Service Corporation International
Q3 2013 Earnings Call Transcript

Published: 24 Oct 2013

[Operator:]

Welcome to the Q3 2013 Service Corporation International Earnings Conference Call. My name is [Radha], and I will be your operator for today’s call. At this time, all participants are in a listen-only mode and later, we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to SCI management. You may begin.

[Debbie Young:]

Hi and good morning. This is Debbie Young, Director of Investor Relations at SCI. Thanks for joining us today to talk about our third quarter results and our preliminary outlook for 2014. Before I turn the call over to Tom, let me give you the usual Safe Harbor statements, the comments made by our management team today will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. Today’s comments may also include certain non-GAAP measurements such as normalized EPS, adjusted operating cash flow and free cash flow. Reconciliations of these measurements to be appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday. With that out of the way, I’d like to now turn the call over to Tom Ryan, SCI’s President and CEO.

[Tom Ryan:]

Thank you, Debbie, and thanks everybody for being on the call with us today. As usual, we are going to have an overview of the quarter and the year-to-date results. Then I would like to share some thoughts about the remainder of 2013 and what we see, and then finally, I’ll add some additional color to our preliminary outlook for 2014. So, for the quarter normalized earnings per share were $0.18 which was a penny lower than prior year, slightly below our internal expectations. That lost penny as compared to the prior year was from non-operating items such as lower form currency impact and higher tax rate that was slightly upset by a reduced share count. Then operationally we were slightly down or fully essentially flat to prior year on earnings as our cemetery results were very strong, primarily driven by an impressive increase cemetery sales production. This was offset by weaker funerals results from lower comparable volume, cost associated with investments in sales infrastructure and other inflationary funeral costs. I must admit, when I first saw our quarterly profit numbers, I was a little disappointed. As I dwelled into the numbers though, I realized the shortfall was mainly funeral volume driven, which we had anticipated as a strong flu season accelerated activity that would have occurred in the third quarter in the first half of the year. To step back a moment and view the nine-month year-to-date numbers. Earnings per share grew at 12% and free cash flow grew at 23%. All of this was accomplished, while we accumulated cash for Stewart and we are not deploying it more strategically -- through strategic way to share repurchases for smaller accretive deals. Then I think what were the two most important strategic focus areas for 2013. They were first, investing in our preneed sales platform to create differential growth. We have invested in recruiters, trainers and resources so through renew or expand a channel. From this, we have grown our capital account by over 7% year-to-date. We grew preneed funeral sales by over 14% in the quarter and we grew preneed cemetery sales over 16%. I am really proud of our team for their effort too. The second strategic focus for the year was to successfully close, integrate and divest of assets under the FTC order for Stewart. We believe we are on track to close Stewart by the end of this year. We have seen a tremendous amount of interest in the required divestitures. We are on track to deliver the $60 million in synergy that we had identified. And finally, we believe there is a real opportunity to drive sales differentially within the Stewart Cemetery portfolio. So, all in all, I am really enthusiastic about where we are and where we are going. Now, for an overview of funeral in the quarter. On the surface, comparable funeral revenues grew by $3.9 million. However, $3.4 million was other funeral revenue, primarily general agency revenue, which is completely offset by incremental selling compensation had no immediate impact on profit margin. Secondly, recognize preneed revenue primarily Neptune grew $2.8 million during the quarter. This revenue generates profit growth, but as a lower gross margin in core SCI business. Therefore, core SCI comparable revenues were down some $2.3 million as comparable funeral volumes declined by 2.9% and this could not be