Service Corporation International (NYSE:SCI) Q3 2024 Earnings Call Transcript

Service Corporation International (NYSE:SCI) Q3 2024 Earnings Call Transcript October 31, 2024

Operator: Good day and welcome to SCI’s Third Quarter 2024 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note, This event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

Allie O’Connor: Good morning, this is Allie O’Connor, AVP of Investor Relations and Financial Reporting. Welcome to our third quarter earnings call. We will have prepared remarks about the quarter from Tom and Eric in just a moment. But before that, let me quickly go over the safe harbor language. Any comments made by our management team that state our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website.

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 on our website. With that out of the way, I will now turn it over to Tom Ryan, Chairman and CEO.

Tom Ryan: Thanks, Allie. Hello everyone and thank you for joining us on the call today. This morning, I’m going to begin my remarks with some high-level color on our business performance for the quarter, then provide some greater detail around our funeral and cemetery results. I will then close with some thoughts regarding our earnings expectations for the rest of 2024 and preliminary thoughts about 2025. For the third quarter, we generated adjusted earnings per share of $0.79, which compared to $0.78 in the prior year. Gross profit from both the funeral and cemetery segments was relatively stable. Below the line, the favorable impact of a lower share count and a lower tax rate was nearly offset by increased corporate, general, and administrative expense caused by changes in our total shareholder return and its corresponding effect on our long-term incentive compensation plan, as well as increased interest expense resulting in a net $0.01 increase in earnings per share.

We also had a very active quarter on the business acquisition front. We invested $123 million during the quarter into top tier businesses in growing major metropolitan markets, adding 10 funeral homes and two cemeteries. We are excited to welcome our new teammates into the SCI family. We also invested an additional $31 million in real estate transactions for the expansion of our footprint of funeral homes and cemeteries in our existing markets. Now, let’s take a deeper look into the funeral results for the quarter. Total comparable funeral revenues increased $7 million, or about 1% over the prior year quarter. Comparable core funeral revenue provided $4 million of the $7 million revenue increase, as core average grew by 2%, absorbing a 30 basis point increase in the core cremation rate.

This growth was attained even with the core funeral volume decline of 1%, which was better than we had expected for the quarter. SCI Direct non-funeral home pre-need sales revenue decreased by $5 million primarily due to a decline in sales production as we transitioned from trust to insurance-funded contracts and by the effect of operational changes in certain markets with respect to the timing of merchandise deliveries. Core general agency and other revenue grew $8 million, primarily due to growth in general agency revenue driven by higher average commission rates resulting from our new pre-need insurance marketing agreement as well as the effect of selling a heavier mix of underwritten insurance products which carry higher commission rates versus a flex or non-underwritten product.

Funeral gross profit declined slightly by about $2 million, while the gross profit percentage declined 50 basis points to just over 19%. This decrease was in line with our expectations as inflationary increases in our fixed costs slightly outpaced our 1% revenue growth. Pre-need funeral sales production decreased by $22 million or about 7% over the third quarter of 2023. Core pre-need funeral sales production decreased by $14 million or 6% primarily due to the transition to our new pre-need insurance provider during the quarter. We anticipate comparable core pre-need sales production to normalize over the coming months. Non-funeral home pre-need sales production decreased $8 million or 10% as SCI Direct transitions from trust to insurance funded contracts.

This transition required many of our sales counselors to obtain insurance licenses, which caused a temporary slowdown in sales, but this too should stabilize and grow again in the coming quarters. Now shifting to cemeteries. Comparable cemetery revenue was flat as compared to the prior year quarter as a $5 million increase in 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-need revenue. 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 a backlog was offset by a decline of $11 million in recognized pre-need property revenues.

Other revenue grew by $5 million compared to the prior year quarter, primarily from an increase in endowment care trust fund income, as we continued to expand our total return investment strategy through successful industry and legislative efforts. 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 sales. 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. In the face of these very challenging comparisons, our sales results remain very strong.

