and we'll continue to grow. We need that volume to help us as the number one lead source, and we think we'll continue to get a little bit better on that, as we've already said, from going from, you know, down two-ish percent to maybe flat-ish. Next year, we'll help our sales counselors get in front of more customers, but there's not any type of changing of terms or incentives or anything along those lines that's occurring in these situations.

There is not any type of loosening of payment terms or anything along those lines sit there there's really not even unusual incentives that are in there that are that are creating a situation, where it's compressing the margin of T cells.

You know there was some pull forward effect going on is as we've said.

And we'll continue to grow we need that volume to help us as the number one lead source.

And we think we will continue to get a little bit better on that as we've already said from gone from you know down tuition per cent to maybe flattish next year will help that help our sales counselors to get in front of more customers, but theres not any type of changing or terms or incentives or anything along those lines that's occurred.

Speaker Change: Bring in these situations we're here for the long term and we're not we're not panicking at all in the short term.

Speaker: We're here for the long term, and we're not panicking at all in the short term.

Speaker: We feel very good about the future, especially with printing.

We feel very good about the future, especially with Preneed cemetery.

Speaker: Okay, and then late in the third quarter, early fourth quarter, there was obviously some big hurricanes down in Florida. I know you guys have a decent amount of exposure in Florida and the southeast. Did you see any impact kind of late in third quarter, early fourth quarter, whether it be on funeral volumes or some of the pre-need selling activities? Well, anything to do with funeral volumes is really just kind of a delay, right? I mean, something that was going to happen one week would need to happen the next. We did have, you know, I'd say a shutdown of a week or ten days.

Okay, and then late in the third quarter early fourth quarter. There was obviously, some some big Hurricanes down in Florida, and I know you guys have decent exposure in Florida in the South East did you see any impact kind of late in third quarter early fourth quarter or whether it be on funeral volumes or some of the preneed selling activity.

Well anything to do with funeral volumes is really just kind of a delay right. I mean, it's something that was going to happen one week would need to happen in the next week. We did have you know I'd say a shutdown of a week or 10 days essentially related to those particular markets Western Florida going all the way across Florida as well.

Speaker: Essentially related to those particular markets Western, Florida going all the way across, Florida as well You know related to pre-need cemetery, but ultimately we bounce back from that as well Maybe there's a little bit of you know call it a penny or two You know for the quarter of a headwind related to it, but as a general statement The businesses are resilient most importantly for us as a management team our Associates ended up okay, and their houses and such and their personal situations Which we're very concerned about and we're very pleased that we pulled together and were able to Manage through it the way that we did And if I can just get one last one, yeah, just more of a high-level question on acquisitions.

Speaker: When you're, you know, acquiring these smaller kind of regional or mom-and-pop operators, what types of things are you doing when you're going through the integration process? I'm assuming it's things like overlaying some of your pre-need selling, integrating the tech platform, and how should we think about some of the synergies that you're able to realize on these deals and maybe the effect of multiple or, you know, how you're able to work down the purchase multiple down to the effect of multiple over a course of a few years when you're doing these acquisitions. Well, what I was saying before is, you know, the multiples really haven't changed.

Speaker: It's the pipeline that's filling, and we're still paying very fair multiples. You can call that kind of 8 to 10 times EBITDA pre-synergies. I think we get a turn pretty quick for some of the synergies we have just based on our scale. We have both local scale within a market, especially a major market, and we have national scale with the purchase in power of the size of our company, you know, being by far the largest in the industry. So that's going to get you something right away, almost a turn right away. And the rest of the things are really, you know, talking about new revenue streams that we had that maybe an independent didn't, or better ways to go about utilizing our Salesforce CRM processes and some of the other things that were utilized in technology that made us so much better and more efficient out of COVID.

Industry. So that's going to get you something right away almost a turn right away and the rest of the things are really you know.

Talking about new revenue streams that we had that maybe an independent.

Or better ways to go about utilizing our salesforce CRM processes and some of the other things that we're utilizing technology that made us so much better and more efficient out of COVID-19, but for the most part the underlying businesses and the revenue streams are very solid and we're not going in and adjusting those recall.

Speaker: But for the most part, the underlying businesses and the revenue streams are very solid, and we're not going in and adjusting those or calling different plays, especially in the situations which we're most happy, where a lot of these former owners have stayed on and become part of our management team, which helps it to be even more of an accretive situation over the long term with their leadership staying with SEI.

Different plays, especially in the situations, which we're most happy where a lot of these former owners have stayed on and become part of our management team, which helps us to be even more of an accretive situation over the long term with their leadership staying staying with Sci.

Speaker: All right, great. Thank you.

Speaker Change: Alright, great. Thank you.

Speaker: This concludes our question and answer session.

That concludes our question and answer session I would like to turn the conference back over to Sci management for any closing remarks.

Speaker: I would like to turn the conference back over to SCI management for any closing remarks. Thank you everybody for being on the call today.

Thank you everybody for being on the call today happy Halloween and we will speak to you in our fourth quarter earnings call in February.

Speaker: Happy Halloween, and we will speak to you at our fourth quarter earnings call in February. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect. © BF-WATCH TV 2021 © The Ultimate Parody Site! © BF-WATCH TV 2021

Mike: Thanks, Mike.

Speaker Change: Yeah.

Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

Speaker Change: Okay.

Speaker Change: [music].