completely offset by our 2.3% increase in the average revenue per case. Year-to-date, our volume is up 0.4% and supports what we have set previously. That because of the strong flu season in the first quarter, a portion of our volume that would have otherwise incurred throughout the year was accelerated in the first quarter. Now from the margin perspective, with the $3.8 million increase in revenues, we would expect 60% margin while gross profit increased to $2.3 million. Unfortunately, we had a $9.8 million decline in gross profit. I want to give some clarity on the $12.1 million gross profit difference. There are four items that I want to touch upon. First, the real culprit to the margin decline, realized that non-selling funeral segment expenses are some $280 million on a quarterly basis. With 2.5% inflation rate, we start the quarter down $7 million before considering revenue. Now the second item, our core revenues which enjoy 60% incremental margin are down $2.4 million at a 60% margin, we loss another million for margin. Now, that total decline that I described at $8.4 million down because of the volume and because of the inflationary cost. Now for some positive news but not achieving the anticipated 60% margin. This Slide on number 3, net funeral revenues are $2.8 million over the 15% margin. We get $400,000 not the 1.7 one would expect from core revenue growth. And finally, General Agency revenue growth was $3.4 million and it has no profit margin. It is entirely offset by increased selling competition. So again, if this were core revenue, you would expect to add $2 million profit. I hope that’s helpful in analyzing what is going on within. As we try to make clear in previous guidance discussion, you know profits are very difficult to grow until we see movement in comparable funeral volume as revenue recognition is so dependent on the event of death. Until then as you continue to see steady, predictable cash flows and flat-to-slightly increase in profit. So far in the nine months of 2013, we’ve seen our funeral gross profits grow from $258 million, $263 million or some $5 million, while we are growing our network rapidly in our preneed backlog to further leverage the inevitable demographic impact on our future profits and cash flows. Speaking of growing backlog in the quarter, I could not be more proud of our preneed sales efforts. We grew total preneed funeral sales production by $23 million or 14.2%, again exceeding our expectations. We are very pleased with momentum that our preneed sales program has right now. We currently expect to finish 2013 with a year-over-year increase in the high single digit percentage range. Now for an overview of cemetery operations, comparable cemetery revenue increased $17.6 million or 9% per quarter which was in line with our internal expectation. As you will recall, in the second quarter, we talked about how we had a large amount of cemetery profit production that was deferred. We told you that these revenues would get recognized primarily in the third quarter as we either constructed cemetery property or collected more than 10% of the sales price from the customer. This is exactly what we saw. Secondly, our preneed cemetery sales production grew 16.3% in the quarter which we view as outstanding against the high hurdle rates set in the prior year quarter which is up some 14%. Through the first nine months of year, total cemetery preneed production was at 9.1%. We are anticipating continued strong result in the fourth quarter, leading to an increase in the high single digit percentage range for the entire year. From a profit perspective, cemetery gross profit grew $4 million or 9% in the quarter. Our revenues were somewhat offset by higher healthcare cost and increase in selling cost associated with unrecognized revenues with the sales force infrastructure investment we are making for the future. Then more to my comments about funeral, we are very pleased with the operating performance for our cemeteries in the first nine months of the year, the revenues are up nearly $39 million or 7%. Profit is about $15 million or 13% and the margin is expanded some 110 basis point. Now, I would like to turn to our 2013 outlook. As you saw from our press release, our expectations for the full year 2013 normalized earnings per share are now at a range of $0.87 to $0.91, which is within our previous range but again taking to account our lower volume expectations for the fourth quarter. Last year in the fourth