At our largest location, Rose Hills, our customer access to some of our new premium sections has been limited this year due to ongoing development activities. We anticipate we will return to low to mid-single-digit growth in 2025 as we continue to see long-term strength in our premium cemetery inventory and sales production. 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 32%. 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. Now let’s shift to discussion about our outlook for the remainder of 2024. Our current outlook for the fourth quarter of 2024 for adjusted earnings per share is $1 to $1.10, representing expected growth of 8% to 18% percent compared 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 side, then on the cemetery segment from the favorable impact stemming from the servicing of our merchandise and service pre-need backlog coupled with endowment care fund trust income. Increased profits from recent acquisitions and lower corporate general and administrative costs will be somewhat offset by a higher tax rate. 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 8% to 12%. We anticipate funeral volumes to stabilize as compared to 2024 levels and pre-need 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 marketing agreement. The negative effects of comparably higher interest rates and lower SCI Direct profits from operational changes in 2024 should turn positive in 2025. And finally, the contributions from the fantastic class of acquisitions of 2024 should provide another positive trend for 2025. Beyond that is where I truly get excited. With our vast North American network containing market-leading brands and businesses, a world-class workforce, and a robust $16 billion pre-need backlog, we are poised to capture incremental value for our shareholders as future demographic trends have a very positive impact on our industry. In conclusion, I want to acknowledge and thank the entire SCI team for their daily commitment to our customers, our communities, and one another.

Your dedication is the foundation of our success. Thank you for making a difference every day. With that operator, I’ll now turn the call over to Eric.

Eric Tanzberger: Thanks, Tom. Good morning, everyone. I’m going to kind of start the way Tom just ended. So before we get too much into the financial prepared remarks, I want to address all of our associates tuning in this morning and want to express my sincere gratitude to you 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. So, thank you for everything that you do. So with that, I’m going to start the prepared remarks by discussing our cash flow 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. The primary drivers for the strong cash flow growth 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 installment sales. So over the last couple of years, we’ve seen a significant increase in our pre-need cemetery sales, particularly during COVID.

We generally financed these sales over a four to five-year period and continued 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 balances. 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 2024, 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 we’ll continue at that more normalized level in the years beyond that.

Now let’s talk about the capital investment during the quarter. We’re very excited about the investments that we made during this particular quarter. 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 was 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, and again, that supports future pre-deed 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. 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. 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 in major markets for a total of $123 million of spend. This brings our 2024 investment on acquisitions to $162 million, which significantly exceeds our typical range of $75 million to $125 million on an annual basis. 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 purchased in real estate in California, Florida, and Texas, some of our largest states as you know, for future development of cemeteries and funeral homes. Lastly, in terms of capital return to shareholders, we returned nearly $65 million of capital to shareholders in the quarter and this is through $44 million of dividends and $21 million of share repurchases. 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 returned to shareholders to $353 million, about a little over $130 million in dividends and a little over $220 million in share repurchases.

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 million 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 the fourth quarter range in ‘24 of $38 million to $40 million for normal corporate G&A expense. So I’d like to share a few updates also on our solid financial position. And in September, just to remind you, we issued an eight-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 a $11 million to $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 facility. 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. 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. Now let’s shift a little bit to going forward in cash flow guidance. Cash flow has remained strong driven by better than expected cash flows from pre-need 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 million to $950 million. This resulted in a 2024 range of $940 million to $960 million and specifically a range of $230 million 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. So, looking beyond ‘24, I’d now like to give you some high-level color on our 2025 cash flow expectations. 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 heading into next year, which really results in our overall maintenance capital will be generally flat in ‘25 to ‘24 levels. 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. I want to once again thank our entire SCI team for their invaluable contributions each and every day. 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: [Operator Instructions] And the first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Q&A Session

Scott Schneeberger: Thanks. Good morning, everyone. I’d like to start out discussing cemetery pre-need sales. I 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, based on what you’re seeing ending ‘24, what type of levels you think would be reasonable with any commentary about large sales appreciated as well. Thanks.

Tom Ryan: Scott, so as you think about the fourth quarter, again, we’ve got a really tough comparison, particularly 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. 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. So a lot bigger than the third quarter, but when you compare it 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 know that’s been, it’s been a long time, but we kind of model that in the low to mid-single-digit percentage range. I do think, we know that the COVID epidemic 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 free-need sales should stabilize and get back to traditional growth levels.

Scott Schneeberger: 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 quarters or in the quarter, was it purely just year-over-year comps being so challenging?

Tom Ryan: Yeah, 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 ran $9 million, $10 million a quarter. They’re running $5 million a quarter right now. So that’s a pretty big delta, and that’s solely based upon, we’re not finished with a section and have the ability to take customers up there and see it. But, that’ll be open in 2025 as an example. So I’d expect Rose Hills to be a growth opportunity when you think about large sales for next year.

Scott Schneeberger: Thanks. Appreciate that. 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. Thanks so much.

