Q4 2024 Service Corp International Earnings Call
Speaker Change: [music].
Good morning, and welcome to the Service Corporation International fourth quarter, 'twenty 'twenty four earnings conference call.
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Speaker Change: I would now like to turn the conference over to test the eye management. Please go ahead.
Speaker Change: Good morning. This is Allie O'connor AVP of Investor Relations and financial reporting welcome to our fourth quarter earnings call. We will have prepared remarks about the quarter from Tom and Eric just a moment, but before that let me quickly go over the Safe Harbor language.
Speaker Change: Comments made by our management team that stayed 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 statements.
Speaker Change: These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the SEC and are available on our website today.
Speaker Change: Today, we might 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.
Speaker Change: With that out of the way I will now turn it over to Tom Ryan Chairman and CEO.
Tom Ryan: Thanks, Alex.
Speaker Change: Hello, everyone and thank you for joining us on the call today.
Speaker Change: This morning, I'm going to begin my remarks, with some high level color on our business performance for the quarter.
Speaker Change: Then provide some greater detail around our funeral and cemetery results and I will then close with some thoughts about our 2025 business and financial outlook.
Speaker Change: For the fourth quarter, we generated adjusted earnings per share of $1, six which compared to 93 cents in the prior year.
Speaker Change: Revenues gross profit and comparable margin percentages increased in both the funeral and cemetery segments contributing nine cents to adjusted earnings per share growth.
Speaker Change: While lower general and administrative expense contributed an additional <unk> <unk> per share.
Speaker Change: Again, a combined 14 cents earnings per share growth from operating income.
Speaker Change: Below the line the favorable impact of a lower share count and a slightly lower interest expense was offset by a higher effective tax rate.
Speaker Change: Now, let's take a deeper look into the funeral results for the quarter.
Speaker Change: Total comparable funeral revenues increased over $5 million or about 1% over the prior year quarter as strong core General agency and other revenue growth exceeded declines in core revenue in Sci direct non funeral preneed sales revenue.
Speaker Change: Comparable core funeral revenue decreased by $9 million or about 2%, primarily due to a 4.4 decrease in core funeral services performed.
Speaker Change: Which was somewhat offset by a healthy two 7% growth in the core average revenue per service.
Speaker Change: This core average revenue growth was achieved despite a modest increase of 100 basis points in the core cremation rate.
Speaker Change: Sci direct non funeral home revenue decreased by over $4 million, driven primarily by a $6 million decline in non funeral home preneed sales revenue.
Speaker Change: As a result of the anticipated negative effect of operational changes to defer merchandise deliveries.
Speaker Change: This was partially offset by growth in General agency commissions as we are in the process of switching from a trust to an insurance funded preneed model.
Speaker Change: This net decline from preneed sales revenue was slightly offset by a 2 million dollar increase in <unk>.
Speaker Change: Non funeral home revenue.
Generated by a 10% improvement in average revenue per service from the effect of higher value contracts maturing from the backlog.
Speaker Change: Certain of these contracts now include merchandise where travel protection.
Speaker Change: More recently was deferred at the time of sale into the backlog.
Speaker Change: This healthy average revenue per service growth should continue as more contracts with merchandise and travel protection mature over the coming years.
Speaker Change: For General agency and other revenue grew by an impressive $19 million, primarily due to growth in general agency revenue driven by higher average commission rates derived from our new preneed insurance marketing agreement.
Speaker Change: As well as the effect of selling a larger percentage.
Speaker Change: Underwritten insurance products, which carry a higher commission rates versus a flex where a non underwritten product.
Speaker Change: Gross profit increased by about $4 million, while the gross profit percentage increased by 40 basis points just about 22%.
Speaker Change: This increase was the result of a modest revenue increase combined with managing fixed costs to about a 1% increase for the quarter.
Speaker Change: Preneed funeral sales production decreased by $27 million or about 9% over the fourth quarter of 2023.
Speaker Change: Core preneed funeral sales production decreased by $14 million or 6%.
Speaker Change: Primarily due to the transition to our new pre need insurance provider during the back half of 2024.
Speaker Change: We expect to continue to see increased underwritten insurance product sales production as.
Speaker Change: Our council, we're focused on raising customer awareness of the benefits of a fully insured product.
Speaker Change: We anticipate comparable core preneed sales production to normalize later in the spring or early summer months.
Speaker Change: Non funeral home preneed sales production decreased $13 million or 20%.
Speaker Change: Sci direct transitions from the sale of trust insurance funded preneed contracts.
Speaker Change: This transition required in many of our sales counselors to go through extensive training and obtained insurance licenses.
Speaker Change: And changed the payment terms for customers financing your preneed.
Speaker Change: All of which contributed to a temporary slowdown in sales.