quarter, the reported volumes were up 1.5% which benefited from the front end of the strong flu season. We’re modeling volumes to be down in the mid-single digit range this year in the fourth quarter. This will result in our volume expectations for the full year to be down in the 1% range as we guided you in the previous quarter’s guidance. Our expectations for the full year 2013 of $0.87 to $0.91 compares favorably to prior year 2012 earnings per share of $0.80 and represents a range of 9% to 14% growth over the 2012 year. And remember this is true operating growth and we do not have the ability to deploy capital and grow earning per share through share repurchases or meaningful acquisition as we are focusing on the regulatory approval for the Stewart transaction. So all in all, a very impressive deal. Now, I’ll turn to our 2014 outlook. So in addition to SCI’s core business growth, we are enthusiastic about the growth of the Stewart acquisition gives us in 2014. Our preliminary earnings per share guidance of $1 to $1.10 at the midpoint represents a little more and a 19% increase than the midpoint of our expected 2013 earnings per share. Then in 2015, we would realize an additional $30 million in identified synergy. We will have reduced the interest expense by deleveraging the business, allowing us to deploy capital more aggressively. I also believe that we could identify further natural synergies in our field operations like we did in Alderwoods and grow Stewart cemetery sales production at a more rapid pace than it’s historically been the case. Now turning back to our broad assumptions for 2014. You saw few of our assumptions regarding Stewart acquisition in our press release. Perhaps one of the most important assumptions is quantifying the divestiture impact and estimating the timing. We are still in discussion with the Federal Trade Commission and don’t know exactly where we are going to land. We wanted to be helpful though, giving you some kind of roadmap for 2014. The purpose of modeling only, our forecast assumes the range of $35 million to $45 million of EBITDA as divested. And we have assumed that timing of the sale and the related proceeds that occurred during the first half of 2014. This $35 million to $45 million of EBITDA equates to approximately $30 million to $40 million of EBITDA, the way you are used to seeing it that Stewart reports it. Keep in mind that we add back cemetery amortization under our definition. Again, this is just a range we use for modeling purpose. Ultimately the divestiture amount should not make a material difference to our internal rates of return as long as we are able to get more and eight time in proceeds and based upon the level of interest, we believe we can do that. Now as it relates to our base business. Let me give you a bit of additional color. Comparable funeral volumes will still be challenging but we believe we can offset the effect as we continue to increase the sales volume. Also we would expect higher recognized preneed revenues as Neptune continues to grow. We will continue to focus on preneed which we feel is our best avenue to expand market share over the long-term. We think we can continue to show success here in the mid-single digit range growth. On the cemetery side, revenues will continue to increase, led by preneed sales production growth in the mid-to-high single digit range. Preneed sales growth were driven by continued sales force expansion, primarily in the family service team or inside sales for those of you not in the industry, while we enhance the productivity of our expanded community service team throughout the year. Segment margins will be impacted by the traditional inflationary cost in our business, but we have a track record of minimizing that impact through our focus on standardized metrics in a continuous improvement culture. And finally, corporate, general and administrative expenses to trend similar 2013 levels were about $26 million to $27 million for quarter excluding one-time costs. In closing, I just want to say thank you to our entire team of 21,000 people for their hard work and helping to produce great result, thus far in 2013. 2014 will be an exciting year as we welcome the Stewart businesses and their talented people into our organization. As you can see from our preliminary outlook, this transaction is accretive to earnings to 2014 and even more pronounced as we enter 2013. This concludes my prepared comments. Now, I will turn it over to Eric.