Scott Schneeberger: Sure. So, on funeral volumes, I think it’s just, we’ve had these models that we’ve — and again, it’s a bit of a guess, but, we anticipate that there’s still pull-forward effects, But again, we think the markets are growing. We think we’re beginning to see increases in deaths as it relates to the demographics of the population. So our models just show it flattening out in 2025 and then getting into slight growth post that. 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. 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 core sales and SCI direct sales.

So on the core side, one, we’re transitioning to a new contract, a new provider. 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 a little bit of a hiccup as you think about people before that have a hard time getting underwritten for a variety of reasons, health and others. 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 levels of growth when you think about the core product.

SCI Direct is a little bit different in that, not only are we — 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 quite a few sales counselors that needed to obtain that license. So that may take a little bit longer, I’d say, to stabilize and grow, but I’d expect, in the back half of 2025, that’s back to growing at pretty traditional growth levels. So that’s the reason, and Scott, there’s really no other. I think people want to be protected and we’re going to provide a great insurance product, a better insurance product than we had before.

Scott Schneeberger: Thanks for the color, Tom.

Operator: Our next question comes from Tobey Sommer with Truist, please go ahead.

Tobey Sommer: Thanks. I was thinking 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?

Tom Ryan: Yeah, I think Tobey, like we said, if you look back historically, if you take cemetery, we grow in the low to mid-single-digits. I think core funeral, we’d expect to be able to get back to that low to mid-single-digit. And when you look at SCI Direct because of the way it sells, traditionally it’s probably more like a mid-single to potentially high single-digit type of growth production. And again, I think those are going to phase in at different times. I would expect SCI 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 pause, if you will, and we’ve — if you think about SCI Direct, we’re losing somewhere close to what, Eric, $11 million, $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. When you think about SCI Direct, we’re going to be deferring — we delivered merchandise before, we’re not going to deliver it anymore once we’re done. So a contract out of the backlog of SCI Direct, pre-need, going at-need, might have been $1,200. It’s going to grow to $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 SCI Direct functioning from all cylinders.

Tobey Sommer: Thanks. The acquisitions were pretty sizable in the quarter. Does the pipeline 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?

Eric Tanzberger: Yeah, Tobey, 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 could 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. 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. Those deals have been in the pipeline for a while and we’re very glad to have them, but there’s more to come. I think official guidance is going back to the $75 million to $125 million spend next year, like I said in the remarks, but we certainly hope to be at the high end or even exceed it 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, in a favorable environment.

Tobey Sommer: Thank you very much.

Operator: Next question comes from Joanna Gajuk with Bank of America. Please go ahead.

Joanna Gajuk: Hi, good morning. Thanks so much for taking the question. So maybe first, just clarification on the comment on the funeral loans next year to be flattish. That’s organic, isn’t it?

Eric Tanzberger: Yes, that’s the same-store organic.

Joanna Gajuk: 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 cemetery, you talk about these large pre-need sales, [indiscernible] and I guess the Rose Hills, some limitations there. Can you talk about these large pre-need sales compared to 2019? So I understand last year was very active. And also, when thinking about these large sales, are those delayed? Is there any indications that these clients might come back in Q4?

Eric Tanzberger: 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 closer to 160, 170. 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 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 and estates. 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 that 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? Because it’s big, and if it’s down, it’s hard to overcome. It’s a good problem to have, take it every week. 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, 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. Just a tough comparison for second and third quarter and have another tough one, by the way, in the fourth quarter, but beyond that, feel really good.

Joanna Gajuk: Okay, that’s a good color. Thank you. And I guess on funeral margins, right, the improved [NAFTA] (ph) 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 lower. So is this, I guess, a new runway, and I guess is this already benefiting from this new insurance contract? How should we think about full-year funeral margins considering the benefits of this new insurance contract?

Tom Ryan: Yeah, I mean, a lot of the improvements that you’re referring to back in the 19s really from the core business and from SCI Direct, it really has nothing to do with the federal agency. 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. Again, maybe 150 basis points is a fair way to think about if we execute the way that we think we can in 2025.

Joanna Gajuk: Great, thank you. If I may squeeze last one on funeral, the cremation shift, where it was only 40 bps, that’s, I guess, fourth consecutive quarter of that shift being below what you had been describing previously being like a trend of 100, 150. So is that enough to call it a new trend, as in are we kind of, in the new paradigm where maybe that shift headwind is smaller now? Thank you.