Speaker Change: As of today, we have made the transition in markets that represent 75% of our production. So this too should stabilize over the next few months and begin to grow again, probably beginning in the second half of 2025.
Speaker Change: <unk>.
Speaker Change: Now shifting to cemetery.
Speaker Change: Comparable cemetery revenue increased by $20 million or about 4%.
Speaker Change: Core revenue was primarily responsible for the increase is it grew by $21 million over the prior year quarter.
Speaker Change: Higher recognized preneed property revenues accounted for $14 billion of this increase generated by a combination of higher Preneed cemetery sales production and higher Preneed cemetery sales recognition rates as complete construction projects triggered the recognition of prior.
<unk> sales in the fourth quarter.
Speaker Change: Recognized preneed merchandise and service revenue accounted for an additional $5 million of core revenue growth as contracts with a higher sales average are being delivered out of the backlog.
Speaker Change: The backlog value has been enhanced by cumulative Merchandize Trust fund earnings over the life of the contract.
Speaker Change: Comparable Preneed cemetery sales production increased by $7 million were about 2% primarily due to an increase in large sales while our core production was relatively flat.
Speaker Change: Cemetery gross profit in the quarter increased by $14 million and the gross profit percentage.
Speaker Change: Increased by 150 basis points generating an operating margin percentage of 36%.
Speaker Change: The 4% revenue growth, which includes an increase in higher margin merchandise and service Trust fund income was slightly offset by a 4% increase in our fixed cost.
Speaker Change: Impacted by increased maintenance costs.
Speaker Change: Remember really due to damages incurred at locations impacted by natural disasters during the quarter.
Speaker Change: Now, let's shift to discussion about our outlook for 2025.
Speaker Change: As you saw in our earnings release, we provided a normalized earnings per share guidance range of $3 70 to $4 for 2025 or a midpoint of $3 85.
Speaker Change: The 2025 range would be 5% to 13% growth with a 9% growth at the midpoint.
Speaker Change: We anticipate that the effective tax rate for 2025 will be about 25, 5%.
Speaker Change: 180 basis points higher than 2024.
Speaker Change: So by the neutralizing the tax effect, we would be guiding to a 12% growth at the midpoint of our range versus the current guidance midpoint of 9%.
Speaker Change: Within our general segment, we expect flat to slightly down funeral volume compared to 2024 with the average revenue per case growing at inflationary rates.
Speaker Change: Slightly negated by the effect of a modest cremation mix increase.
Speaker Change: We do expect to see higher General agency revenue generated from the favorable impact of our new insurance agreement, which should drive healthy profit growth for the funeral segment.
Speaker Change: Increasing the gross margin percentage by 80 to 120 basis points.
Speaker Change: We expect preneed funeral production to be slightly lower in 2025, as we continue the transition of Sci direct and as we focus on increasing the underwritten insurance product sales in our core channel.
Speaker Change: Well down for the year for some perspective, the $1 $2 billion of Preneed funeral sales production this year.
Speaker Change: 27% higher than 2019, we're 5% compounded growth rate over the last five years.
Speaker Change: As we think out to 2026, we would expect preneed funeral sales production to return to low to mid single digit percentage growth rate.
Speaker Change: So the cemetery segment, we anticipate that we can grow preneed cemetery sales production in the low to mid single digit percentage range, resulting in cemetery revenue growth of about 2% to 3%.
Speaker Change: Continued focus on managing inflationary cost should result in reasonable segment profit dollar growth, while maintaining our impressive gross margin percentages as compared to 2024.
Speaker Change: Yes.
Speaker Change: Below the line, we expect favorable impacts from slightly lower interest expense and a lower share count that would be negated by the higher effective tax rate caused by the loss of deductibility of excess tax benefits from stock option exercises.
Speaker Change: In conclusion, I want to acknowledge and thank the entire SDI team for their daily commitment to our customers our communities and.
Speaker Change: To one another.
Speaker Change: Your dedication is the foundation of our success.
Speaker Change: Thank you for making a difference every day.
Speaker Change: With that operator, I'll now I'll turn it over to Eric.
Eric: Good morning, everyone.
Eric: Sequentially I'm going to do exactly what Tom just I'm going to start by taking a moment.
Eric: So really extend my deepest gratitude to each of our 25000 plus dedicated associates.
Eric: Your unwavering commitment and exceptional service continued to make a profound impact on the lives of the families. We serve.
Eric: Last year in 2024, our team cared for almost 700000 families.
Eric: During some of their most challenging life's moments as well as providing peace of mind through preneed arrangements.
Eric: For your tireless dedication to delivering service excellence to our customers as well as our communities.
Eric: So with that I'm going to shift to the financial part of this and talk about our cash flow results and capital investments for the fourth quarter I'm going to follow that by a recap of our full year performance. In 2024, then providing that lack of 2025 cash flow and those capital investments and then we'll conclude with an update on our overall financial.