[Eric Tanzberger:]

Thank you and good morning everybody. I’m going to continue our comments today by walking you through the details of our cash flow and I will do this for both the quarter and our full-year 2013 cash flow expectations. We then plan to provide you some color on our cash flow outlook for 2014, which includes the Stewart acquisition. So as we disclosed in the press release, our adjusted operating cash flow in the third quarter was just over a $100 million which was slightly ahead of our expectations. Compared to the prior year quarter, we are $21 million lighter in adjusted operating cash flow. This variance was expected. It is predominately associated with a timing of vendor payment last year in the third quarter. And recall as we discussed before, last year during the third quarter, we rolled out our new purchase order and accounts payable system, because of the complexities involved in this implementation which was during the third quarter last year, many of our normal third quarter 2012 vendor payment shifted into the following two quarters. This quarter’s cash flow was also positively affected by strong preneed cash receipts in the current quarter, due in part to the outstanding sales production as Tom just mentioned. Maintenance CapEx and cemetery development CapEx and remember these were the two components that we consider our recurring CapEx. These two components for the quarter came in at approximately $27 million, which was slightly lower than our expectations but consistent with the prior year. When you deduct this recurring capital spending items from our adjusted cash flow from ops, we calculate our free cash flow for the third quarter to be about $76 million. Our cash flow deployment during the third quarter continued to be somewhat limited. We did payoff the balance on our existed bank credit facility of roughly $87 million in July. This was part of our process of finalizing the expected Stewart acquisition financing. And from an acquisition standpoint, we did make a funeral cemetery combination acquisition in Texas during the quarter, which was a total investment of about $5 million. Looking forward, we will continue to build our cash balance in anticipation of the Stewart acquisition. As you can see from the press release, we did tighten the range of our adjusted cash flow from ops for the full-year 2013 to $415 million to 430 million, which is well within our previous guidance range. Our guidance for maintenance and cemetery development CapEx remains unchanged and that’s approximately $110 million. Our free cash flow which deducts our current CapEx from the adjusted operating cash flow is therefore anticipated to be in a range of $305 million to $320 million for the full-year 2013. This compares to about $272 million of free cash flow in 2012, which is 12% to 18% increase over 2012 free cash flow level. We are extremely pleased with this 2013 free cash flow result. And remember, this growth has been achieved despite about a $15 million increase in cash taxes in 2013 versus 2012. So as we continue to look ahead for 2014, I just want to emphasize as a preliminary outlook that we given in our press release today is subject to more uncertainties than usual, mostly related to the timing of the closing on Stewart acquisition, the amounts and timing of the divestitures that will be required, the timing of the expected synergies and variability in cash taxes, which I will discuss in a moment. When we speak to you again in February to report our fourth quarter earnings, we will try to update you with better estimates for any items for which we expect to have more clarity. So looking at cash flow for 2014, we expect our adjusted cash flow from operations to range between $430 million and $480 million, with 8% increase from the 2013 midpoints of cash flow from operation. In addition the benefiting from the addition of Stewart’s cash flows, our funeral and cemetery operating cash flows are expected to grow next year. However, our cash tax payments are increasing with the anticipating exploration of SCI’s net operating losses which will occur during the early part of 2014. So we still have a lot of work to do in refining our cash tax estimate, primarily as it related to incorporating the Stewart acquisition. However, our preliminary estimate as of today is that cash taxes will grow to approximately $70 million in 2014, assuming a Stewart transaction occurs in late 2013 or early 2014. This compares to about $30 million of cash taxes expected in 2013, so this leads to an increase of $40 million in cash tax. When you neutralize the impact of this increase in cash tax payment, our expecting operating cash flow is growing approximately 15% as opposed to the 8% that I mentioned before that includes the increasing cash tax. So we will keep you posted, as we refine our cash tax estimate as we work through the integration of Stewart, which will include refining our assumptions around their net operating losses, their deferred tax assets et cetera. Finally, capital spending in 2014 for maintenance and cemetery development due to the inclusion of Stewart will grow approximately $30 million, which now leads us to a range of $135 million to $145 million expected in 2014. So, one last note about our 2014 outlook as it relates to interest. While the annualized interest expense related to the incremental Stewart acquisition debt of roughly $1.4 billion is estimated to be around $56 million. Our anticipated debt reductions expected during 2014 will reduce our interest amount, resulting in interest expense for the full year 2014 to an expected range of $175 million to $185 million. Our cash interest payments are expected to be about $5 million less than its interest expense range. So in conclusion, the company continues to be financially strong. And we are very excited about our growth prospects in 2014. As we have previously stated, it is our attention to quickly de-lever the company following the close of the Stewart acquisition by using both our free cash flow and our anticipated divestiture proceeds. Our proven track record of quick deleveraging post large acquisition will continue to allow us to transition our focus to additional future investment and capital deployment that will enhance shareholder value in the future. So we appreciate to join us this morning and operator will now open up the call to questions.