Eric Tanzberger: We debate that internally all the time. I think, my personal opinion is it does ebb and flow. I still, I’m not sure, maybe 150 basis points that we used to say is not in the reality realm anymore, but I still think it could be 100 basis points a year. Some of that’s just the fact that we have so much cremation now, in order to move the needle, it takes quite a bit. It’s just a large base of business.

Joanna Gajuk: Thank you.

Operator: Our next question comes from AJ Rice with UBS. Please go ahead.

AJ Rice: Hi, everybody. A couple of 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 flat to down on at-need volumes. What would you say is underpinning your thought that we’ll start to see that turn more positive?

Tom Ryan: I think it’s a combination of things, AJ, but first and foremost is I just think the pull forward affects lessens every year as we model that out. It’s going to get smaller and smaller as we go forward. And then 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 thinking. But the biggest one probably is that, is that the pull forward effect just continues to diminish as we model it out. Now, it doesn’t go away, but we overcome it with the other things that I mentioned.

AJ Rice: 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 sign, have you changed your thinking? What’s the update of thinking versus what you guys laid out at your Investor Day a couple years ago about the pull-forward effect and where we’re at in all of that?

Tom Ryan: No, I think it’s kind of turned in the way we think. I think when you have a little less volume on the funeral side, we’d anticipate a little less leads when you think about kind of the core funeral sale. It shouldn’t impact large sales, quite honestly, but more along the lines of the core business. You just have less leads to follow up on. I think the correlation is like 53%, 54%. And that’s been true for really the last 10 years. 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 good leads that we get through our at-need business.

AJ Rice: Okay, great. And then on the acquisitions, the step-up in pace there, 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 accretive 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?

Tom Ryan: The growth target itself, acquisitions, will be a piece to that. And obviously when you’re able to spend money that’s well above $160 million, $170 million, not sure what we will close before year ends. It could be a little bit higher, AJ, versus the target of roughly a midpoint of $100 million. 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 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 adjustments, 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.

AJ Rice: Great, and then maybe last thing, we don’t often ask you about this, but inter-quarter there was an announcement about some management changes, updates, et cetera. Any perspective you can provide us on what you guys are doing there?

Tom Ryan: Yeah, AJ, this is a — as you well know, a lot of companies in the same way, but I think we’ve taken it very seriously with the Board succession planning, because inevitably it’s going to occur. And with Steve’s — 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 plan. And so we’re excited about the elevated responsibilities for the executives that we named in there and think it’s going to add a lot of value in different perspectives. So I think the whole company is excited about it. And again, I don’t think there’s any big surprises. These are — were part of a long-term plan we’ve been working on for quite some time.

AJ Rice: Okay, great. Thanks a lot.

Operator: The next question comes from Parker Snure with Raymond James. Please go ahead.

Parker Snure: Hey, good morning. Yeah, this is Parker on for John Ransom. And sorry if I ask anything [indiscernible], I missed the beginning of the call. But the pre-need cemetery selling, I know you noted the lower end consumer is kind of holding in there 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? Is there anything else that you would note just on that segment?

Tom Ryan: There is not any type of loosening 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. There’s some pull forward effect going on as we’ve said and will 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, down 2-ish percent to maybe flattish next year. We’ll help that, 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. We’re here for the long term and we’re not panicking at all in the short term. We feel very good about the future, especially with pre-need cemetery.

Parker Snure: 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 decent eye exposure in Florida and the Southeast. Did you see any impacts kind of late in third quarter, early fourth quarter, whether it be on funeral volumes or some of the pre-need selling activity?

Tom Ryan: 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 week. We did have, 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, related to pre-need cemetery. But ultimately we bounced back from that as well. Maybe there’s a little bit of call it $0.01 or $0.02 for the quarter of a headwind related to it, but as a general statement, the business is 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.

Parker Snure: Okay, if I can just get one last one. Yeah, this is more of a high level question on acquisitions. When you’re 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 type platform. And how should we think about some of the synergies that you’re able to realize on these deals and maybe the effective multiple or how you’re able to work down the purchase multiple down to the effective multiple over a course of a few years when you’re doing these acquisitions?

Tom Ryan: Well, what I was saying before is, the multiples really haven’t changed. 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 and power of the size of our company 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 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.

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 SCI.

Parker Snure: All right, great. Thank you.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to SCI management for any closing remarks.

Tom Ryan: Thank you, everybody, for being on the call today. Happy Halloween, and we will speak to you at our fourth quarter earnings call in February. Thanks so much.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.