Eric: Physician.
Eric: So in the fourth quarter, we generated impressive adjusted operating cash flow of $268 million. This did exceed our expectations and is at the high end of our guidance range for the quarter. So let me give you a little bit color and break this down a little bit adjusted operating cash flow was positively impacted by higher operating income of about <unk>.
Tom Ryan: $20 million that Tom just discussed highlighted the strength in our underlying funeral and cemetery operations during the quarter.
Tom Ryan: Cash interest was also lower by about $12 million. This is really just a timing issue associated with the bond financing that we completed this past September.
Tom Ryan: Offsetting these favorable impacts was $27 million use of cash, resulting from an additional payroll cycle in the current year quarter compared to the prior year again. This happens from time to time with timing of our payroll funding.
Tom Ryan: Additionally, pre need another working capital resulted in a combined use of about $15 million and the court. So in total we finished 2024 very strong with adjusted operating cash flow of just over $975 million, which is above the high end of our most recent annual guidance range.
Tom Ryan: Which again was $940 to $960 million.
Tom Ryan: So continuing on in the fourth quarter.
Tom Ryan: We invested $140 million into our current locations new growth opportunities vis vis acquisitions and real estate we.
Tom Ryan: We invested $102 million of maintenance capital back into our current businesses with 42 million allocated to valuable Cemetery development projects 43 million at the same amount into our funeral and cemetery locations and $16 million into our digital strategy and other corporate.
Tom Ryan: Investments.
Tom Ryan: For the full year, we invested a total of $348 million of maintenance Capex, which was up $23 million from both the prior year and the high end of our guidance range as we dedicated a portion of the strong cash flow during this quarter toward reinvestment into the maintenance.
Tom Ryan: Of our funeral and cemetery businesses.
Tom Ryan: We also invested about $19 million of growth capital in the quarter towards the purchase of real estate construction of new funeral homes.
Tom Ryan: And the expansion of existing funeral homes and cemeteries for the full year. This brought the total growth capital spend to just over $100 million, which was up about $9 million from 2023, as we identified meaningful opportunities to invest in Greenfield cemetery and funeral projects.
Tom Ryan: Just talk a little bit about acquisitions, so we invested $19 million in business acquisitions in the fourth quarter.
Tom Ryan: In total we finished the full year with an impressive $181 million of acquisitions Pat.
Tom Ryan: As I noted in our November earnings call acquisition spend this year has outpaced our annual guidance range of $75 million to $125 million and we are thrilled about these high quality funeral homes and cemeteries joining our company and we are happy to welcome all of these new associates to the <unk>.
Tom Ryan: Family.
Tom Ryan: Let's move on to capital investments, we returned to a higher amount of capital to shareholders in the quarter to $43 million of dividends at 56 billion of share repurchases, we repurchased just under 1 million shares at an average price of $79 during the quarter for the full year, we returned four.
Tom Ryan: $128 million to our shareholders through a $174 million of dividends and just over $250 million of share repurchases. This brings the number of shares outstanding to just under 145 million shares at the end of the year subsequently, we've completed $28 million.
Tom Ryan: Share repurchases, an average price of $78 so far during 2025.
Tom Ryan: So I'd like to shift to the 2025 outlook, but before I go there I just wanted to make a brief comment about our corporate G&A expense during the quarter.
Tom Ryan: Year over year, corporate G&A expense decreased $30 million in the quarter, it's about $15 million.
Tom Ryan: This was primarily a result of reduced in our California legal reserve made in the fourth quarter of 2022 by about $20 million as the primary claim period expired during the quarter when.
Tom Ryan: When we exclude this impact G&A expenses still declined about $10 million quarter over quarter and this was primarily resulting due to differences in timing of long term incentive compensation expense as compared to the prior year.
Tom Ryan: When we look forward to 2025, we expect our corporate G&A will average about 39% to $41 million a quarter, but keep in mind. There may be some variability in our long term incentive compensation plans that could push us above or below this quarterly range during a particular quarter.
Tom Ryan: So, let's talk about 2025 and more detail as we disclosed in our press release, our 2025 adjusted operating cash flow guidance range is $830 million to $890 million with a midpoint of 860 Bucks.
Tom Ryan: The midpoint of this range assumes the following we expect our cash earnings at the midpoint of our EPS guidance range to grow about $65 million, which reflects the growth in the underlying funeral and cemetery operations.
Tom Ryan: Cash taxes were generally flat in the fourth quarter and only about $20 million for the full year of 2024, but as we have discussed several times over the last six quarters, we expect our cash taxes to normalize in 2025 by about $150 million as the benefit we received related to <unk>.
Tom Ryan: Change in tax accounting method on the timing of cemetery property revenue recognition has been fully realized at this point in time, therefore, along with the expectation of higher earnings. We our projected total cash taxes will increase to about $175 million during 2025.