[Operator:]

(Operator Instructions) And your first question comes from A.J. Rice from UBS. A.J. may begin.

[A.J. Rice:]

Thanks. Hi everybody. Maybe a couple of things related to the deal. Did the government shutdowns -- did that have any affect as far as you can sell on the timing on the processing of your submittals and all?

[Tom Ryan:]

A.J., this is Tom. The government shutdown, which I believe is 18 days. The team that we are working with was required to stop. One of the things we try to do was our side is continue to work diligently, to not lose any time in that process. I think we were very successful on attempting to do that. So we still feel comfortable about the December time frame that we’ve got to outline for you. Having said that we did -- we lost a little bit of time but I think we made that up.

[A.J. Rice:]

Okay. You referenced on the divestitures, $35 million to $45 million of EBITDA you are thinking as a preliminary swipe at it. And eight times would be the targeted sale at a minimum. So that would be about $320 million of gross proceeds at the mid point. Do you think is there likely to be a tax hit on that as well or is that gross proceeds which you will actually probably get?

[Tom Ryan:]

You know, right now it’s hard to tell because we have to know specifically A.J, exactly which assets for sale and what the tax basis is for that. So right now we have not taken into account additional cash taxes related to the divestures. So the $0.5 million that I assumed of that puts aside capital losses or capital gain associated with that. We’ll have to wait until we get further and identify it as specific property and their tax basis balance sheet so we can comment on that.

[A.J. Rice:]

Okay. And then just thinking about the assumptions you are using in your ‘14 guidance around volume and pricing. Are you assuming that where the volume and pricing assumptions you are using, are they pretty much the same for the Stewart portfolio or the SCI portfolio or is there any reason to assume that Stewart would be able to do materially different in either direction. And then any comment about -- next year volume assumptions?

[Tom Ryan:]

Sure. This is Tom and I think we would say that right now in our guidance, we have similar assumptions around volume and pricing. And I think it would not -- they are not dramatically different than what we’ve experienced over the last three to four years. And we always model, slightly down volume and a little bit of growth in average to get back. I think we have additional tool now on the funeral side with Neptune. It gives a little bit more growth in that category of recognized preneed revenue. As far as Stewart goes, and you know us well for long time, we are very hesitant to give guidance where we don’t have the specific plan. My gut tells me there is opportunity that will have on the funeral side with regards to packages and success that we can do there, expanding the products and services that we sell. And on the cemetery side, again, Stewart went through a lot of change in their sales organization in the last couple of years and I would expect that we could do some things differentially there, but we’re not going to baked that into guidance, so we don’t have specific plans to do so.

[A.J. Rice:]

Okay. And then maybe just want to ask follow-up on the last point you were making. So it sounds like you guys think you can accelerate the preneed business at Stewart a little bit, certainly they have been going through an integration that slowed them down. Is that on both the funeral and the cemetery side? And is there working capital assumptions you made in your cash flow guidance about that that is worth highlighting?

[Tom Ryan:]

Great question, A.J and the answer is we do believe. Our gut tells us we can and we have factored that into our guidance. We believe we’re going to go preneed on both sides and there will be a slight working capital use, which is included in our guidance. And again, that’s a gut feeling based upon what they have been able to do over the last three or four year and the growth that we’ve been able to see in some of the things we try, combining that with the fact they have made some difficult changes. I think good ones with regard to compensation, but I think it’s hurt them as it relates to their ability to grow. So we’re hoping that, once we get this integrated, we can start experiencing growth rates similar to what we have seen over the last three or four years, which is essentially high single digit growth rate range.

[A.J. Rice:]

Okay. All right. Thanks a lot.

[Tom Ryan:]

Thanks, A.J.

[Operator:]

(Operator Instructions) And our next question comes from Chris Rigg from Susquehanna International Group. Chris, you may begin.