Tom Ryan: We also anticipate an effective tax rate of 25% to 26%, which is about 100 basis points higher than prior years as we expect that excess tax benefits from stock option exercises related to executive compensation will no longer be available to us.
Tom Ryan: While we expect a modest decline in interest expense this year on lower rates. We also anticipate the timing impact of the semi annual interest payments associated with the September 2024 bond transaction to result in about $5 million of higher cash interest this year and then finally we.
Tom Ryan: We anticipate having a normalized net use of working capital are probably around $20 million driven primarily by growth in preneed sales and timing of payables, partially offset by the timing of payroll and incentive compensation payments during 2025.
Tom Ryan: So let's talk about investing capital. This year, we expect maintenance capex to actually decrease this year to $315 million from the higher levels seen in 2024.
Tom Ryan: This targeted spend we expect to invest about $130 million into improving our funeral homes and cemeteries.
Tom Ryan: $160 million into cemetery development projects with the standard high rates of returns and $25 million into our digital strategy investments and other corporate investments.
Tom Ryan: We also expect to invest $75 million to $125 million towards acquisition. This is in line with our normal annual acquisition spend targets that we've talked about many times before.
Tom Ryan: In addition to maintenance Capex and acquisition targets. We also plan to invest roughly $70 million to $80 million a probe capital on new funeral home construction and real estate opportunities, which together drive low to mid teen after tax.
Tom Ryan: Irr's.
Tom Ryan: Finally, as we've done over the last 20 years, we plan to continue returning capital to our shareholders through dividends and our share buyback program and a consistent and disciplined manner absent other higher return investment opportunities.
Tom Ryan: So before I conclude the remarks and give you a few comments on our financial position.
Tom Ryan: We have a very attractive a manageable debt maturity profile with tremendous liquidity.
Tom Ryan: At the end of the 2020 for liquidity totaled about $1 $6 billion consisted of approximately $220 million of cash on hand, plus a little over $1 3 billion available on our long term bank credit facility.
Tom Ryan: Our leverage began the fourth quarter at just under three eight times declining to about 365 at the end of 2024, which is in the lower end of our long term leverage target range of three and a half to four times.
Tom Ryan: In conclusion, our strong balance sheet, enhancing our liquidity position and predictable cash flow stream continues to support all of these capital investments in our total capital investment program, which gives us remarkable flexibility to invest opportunistically for the long term benefit of Sci.
Tom Ryan: Our associates and our shareholders.
Tom Ryan: Lastly, again, we're most proud of the way we serve our customers this year and into the future in their greatest time of need for which I'd like to again, thank entire STI team.
Tom Ryan: So operator this concludes our prepared remarks and with that I'd like to turn it back over to you for a question and answer period.
Okay.
Tom Ryan: Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
Tom Ryan: If you are using a speakerphone please pick up your handset before pressing the keys.
Tom Ryan: To withdraw your question. Please press Star then two.
Tom Ryan: At this time, we will pause momentarily to assemble our roster.
Tom Ryan: The first question comes from John Ransom of Raymond James Go ahead. Please.
John Ransom: Hey, good morning, I'm looking forward to seeing you guys in a couple of weeks in Orlando, but Tom the spending keep teacups are down. So you know you might Eric might be disappointed.
John Ransom: Look I'm going to try to do some math, which is always dangerous, but we're getting between the general agency. Good Guy next year. This year of 25, and then the acquisition timing, we're getting something like a $40 million to $45 million pre tax benefit from those two is that in the ballpark.
John Ransom: I think looking at the numbers.
John Ransom: A little but not dramatically off.
John Ransom: Okay, probably a little higher than what we had at our midpoint.
John Ransom: Okay.
John Ransom: And then just looking at the.
John Ransom: Long term funeral pricing algo, I mean, you've got stuff coming out of the backlog at a higher price point you got cremation mix you got other stuff is that is this just kind of settling into a CPR like price increase when you net all that stuff together and are you seeing where are you implying and I don't know that you are but is there is there some sign that maybe the cremation mix.
John Ransom: In fact, it's starting to taper off a little bit.
John Ransom: The take off in a in a higher rate you're saying.
John Ransom: Is it still that 100 to 150 bps long term or is that is that going to hit a ceiling at some point, where it doesn't it isn't as much of a drag.
John Ransom: Yeah, I think it will definitely begin to slow I mean, that's what we're kind of experiencing the last couple of years is probably more likely to be closer to the 100 basis points about 150 and again.
John Ransom: But but yeah that is fair to say and I think on your pricing question.
John Ransom: I do think CPI is a fair way to.
John Ransom: That's how we look at pricing.
John Ransom: From a backlog perspective, and and I think the real.
John Ransom: Opportunity to step on the gas a little bit as you know.