[Chris Rigg:]

Great. Thanks a lot. Just a clarifying question on the divestures. So the guidance, the EPS cash flow, et cetera, does that assume the $35 million to $45 million of EBITDA is gone on January 1st?

[Tom Ryan:]

It actually assumes that we divested it over the first half of the year, so may be your best way to think about that is to use the point, March 31st in your model. But again, Chris, I would caution you, we just don’t no. It depends on the time that we close the deal and we’ve done this before, so I do feel that we have a process that such that we will get this accomplished at a pretty rapid way. In the level of interest, again, I would just tell you that it’s been pretty tremendous. I mean, lot of phone calls, lot of people that are very interested in parts of the assets, all the assets. So, I think that process will work well.

[Chris Rigg:]

Okay. And then on the -- your leverage comments about aggressive, trying to aggressively delever once the deal closes. How should we think about that? Is that on a leverage multiple basis that the EBITDA, or you guys actually targeting sort of an absolute level of debt over the next 12 to 24 months post transaction?

[Tom Ryan:]

Chris, it’s really more from the leverage ratio perspective and as we have told you prior to the Stewart announcement, we were running the company on a net debt EBITDA basis, 3 to 3.5. We kind of like the midpoint of that, maybe to the higher end of that. Upon close, we are going to be in the low 4s, call it 4 in the quarter. And we are going to work our way down as quickly as we can in that area. That doesn’t mean though that we’re not going to deploy capital along the way. There are certain limitations, such as the first $200 million of proceeds needs to go to reduce in the term loan, but after that, I would anticipate a balanced approach in terms of enhancing shareholder value as we delever.

[Chris Rigg:]

Okay. And then last question, can you just help us or remind us rather, on the Alderwoods synergies, where you sort of started initially, what the initial target was and then where you ultimately ended up over time? Thanks a lot.

[Tom Ryan:]

Yeah. In Alderwoods and again, this is a different transaction, but you would expect some similarities. We initially identified about 60 million of synergies and most of that related to kind of purchasing and back office synergies that were identifiable and quantifiable at the time. We also knew that once we got into the operation, we would begin to find synergies as it relates to the footprint of these markets. So think about management structure, think about numbers of facilities, think about utilization of staff and vehicle, and all these things will come one day. But that happens to occur once you know which business are you keeping and you develop a local plan for realizing some of those synergies, but those are some things that we later found. We also found some opportunities that relates to packages in our success and expanding the products and services that we offer client family. And again, finally here, which I think is a little bit difference, Alderwoods didn’t have a lot of cemeteries. That one tremendous cemetery in Rose Hills and we saw a lot of opportunity as we gets there, but here Stewart has some of the most premier cemeteries in the country and we are excited, we have seen some success in managing our cemeteries particularly in major markets and I would anticipate that, that’s an opportunity as well. So, Alderwoods went from 60 to 90 and the 90 is really kind of field synergies, packages and alike. Hopefully I answered your question, Phil?

[Chris Rigg:]

You did. Thanks a lot.

[Operator:]

And our next question comes from Nicolas Jansen with Raymond James. Nicolas, please begin.

[Nicholas Jansen:]

Hi, guys. Maybe just a thought on kind of the cadence of earnings for 2014, obviously you have a very tough comp in the first quarter, certainly the synergies will probably build over time. So how should we think about kind of the cadence of kind of earnings and cash flow as we kind of construct our pro forma numbers for next year?

[Tom Ryan:]

Nick, I think you are right. We don’t provide quarterly guidance as you know and but I think the way I would think about it is this, you’ve got really tough comparable funeral volumes in the first quarter that hopefully did easier by the back end of the year. Your synergy observation is true as well, again most of that would move towards the mid and back of the year. And then finally what I would like to believe which are the improvements to the Stewart businesses that we find are more likely to occur again towards the back half of the year. So as I think about the cadence, first half we are giving all the detail right, so that we can be rewarded with the fruits for our labor in the back half of the year, but that’s a 30,000 feet, hopefully that’s helpful to you.