John Ransom: As we are selling.
John Ransom: More print email with a general Agency Commission of the way. They are that's an ability for us to to drive future profitability.
John Ransom: Right.
John Ransom: And so lastly.
Speaker Change: If I just kind of step back and look at your funeral preneed revenue growth.
Speaker Change: It's probably let's call it against CPI, so call that 3%.
Speaker Change: So you know to grow at 5% EBIT margins have to do a little more work.
Speaker Change: Is that how you're seeing it.
Speaker Change: Yeah I think.
Speaker Change: I think again, we we expect that when we have the volume impact from.
Speaker Change: The demographics that are in front of us.
Speaker Change: You'll begin to see that revenue growth on the funeral side chip into the <unk>.
Speaker Change: Three or four 5% and 1% incremental revenue growth as you know the incremental profit is pretty big So we see a future of like we talked about next year, we think funeral margins percentages go up.
Speaker Change: And I would expect that.
Speaker Change: We would see that continue to occur as the demographic impact takes hold yes.
Yes, so just to add another way and you can't make it too obvious for me. Obviously is that you think 24 is kind of the last year of the COVID-19 pull through and it gets more normalized starting next year 'twenty six.
Speaker Change: I think theres still some hangover pull through because there'll be just a diminishing amount and I think the other factors take over market share.
Speaker Change: <unk>.
Speaker Change: Demographics that those things will offset what little impact Covid will continue to have.
Speaker Change: Okay, alright, thanks, so much.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: The next question comes from a J rice of UBS go ahead. Please.
Speaker Change: Oh, hi, everybody I wondered if I could maybe ask a couple of questions here.
Speaker Change: You had some volatility again on the funeral volumes are comparable.
Speaker Change: Cases year to year, and we saw that in the second quarter as well I wonder if you'd been able to drill down and is this just the ebb and flow you get per month to month or is there anything going on there and it sounds like maybe you backed off a little bit in your expectation for 'twenty, Bob case growth today, all sort of wash.
Speaker Change: I had to slightly down versus flat to slightly up.
Speaker Change: Is that because of what we've seen this year.
Yes, I think that's correct were just saying.
Speaker Change: Less of an impact what I'll call the ripple effect of Covid.
Speaker Change: Good news for the United States and everybody is the you know the.
Speaker Change: Life expectation numbers are going back up and so all the categories that were indirectly affected going back to driving deaths suicide overdose a lot of those numbers are going the other way. Thank goodness and so I think that's got a little residual effect discussed that thinking we.
Speaker Change: Could still definitely achieve flat volume for 2025, but there's also a pretty good.
Speaker Change: No.
Speaker Change: There is probably a good expectation that that could be slightly down. So that's we have changed it.
Speaker Change: It is kind of a month to month and we see some volatility within months I think if you take the fourth quarter of this year. I think we were October was liked out to December was down two in November 2006, right. So you get some lumpiness as you get through these quarters.
Speaker Change: And I think that's actually just the continued factor of this disruption from Covid that makes it a little less predictable than it has been historically.
Speaker Change: Okay.
Speaker Change: I want to delve into the switching for them for us to Oh.
Speaker Change: Pretty neat typically insurance sales.
Speaker Change: Yeah.
Speaker Change: He threw out 75% I didn't know is that you think that you will ultimately settle out with 75% of your pre need funeral sales being insurance related as you make this transition.
Speaker Change: Yeah, I guess, that's a question.
Speaker Change: J J, so that I, probably confused you bid on this when I was talking about the 75% is specifically related to Sci direct because remember Sci direct selling 100% trust and we're converting state by state over time, and what I meant about a 75% of the states that.
Speaker Change: Historically have produced 35% of our production, we've now converted and so by having converted them, we're beginning to compare back as yet.
Speaker Change: You know the insurance producing quarter. So so I think we're kind of bottoming out if that makes any sense from a production perspective and going back up and we do still have 25% of the production those states still need to convert this year and that's why I was saying I think over the coming months Youll see it stabilize.
Speaker Change: As you get to the back half of the year you should see Sci direct continues to grow now on the core side its slightly different we've been selling insurance predominantly although we sold some trust product to historically, but we've converted to a to a new vendor and remember when we have our new partner one of them.
Speaker Change: The things that we're trying to do is increase the number of sales production I should say the number of contracts that have underwritten insurance product because would you. Good news you can sell a flex product or a trust product it doesn't provide the protection to the consumer.
Speaker Change: The consumer thinks of their production and they may not because it's in the form of an insurance product, but it was a flex product. So we're trying to eliminate that confusion.
Speaker Change: It could happen.
Speaker Change: With me.
Speaker Change: And get people to right underwritten insurance production and we're seeing some success, we're actually growing that component.
Speaker Change: We anticipate that again those production levels can begin to climb back up.
Speaker Change: See again, some some mix of trust, but probably a higher mix of insurance that we historically have sold so two channels kind of two different reasons.
Speaker Change: Sorry for the long explanation.
Speaker Change: That's good because I think I'd do this understand it.
When you made that conversion.
Speaker Change: To this new contract I think you talked about potentially having about $900 million in business that you would move over annual business is that still the number with all the puts and takes or do you think it's a bigger number than that though at this point.
Well, if you add in Sci direct we're running at a $1 2 billion annual clip I think think of that is 900 million from core and 300 million from from Sci direct I remember actually Iraq didn't write insurance before so in that regard, we're right you're going to write a lot more insurance.
Speaker Change: And and again, the the commission rates vary depending on the type of product sold but it's hard to predict exactly what it's going to be but but overall, we've got better General Agency Commission rates that should be worked to our favor and again, if we sell better products to younger people, who are going to get higher commissions.
Speaker Change: You saw the older lower commissions as the way insurance Commission rates work.
Speaker Change: Okay, and maybe just one final one for me to comment on the.
Speaker Change: Deals that you're guiding for 75 to 125.
Speaker Change: Acquisitions. This year I think we came into last year, if I remember right with a similar target, but it ended up at 181.
Speaker Change: Which obviously is a positive.
Speaker Change: Is there.
Speaker Change: Any comment about the pipeline as the pipeline.
Speaker Change: Still quite robust.
Speaker Change: Okay.
Speaker Change: Is that 75 to 125 really reflective of what you see in the pipeline right now.
Eric: Hey, Jay This is Eric I would say the pipeline continues to be robust and if you remember.
Eric: We've been saying that really kind of coming out of Covid.
Eric: These deals ebb and flow.
Eric: You have to make sure that it's a win win situation with the independent family an organization that is ready and wants to raise their hand for a liquidity event, sometimes you have a start and stop in those situations, sometimes it takes a lot longer.
Eric: These are sometimes second third fourth generation families that need to align accordingly at all want to.
Eric: To create the liquidity event. So the pipeline has been strong.
Eric: But in terms of closing the deals it's going to ebb and flow based on that but just as strong as I said last year that ended up coming to fruition in terms of the timing of closing I still I'm just as excited this year with the strength of the pipeline. So we're going to give you. The initial guidance of 75 to 102.
Eric: 25.
Eric: If it ebbs and flows in the right direction based on the strength of the pipeline I would hope we could exceed that again this year like we did last year, but again a little bit of this is we want a win win situation. We're not in a situation, where we are going to force people to sell we wanted to that.
Eric: <unk> family in that organization to be very excited about joining us and have all their ducks in a row and ready.
Eric: Alright that sounds good thanks, so much.
Eric: Yeah.
Eric: Our next question comes from.
Eric: Johanna Gotcha.
Eric: Bank of America go ahead. Please.
Speaker Change: Hey, good morning, Thanks, so much for taking the questions here. So a couple of.
Speaker Change: Some topics. So I guess first maybe a little more color on the funeral volume outlook.
Speaker Change: Appreciate it can be very lumpy, but month to month, but I guess.
Speaker Change: Any comments you might be able to give us in terms of January sounds like.
Speaker Change: November was a weak month of it I guess.
Speaker Change: December might be a little bit, but it's still down year over year by like house generally trending.
Speaker Change: Sure January on the funeral volume side is down just about 3%, which wasn't very far off our expectation quite honestly, but we expected a tough comparison, so that's where we are.
Speaker Change: We're too early to tell.
Speaker Change: Alright, because he also made it sound like you don't think that this is some sort of like a higher headwind from the pull forward effect. It could be just like some other bigger factors going on.
Speaker Change: But is there anything else you might be able to gleaning, though when you. When you look at these numbers in terms of like why it is November with such a weak month or is it some sort of like you said volatility or yet, whereas it's more like the democracy stop on the pull forward.
Speaker Change: Yeah, I think it's a little of a pull forward and like I said, it's not I guess, it's not technically the pull forward what I say.
Speaker Change: We saw extended periods of excess deaths that had occurred maybe longer than other people anticipated and you Couldnt explain why right. You. Just said you knew these categories of desert downs it could be cancer screenings that could be overdose. All these different things mental health issues.
Speaker Change: And now I think categorically all the data that we're looking at it saying that the countries kind of healing, which is a good thing and so maybe normalizing back and that's the piece, that's probably moved us a little bit as to say hey in a good way those things are normalizing again and now the factors that we would anticipate.
Speaker Change: <unk> to contribute to our growth, which would be our strong preneed backlog are competitive.
Speaker Change: <unk> in the markets to grow market share and then just the general aging of America that those three things will begin to be the more dominant yeah.
Speaker Change: Talking point as we go forward it will see less and less COVID-19 impact less and less excess deaths conversation. So that's kind of where we are and and again, we feel pretty good about where we are we think you know it could be slightly down it could be flat I mean, maybe surprises to be up slightly but it's pretty hard to predict right now.
Speaker Change: And we haven't seen a real impact from the flu season, yet we're.
Speaker Change: We hear a lot about the flu, but really had seen it I'd say in our numbers.
Speaker Change: Right, Yeah, because I mean from hearing in hospitals talk about Q4 with like a year over year.
Speaker Change: Lower activity on the flu, but I guess January is tracking higher so I guess well, let's see what that means for your business. So another topic I guess around yes.
Speaker Change: You know in Q1, the wildfires in California, specifically outside of Los Angeles do you assume any impact of that lingering place when it comes to your raw skills location from from those wildfire surround the communities.
Speaker Change: Yeah. So first of all you know we've had some employees that are impacted by this and that's been our primary concern is their health and safety and getting them back to some whatever form of normalization can occur. So that's been mission number one and I'd say as it relates to sales it surely had an impact.
Speaker Change: Temporarily.
Speaker Change: During the month that that gives a distraction and people just getting displaced or homes in all of her life.
Speaker Change: So as that heals your Orange is our thoughts are as it relates to Preneed cemetery.
Speaker Change: It's a deferral without a lost sale. So so we think while there is some impact in January and probably end of February that again as things normalize because we'll have the opportunity to bring more people, let's say some of our beautiful.
Speaker Change: You know sections that we'll be opening up this year.
Speaker Change: And should have you know.
Speaker Change: A return to normalcy in some growth as the as it relates to California, but our thoughts are with everybody. There as they continue to deal with a you know an incredibly disruptive.
Speaker Change: Event.
Speaker Change: Right, Yeah, I guess it was like 200000 people dislocated. So so hopefully it that that takes maybe sometime but when it comes to your preparations there I guess, so you mentioned.
Speaker Change: Opening up new sections, because last time you talk about.
Speaker Change: There was some friction that's being developed but that kind of blocked off access to some other section. So how where are you on that front I guess everything kind of now I'll open up and ready for that traffic to come through.
Speaker Change: I think it's on schedule to be I don't think everything is there yet, but we would anticipate to have new sections that open up and allow us the opportunity to have some of those great.
Speaker Change: Great sections open up and to our consumers. So yeah. That's that's still scheduled to happen on like the bar will have any disruption there.
Okay, and if I might squeeze a last one so there was a restructuring charge and the <unk>.
Speaker Change: Quarter can you give us a little color like what was the driver for doing it now and what exactly was happening. Thank you.
Eric: Thanks, Joanna this is Eric.
Speaker Change: Structuring charge was a little over $11 billion I think the thing that you have to realize is culturally as you've seen us over the past years in the past before that is really trying to manage this fixed cost structure in a high inflationary environment and we are you starting to see that in the numbers as you see the margins and you see the fixed costs on that.
Speaker Change: General side, the fixed costs on the cemetery side, you know really start to.
Speaker Change: To be managed well and the fruits of our labor are friendly there over the past several years coming out of Covid trying to manage it this restructuring charges primarily related to our corporate and home office and back office functions. It really has nothing to do with the field anytime.
Speaker Change: Any time that we go through and try to get better.
Speaker Change: This is one of those opportunities where we're looking at some things to introduce technology and to always strive to get better and more efficient and it kind of crescendo into one particular quarter, which caused it to be more or less a restructuring charge. Your goods you would see these things under the radar, but they're not big enough to.
Speaker Change: Just somewhat together and call it a restructuring charge based on our continuous process improvement type mentality, but this quarter. It did.
Speaker Change: And so of the $11 million I would call. It you know we.
Speaker Change: It uses 80% to 90% cash and I would say that probably half of that is some cash savings in 2025, and that's how I'd describe it.
Speaker Change: Great. That's that's very helpful. Thanks for this last comment I appreciate it thanks for taking the question.
Speaker Change: The next question comes from Scott Schneeberger with Oppenheimer go ahead. Please.
Speaker Change: Hey, guys. Good morning, it's Daniel on for Scott could you elaborate a little bit. Please on the outlook for cemetery preneed sales in terms of how you're thinking about sales activity versus the volume component.
Speaker Change: Sure.
Speaker Change: For next year, what we've been looking at again, we've got it to kind of this low single digit percentage growth and the way we're thinking about that as we'd anticipate the large sales are hard to predict as you know so our anticipation is those would be relatively flat compared to the prior year and so the growth really going to come from the core.
Speaker Change: Production component of cemetery yourselves.
Speaker Change: Got it.
Recognition rate.
Speaker Change: It's a bit elevated in the fourth quarter could you speak to how you think about that.
Speaker Change: 2025.
Speaker Change: As far as some perspective on the cemetery margins for next year. Thank you.
Danielle: Sure Danielle.
Danielle: It was higher than 100% during the quarter and youre going to see that at certain periods of time.
Danielle: We tried to get our projects done and spend the capital equally but it does tend to as projects have started in the summer months.
Across the entire network it tends to kind of peak a little bit in the fourth quarter and that's why you always have traditionally seen it a little bit higher on the global basis for the entire year. It's it's in the mid to high <unk> I like that Guy frankly for 2025, I think it's more of the same I think we're going to spin.
Danielle: About $160 million in the cemetery development area. There are high return projects, we love those projects and I think the recognition rate will be somewhere between 95, and 100% or maybe the.
Danielle: Mid nineties.
Danielle: In terms of margins.
Danielle: As we get back to growing Preneed cemetery sales in the low to mid single digits, you're going to see some type of margin expansion that we've seen.
Danielle: But I still think it's probably a low ish kind of 30% area that are that youre going to see for 2025, maybe a little bit about maybe flat, maybe a little bit above 2024 levels, because we still have a little bit of inflationary pressure, especially in the cemetery maintenance area.
Danielle: That still continues to come overall, though we're doing a lot better job managing that but generally you're going to see sometimes low approach in mid thirty's.
Danielle: You know over the next couple of years from cemetery.
Danielle: Alright, thank you so much.
Danielle: Okay.
Speaker Change: Our next question comes from Tobey Sommer of Trust Securities Go ahead. Please.
Speaker Change: Keith could you.
Speaker Change: Give us an update on your expectations for the funeral rule and kind of what Youre hearing from the government people.
Speaker Change: Well there's.
There's so much going on.
Speaker Change: World, where I don't quite know what to say I don't know anything that you don't know with a with the volatility that's happening right now with the change out.
Speaker Change: The situation in Washington.
Speaker Change: What I will tell you is we haven't heard anything specific related to the funeral rule.
Speaker Change: Since November or since the change out of the administration.
Speaker Change: We continue to think be supportive of the funeral rule, but we.
Speaker Change: As you know do not think some of the things that were proposed are going to have a material effect in any way to our company and a lot of the things. We think are good business practices, perhaps they were well on the way of implementing knows intelligently by market.
Speaker Change: And uniquely based on what we think the value proposition is for a certain prices online and experiences online you know our focus is on the customer and our focus is on the customers' digital experience and maximize <unk>.
Speaker Change: And that's the good business practice and will continue to do so and if the FCC does something that changes that I still don't think it's going to materially affect our business model as we move forward.
Speaker Change: Thank you well within cemetery.
Speaker Change: How is your how are your expenses trending in particular.
Speaker Change: Labor and how do you think that that sort of comps year over year is that a tailwind or headwind.
Speaker Change: So youre going to have labor pressure always, but it's definitely less than less than labor pressure that we've seen and talked about.
Speaker Change: During the Covid years, and coming out of the out of the couple of years. You know when you think about labor, it's a $750 million to $800 million spend for our company all in with benefits.
Speaker Change: Cross all the 25000 associates.
Speaker Change: That we have a lot of the pressure came over the past couple of years in the lower tiers of the labor market, which particularly when impact cemetery and us operationally trying to take care of our 35000 acres of cemetery property that we have and so that was some of the pressure.
Speaker Change: That we saw I think you're continuing to see you know kind of.
Speaker Change: Mid single digit percentage pressure and labor on the cemetery side and it's more lower single digit percentage on the funeral side, you know right now, but both of those or feel a lot better than they did several quarters ago or a couple of years ago coming out of Covid that we described to you.
Speaker Change: Thank you if I could sneak a last one from a a baby Boomer perspective, what do you think that trend is likely to do in terms of incremental service volumes and what's.
Speaker Change: What's your best forecast for when it starts to fold into the P&L.
Speaker Change: Well the first baby Boomers turned 80 next year.
Speaker Change: So we think within you know I'd say that the window over the next few years that you'll begin to see you know an incremental impact really difficult to predict how that's going to roll out.
Speaker Change: But I do think it's kind of a stair step a slow stair step over time as you think about the next.
Speaker Change: Three to five to 10 years, but that's the way we're thinking about it.
Speaker Change: <unk>.
Speaker Change: We've taken historical trends into consideration.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: Our next question comes from Parker's snare of Raymond James Go ahead. Please.
Speaker Change: I think we lost Parker operating loss Parker, yes.
Yeah.
Speaker Change: Okay.
Speaker Change: Well, we just lost Parker did we want to wrap up the Q&A.
Speaker Change: Sure that'd be great I want to thank everybody for participating on the call today.
Speaker Change: We look forward to speaking to you again in April have a great week and weekend.
Speaker Change: The conference call has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Okay.