[Nicholas Jansen:]

No. That is and I am kind of thinking about preneed this is kind of the -- it’s been multiple quarters in a row where you had robust performance there, I know you added some kind of sales force in to help drive that? But what are you seeing on preneed side? How sustainable is the double-digit growth and kind of given that Stewart has had some challenges growing preneed over the last couple of years, where do you think you offer the most level of opportunity as you kind of deploy your strategies on preneed to their book of business? Thanks.

[Tom Ryan:]

Well sitting across from two of the geniuses they are going to do it, but I will go ahead and try to explain on their behalf. We really believe that what we are doing most recently, if we go back, think over the last four to five years, all our success has been on productivity. We have done tremendous amount of growth but the number of people on our organization really hasn’t changed. It has ebbed and flowed slightly. But it all goes back to retention. We have a hard time getting people on board and successful and so therefore you end up seeing the same people we are getting (inaudible) so far because they are more efficient. We got better leads. We got better technology, better training. So what we said here is that how do we grow the number of people and you will notice in my comments, the headcount is up 7%. We have never done that in the last four, five years. We did that on purpose. And the way we do that on purpose is we added some infrastructure. We’ve got more sales management in place. We’ve got recruiters. We’ve got more trainers than we had before, all with the idea of making these new people more successful and therefore more productive and having them stay. And I would tell you that we feel pretty good about, we are ahead of everything. It’s a big milestone to move and it’s moving slowly, but we are getting the job done. So we are excited about where we are. I think as we think about bringing Stewart on board, we see Stewart in a lot of same things that we were doing. They are probably a few years behind in some of the changes that we have made to our sales organization. I think they are making and we are learning some things from their side. So we feel pretty confident. There were very good ideas and our experience in having gone through this, so we can get to know them onboard with us and very quickly begin to see some of the results that we’ve seen. And we are excited about onboarding them particular around the cemeteries. Our real success has been in major metropolitan areas where we have large internment cemeteries. Stewart has a lot of this, so I would tell you that we are excited about onboarding those businesses and getting started with some of the enhancement that we can provide with ideas both on Stewart and from our success that we’ve seen over the last three, four years.

[Nicholas Jansen:]

Okay. And maybe just lastly, thinking about Neptune and just the cremation customers as a whole. Is there anything that you are doing that Stewart is not doing or anything that they are doing unless cremation garden thinks on those ones that you are not doing that you can see perhaps incremental synergies develop on the topline over time as you guys deploy different cremation strategies?

[Tom Ryan:]

I would say, they are doing a good job and we are still analyzing. But they have seen some success with these cremations garden strategies. And again, we’ve got some of those too but they have seen probably some differential success in how they are doing it. So we believe we can take some of those thoughts and ideas and apply in our business which should create synergies. On the Neptune style front which again is more of a funeral side model. What I would say is very different than we see about Neptune, our Neptune and anybody else in the industry and we were no different than Stewart. This is a much more aggressive preneed model whereas our old direct cremation model and Stewart’s current and really anybody else to matter is really centered more around the agony customer. And we weren’t really aggressive about selling preneed. We believe the Neptune model is best and I think there will be opportunities within their direct cremation population to apply some of those strategies that Neptune supported in a very successful manner. And like you mentioned at the same time, there are some great ideas that they generated that we are going to take into our network and hopefully, win-win on both sides.

[Nicholas Jansen:]

Thanks for all the color, guys.

[Tom Ryan:]

Thanks, Nick.

[Operator:]

And we’ll now turn the call back over to SCI Management for closing remarks.

[Tom Ryan:]

We want to thank everybody for participating in the call. The next time, we talk to you I believe we’ll be when we will report the full year in the fourth quarter, which should be in February. So until then everybody take care and thanks again for calling us today.

[Operator:]

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect.