SCI - NYSE

Good day, and welcome to the SCI First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

We're going to have some prepared remarks about the quarter from Tom and Eric in just a moment. But before that, let me quickly go over 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 risks 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 also 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 also on our website. With that out of the way, I will now turn it over to Tom Ryan, Chairman and CEO.

Thank you, Debbie. Hello, everyone, and thank you for joining us on the call today. This morning, I'm going to begin my remarks with some high-level color on our business performance for the quarter and provide some greater detail around our solid funeral and cemetery results. I will then close with some thoughts on our outlook for the rest of 2024. For the first quarter, we generated adjusted earnings per share of $0.89, which compared to $0.93 in the prior year or a decline of $0.04 per share. We had anticipated a decline in earnings per share from operations for the quarter due to lower funeral volumes, lower nonfuneral home revenues and lower cemetery revenues recognized from completed construction projects. While these trended as we had anticipated, stronger-than-expected preneed cemetery sales in a slightly better funeral sales average allowed us to reduce the operating shortfall, resulting in a better-than-expected $0.06 per share decline in operating earnings per share over the prior year quarter. Below that of a lower share count and a lower income tax rate, more than offset the impact of higher interest expense, producing a net favorable increase in earnings per share of $0.02, resulting in a combined net $0.04 decrease and earnings per share for the quarter. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues declined $9 million or about 1% over the prior year quarter and an increase of $4 million in core funeral revenue was more than offset by an expected $12 million decrease in nonfuneral home preneed sales revenue. Although core funeral volume declined 3% compared to the prior year quarter, we believe due to the COVID pull-forward effects, volumes were in line with what we had anticipated. Our core average revenue per service grew over the prior year by an impressive 4% even after absorbing the negative effects of a modest 70 basis point increase in the cremation mix. SCI Direct nonfuneral home preneed sales revenue decreased by $12 million, primarily due to operational changes in our California market with respect to the timing of merchandise delivery. We would anticipate the quarter-over-quarter net revenue decline to diminish over the coming quarters as compared to the first quarter of 2024. It is our intention over the next several quarters to implement this and other operational changes across the remaining nonfuneral home market as we begin offering an insurance-funded product for SCI Direct service and merchandise sales as well as shifting certain travel protection sales to an insurance-funded product where it makes sense. While these changes will defer recognition of these revenue streams until the at-need cremation services performed, it will also generate significant general agency revenue upon the sale of the preneed contracts which we expect to mitigate the effect of the revenue decline from these operational changes. Over the coming years, we would expect to grow General Agency revenues at a very healthy and sustainable growth rates. And when combined with organic growth in the number of contracts maturing from the preneed backlog for SCI Direct should result in very impressive revenue, profit growth rates for SCI Direct. From a profit perspective, funeral gross profit declined $18 million, while the gross profit percentage declined by 270 basis points to about 22%. This decrease is primarily due to the decline in revenue and an increase in annual incentive compensation costs over the prior year quarter. Preneed funeral sales production decreased by $8 million or about 2% over the first quarter of 2023. This was primarily due to a decline in our core sales production as nonfuneral home sales production was relatively flat over the prior year quarter. Now shifting to cemetery. Comparable cemetery revenue increased by an impressive $21 million or about 5% compared to the prior year first quarter. Recognized preneed revenue accounted for the preponderance of the increase growing by $20 million or 7%. Growth in preneed cemetery sales production of $24 million or almost 8% over the prior year quarter, delivered $8 million of the $20 million of recognized revenue increase as the preponderance of our sales production increase was deferred and will be recognized in subsequent quarters. Preneed merchandise and service revenue delivered $12 million of the recognized revenue increase as robust increases in contract averages favorably impacted by increased merchandise and service trust income, combined with a slightly higher delivered units, delivered 14% growth as compared to the prior year quarter. $17 million of the $24 million increase in preneed cemetery sales production was generated from a 6% growth in core cemetery sales over the prior year quarter. Bard sales accounted for the other $7 million of the increase, which was a 19% increase over the prior year total. Cemetery gross profits in the quarter increased by $3 million from increased revenues and the gross profit percentage declined by 100 basis points, still generating margins over 32%. This decline in gross profit percentage was primarily due to an increase in annual incentive compensation costs as compared to the prior year quarter. Now let's shift to discussion about our outlook for 2024. As you saw in our earnings release, we're confirming our normalized earnings per share guidance range of $3.50 to $3.80 for 2024 or a midpoint of $3.65. Remember, the first quarter was the most challenging year-over-year comparison because we had expected the most difficult comps to occur in the quarter in both revenue recognized from cemetery completed construction projects and nonfuneral home preneed sales revenue. We also knew our most challenging comparison of variable interest rates on our floating debt would occur in the first quarter. As we think about comparing the rest of 2024 earnings per share expectations against our last 9 months of 2023 normalized earnings per share, we would expect year-over-year growth in earnings per share in each of the subsequent quarters, driven by increased profitability in both the funeral and cemetery segments. We would expect low single-digit increases in funeral revenues, and we would anticipate increased sales production and increased revenue recognized from completed construction projects combined to drive mid-single-digit increases in cemetery revenue over the coming 9 months. In conclusion, I'd like to thank the entire SCI team for all that you continue to do every day for our customers, our communities and each other. You are what makes our company great. With that operator, I'll now turn the call over to Eric.

Good morning. And again, a warm welcome to everybody joining today's earnings call and similar to the way Tom just ended his remarks. Before I get into my prepared remarks, I want to take a moment as I customarily do. But again, never without genuine gratitude to extend my sincere appreciation to our dedicated team of over 25,000 associates at SCI. Your constant commitment to serving each and every one of our client families with empathy, and unwavering excellence is truly remarkable. We take immense pride in the fact that our associates embody our fundamental values of respect, integrity, service excellence and fostering enduring relationships. So thank you. So now let's go ahead and shift to my remarks for the quarter. I'm going to first discuss our cash flow results before moving to capital investments during the quarter. I'll end with providing some forward-looking commentary on our outlook, and also finish with talking about our current financial position. So in the first quarter, we generated an impressive adjusted cash flow from operations of $220 million. This is flat compared to the prior year and was in line with our expectations. Lower operating income and higher cash interest payments were more than offset by slightly lower cash taxes and favorable working capital. So let me give you a little bit more color on those items. Operating income declined by about $13 million quarter-over-quarter due to an expected decline in earnings that Tom just walked us through. Additionally, we saw $14 million of higher cash interest payments during the period as anticipated and as a result of higher weighted average interest rates and balances on our floating rate debt during the quarter. Cash taxes in the quarter were slightly lower than the prior year by about $4 million. Now while federal cash tax payments are generally not made in the first quarter, I want to reiterate from my previous comments that we expect our 2024 cash taxes to range between $25 million to $35 million. 2024 is being impacted from a temporary benefit of about $150 million of reduced cash tax payments as a result of the tax accounting method change that I've now discussed over the last several quarters. And as we look to 2025, and beyond, we expect cash taxes to revert toward a more normalized trend that, again, would not include this $150 million benefit beginning in 2025. And finally, working capital provided a net $23 million source of cash during the period, and this was primarily driven by favorable impacts associated with lower 2023 incentive comp cash payments that were actually paid this quarter in 2024, and I think I did mention that in the last quarter's call as well. So I'll now touch upon our capital investments in the first quarter. We invested a total of $103 million into improvements of our existing funeral homes and cemeteries, new growth opportunities and real estate for future expansion. So let's break this down a little further. We invested $70 million of maintenance capital back into our current businesses with $39 million for cemetery development, $25 million into improvements to our various funeral and cemetery locations and $7 million into our digital strategy and other corporate investments. The cemetery development spend increased on a year-over-year basis as we continue to execute on opportunities to invest in high returning cemetery construction projects. And remember, these projects generate high-quality cemetery property for our customers, that helped to drive the strong preneed cemetery results we've seen this quarter and recent quarters. We also invested $16 million of growth capital in the quarter towards the purchase of real estate, construction of new funeral homes and the expansion of existing funeral homes and cemeteries. Finally, we made several accretive acquisitions in the quarter, closing on $16 million in total. We remain optimistic about the activity we're seeing in the second quarter and the pipeline through the remainder of the year. And with that, we now believe we'll be at the high end of our $75 million to $125 million acquisition investment target for 2024. In addition to the investments into our business and the acquisitions, we returned $93 million of capital to shareholders in the quarter through $44 million of dividends and just under $50 million of share repurchases. We purchased about 700,000 shares at an average price of about $70 during the quarter, and this ended the quarter with just over 146 million shares outstanding. Now subsequent to the quarter, we continue to be active on the repurchase of shares, acquiring about another $700,000 of shares for just under a $50 million investment. So in the press release, while we've confirmed our 2024 adjusted operating cash flow guidance, which remembers a range of $900 million to $960 million, with a midpoint of $930 million, and we deem this again as appropriate. When we deduct $325 million of expected maintenance capital, this results in an impressive adjusted free cash flow of just over $600 million or over $4 adjusted free cash flow per share for 2024. In addition to the strong cash flow foundation, we also have a very favorable debt maturity profile and liquidity of just over $900 million at the end of the quarter, which consists of a cash balance just over $200 million as well as approximately $700 million available on our long-term bank credit facility. Our leverage at the end of the quarter remained close to the year-end number at 3.59x net debt to EBITDA -- and again, we maintain our near-term bias towards the lower end of our targeted leverage range of 3.5x to 4x until we have a little bit more clarity as to where interest rates will go from here for the rest of the year. So in closing, I'd like to reiterate that our solid balance sheet, our ample liquidity and our predictable cash flows will continue to fortify our capital investment strategy of investing to the highest and best use in order to maximize shareholder value. So before we open the call out to questions, I have one more topic I'd just like to mention very briefly. And I'd like to compliment and recognize Debbie Young, who most of you on the call know Debbie very well. Some of you on the call, as I look at these questions with A.J. and perhaps Ransom has been around for the last many, many years where Debbie has led over 37 years at our company has led Investor Relations for over 25 years, or as I like to say, over 100 quarters. she's led our Investor Relations program here, has done a remarkable job. Debbie has decided to retire at the end of this quarter. And ultimately, will spend more time with her husband Scott and her son Matthew. And please join us. We want to wish Debbie the best of luck. And from a personal perspective, what makes a job great is when you're able to work with great people that become your friends over the last several years. And Debbie, you made a lot of tough times here early on 25 years ago, a lot easier and you make the good times a lot better. So for that, I thank you, and we all thank you. So with that, Cindy, operator, we'll go ahead and pass it back to you and open up the call for questions.

[Operator Instructions] Our first question comes from A.J. Rice of UBS.

Best wishes to you, Debbie. I'm glad Eric didn't try to guesstimate how long John Ransom and I have been doing this. A couple of questions, if I could. First of all, on the -- I guess there was an announcement out of the Attorney General out of California reaching a settlement regarding some cremation practice. I wonder if you could just give us your perspective on that? Does it change anything going forward? And yes, just your perspective on it would be helpful.

Sure, A.J. Thanks for the question. So after about 8 years of back and forth, we reached the settlement with the California Attorney General that includes the cost reimbursement and civil penalties of $23 million, which you probably saw in the press release A.J. and provides certain pre-need contract customers with the right to receive refunds. There's no admission of any wrongdoing or fault by the company or the officers of the Board. We believe that our fourth quarter 2022 accrual that we made in relation to this is adequate to cover the $23 million civil penalty and reimbursement as well as any estimated cancellations from the customer contract. In a little history here, the lawsuit was brought by the state. It was primarily based on the interpretation of the Short Act, which is under California law, very specific to California. And while we don't agree with California's interpretation, we've agreed to certain operational changes that allowed us to remedy the dispute. And A.J., you mentioned any changes. And I think in my comments, I mentioned that in California, we had stopped delivering merchandise, and that's one of the reasons that the nonfuneral home revenues have been down. And as we've been finalizing these negotiations, A.J., we started looking at the model. And while this is very specific to California, and again, we believe in compliance with every law, we saw an opportunity to kind of streamline the SCI Direct model. And so as I mentioned over time here, we're going to transition SCI Direct to go from delivery merchandise in advance and delivering TRPP and shift that product to an insurance product. And the reason we could do that one is to streamline the model; two, it provides protection for our customers that pay over time. So having an insurance product, if I pay over time and die then I'm fully paid for. So we can add that benefit. It also allows us to kind of leverage the value of our insurance sales production stream because we have such a powerful business, and this will just add the power of that. And it will generate general agency revenues, which will offset the effects of not delivering the merchandise. And so now we're going to generate these revenues upfront and the average contract revenue coming out of the backlog of SCI Direct is going to be significantly higher. So I think it's a win-win for everybody. We've settled a dispute with the AG, and we're happy about that. So hopefully, that covers the questions you guys may have around that topic.

Yes. No, that's great. And I know you commented on acquisitions in the prepared remarks a little bit. But I wondered, obviously, you've got the expiration of the standstill arrangement related to steward that's done, and that would open up some new market opportunities that haven't been available to you for a while. And I would also assume, and I just want to confirm that to the extent that you can do any transactions in some of those markets that haven't been available to you for the last 10 years. Would those not be some of the more accretive deals that you can do because you already have some facilities in those locations?

Yes. I think, again, because you dated yourself by saying you met Debbie when she was a teenager. You're exactly right, A.J. I do think the market that will open up are ones that we really like -- that we've got presence in. And I think to take your question in different pieces, Eric mentioned, we feel really good about the rest of the year. And that means we've got a number of deals that are under a letter of intent, other offers that are in kind of final stages of negotiation. I think the way to think about these markets there, A.J., to your point, is, as we've always said, businesses come for sale when the seller is ready to sell. So while it seems like a flood gate opens, it isn't really true. What we found over the last 10 years is there's been time for businesses to come up that we would have loved to participate in, and it's precluded us from participating. Because in our negotiations, we have to say, "Hey, by the way, we have to wait on the Federal Trade Commission to approve this but we're not a very attractive buyer at that point." So what this is going to allow us to do for transactions under -- I think it's $120 million, is you just don't have that necessity of going to the FTC by a prior notice that's out there. So again, I think it's a plus. I think it's going to be good. But I'd say today, absent that, we still feel very good about the pipeline of acquisitions.

Our next question comes from Parker Snure of Raymond James.

You have Parker on for John Ransom. Maybe just talk about the cemetery preneed production. It was up almost 8%. Anything notable to call out there? Was there any bounce back in the Qingming sales that maybe you lost last year? Anything notable in terms of geography and then maybe the high end versus the low end?

Sure. The Qingming, again, as you know, kind of crosses quarter, we have an impact that typically happens in the last couple of weeks of March and probably will have a few weeks in April. But I think we would tell you that we're very pleased with Qingming this year. It's been -- and I think, again, it shows in the first quarter results, too. So yes, we feel great. I mean, the nicest thing, I think, Parker, about the first quarter is not only do we have great large sales that grew 19%, but our core products grew by 6%. So we're really hitting on all cylinders in a lot of different markets and really feel good about the direction and momentum that our sales team has. But again, we want to caution the one thing that we talked about this year is a big lead source for preneed cemetery sales is funeral volume and therefore, burial volume. And we still have a little bit of a hangover as you think about the pull-forward effect. And so I think it can put a little bit of pressure but a tiny bit of pressure on that lead source. The good news is our sales teams are overcoming that with increased digital leads, better follow-ups, great products in our cemeteries that they're available to sell. So we feel great about the momentum. It's still the first quarter, so we don't want to spike the ball on the 40, but I feel confident about where we're headed and the rest of 2024 and maybe even more confident about '25 and '26.

And then just any updated thoughts on the FTC funeral rule? Any updated thoughts on timing and when we might see that?

Parker, it's Eric. No, we really don't have any updated thoughts. I mean, we've been very consistent with it, that we continue to have a very good relationship with the staff of the FTC and helpful to work through it. But we've submitted stuff all the way back in October of 2023. It was kind of the official last thing that we have done with them. And I think the whole industry is waiting around for finalization. The important thing to remember, though, is we don't think there's anything that's coming out of the rule in our vision, at least that's going to have a material effect to our company one way or the other. And we think, ultimately, it's a good rule for the industry, but nothing that's going to materially move any of our projections from a financial impact or anything.

All right. Great. Congrats, Debbie.

Our next question comes from Joanna Gajuk of Bank of America.

So I guess a couple of follow-ups. So I guess the -- not the last topic, but the one before around the cemetery pre-sales production. It sounds like it's actually the large sales, but also core was up. So did I really [indiscernible] that core was up mostly on pricing? And I guess what gives you the ability to drive pricing, I guess, while inflation and, I guess, interest rates still high. So can you kind of talk about maybe some more details in terms of the consumer, I guess, the perception and demand in both, I guess, core and also large sales.

Sure, Joanna. Again, like I said, the large sales continue to go at a very nice cliff. I mean if you look back in time, they're significantly higher than they were just 5 to 6 years ago. And a lot of that is, again, back to the product that we're able to put in front in our bills force ability to close. And so if you think about that high-end sale, depending on seasonality, I think second quarter is typically stronger than fourth quarter. We're going to do about probably $40 million to $50 million a quarter. I mean that's kind of the pace. And again, that, I think, is more contingent with where the economy is, where the stock market is because those buyers are typically not borrowing money to buy them. They're putting cash and they either feel good about it or they don't. That's there, and it's been very consistent, and we feel good about the temperature of that customer. On the other end, we saw a great activity. Again, our activity for the quarter was relatively flat from a unit's perspective. But keep in mind, I think we're somewhere around 10% or 11% higher than we were in 2019. So we're at elevated levels of volume. And you're right, most of the increase in the core is related to average. But remember, Joanna, you know this from being in a lot of our cemeteries and seeing it, some of that is inflationary pricing, but not an insignificant portion of that is a, what I'll call a trade up. And what that is by investing in different tiers in the cemetery, you're seeing customers come in and buying an enhanced product, where we spent some money, made a better product and people are trading from this level of product of 1 and that has an effect on average sales. So it's really a combination of things that we think will continue, inflationary pricing and enhanced offerings in our cemeteries, which we continue to invest at the levels of $100 million to $130 million a year in bringing on new inventory property.

No, exactly. That's what I was sensing. I mean thank you for the 10%, 11% higher because, I mean, I don't have the breakdown the large versus core, but just looking at the preneed sales production dollars, it's like a 9% CAGR versus first quarter of '19. So to me, it sounds like, yes, there's definitely demand. There's definitely demand and people willing to spend money. So I guess that's good there for the business. And if I may, a couple of other follow-ups. So on your comments around the deal spending for the year, it sounds like your confidence increase and you think you're going to be at the higher. Does this mean anything meaningful for the guidance for you here in terms of accretion from these deals and moving from what's led to higher or I guess that's maybe not big enough to make -- to move a needle for the year?

Yes, Joanna, you're right. While we're excited about it, it's not going to have a material impact on our guidance. Obviously, it gives us a little bit of a more confidence in achieving the range. And like normal, it's the first quarter of the year. I think as we get through half year, we'll have a better idea of that pipeline, we'll have a better idea of sales. It's just -- 3 months is not a year.

And maybe you can also give us a sense of the assets that were acquired in the quarter and also what's in the pipeline?

I think Eric mentioned that the assets we've got in the first quarter were predominantly funeral homes and cremation. I don't think we had these cemeteries. As you think about the pipeline, and again, I always hesitate to say anything until they're closed. But we do have a few deals that are under letter of intent, so in the process of closing. And we also have, I'd say, some deals that are very close to getting under letter of intent. And it's a nice mix of both funeral and I think we've got some investments also in cemeteries that hopefully will be coming online. So it's a multitude of deals and some will close and some won't. But I'd say based on the level of activity, we feel, like Eric said, pretty confident in achieving the range and probably towards the high end of the range.

Okay. And I guess it also relates to my other question on capital deployment. So this confidence in the deal spending, is that a reason why you did not really buy that much stock in the quarter. I mean it sounds like you -- before in Q2, you already bought the same amount and maybe it was just timing of things. But anything to read into that? I guess the Q1, the $50 million was the lowest since 2019.

Yes. I'd answer it 2 ways. I think we continue to have a track record based on our opinion on the value of ramping up and ramping down. So you're always going to see some volatility among quarters and quarters as we form that opinion. We definitely believe heavily in the share repurchase program right now. So I don't want you to take that any differently, including what we did in the quarter and apparently what I said we've already done in this quarter already to date. But the second piece to that is, last quarter, Q1 of last year, we actually took on debt to do some of the shares and do some acquisitions and stuff and we paid down debt, and it's about $100 million swing. And that's kind of where that capital went this quarter where we paid down debt. And again, I don't think that's a pivot in strategy. Three months doesn't make the year, as Tom just said. But from a timing perspective, we continue to have a little bit of a bias towards the 3.5 side of the 3.5x to 4x leverage. That's not new. That's what we've said. Obviously, I think everyone was in the boat of expecting some floating rate relief as we went through the year. That relief appears to us and appears to the market as well that if it does come, it's going to come in the back half of the year. And I think that went into some of the thinking during the first quarter. But I'd also reference again, the momentum we have in the share repurchase program subsequent just in the first month is very strong. So hear us very clearly about how we view it very favorably at these levels right now.

Joanna, just to add a little bit, there's a technical reason, too. Obviously, when we're in quiet periods, we can't make decisions day to day. We have to put a formulaic number in there and we want to be able to -- if it super cheap under formula to buy it, but maybe not as aggressive. And we can't change that. If you think about the first quarter, we go quiet, and probably like November 15, and it goes all the way to your release earnings. So it's the longest period of time where you really don't have a lot of discretion. And so I think that's probably, to Eric's point, didn't spend as much as you might think. And now that you get into these months, it's shorter windows.

Okay. Yes. Got it. That makes sense. And I guess, if I may -- just a very last one. When it comes to just looking out -- on the last call, you made some comments about 2025 and I guess when talking around the production and cemetery presales production, you said you're seeing great momentum this year and heading into next year. So should I read into this? Or you kind of feel the same way as you did I guess, maybe less than 3 months ago when you reported Q4 and you talk about returning to 8% to 12% EPS growing 25%, kind of any update to that commentary.

Yes. I just think, Joanna, we'd say that we feel confident then, and I'd say I feel a little more confident now because I think the first quarter, from an expectations perspective and the trends that we're seeing are really positive. I also think getting this AG matter behind us and allowing us to transition to our new SCI Direct strategy, which should as we get through the first couple of years, provide us a real robust growth platform for that business. Because, again, we're going to generate general agency revenues and be filling up the backlog with much more robust funeral averages. So we really feel great about where we are and are excited about getting into these months. And again, digital leads continue to grow at a pretty pronounced cliff. Our sales teams are super effective, super productive. I think Jerry is running a sales team. It's 600 people lighter than it was before we went into COVID. And as you mentioned, we got 9% compounded growth rate over the period with 600 fewer counselors than we had in 2019. And I'd say that's great leadership in sales, great leadership in marketing, and we just appreciate the effort, and we're excited about going forward.

Our next question comes from Scott Schneeberger of Oppenheimer.

Congratulations, Debbie, 100 quarters is a lot of quarters a career well done. I guess I'd like to start out just funeral volume, kind of a high-level question, Tom, for you. From the pandemic pull-forward, we've been going through this reversion period. There have been a lot of puts and takes impacting it. Where are we in that? Where -- what inning would you say we're in, in that reversion? When do you expect -- maybe we see normalization and maybe some improvement to funeral volume.

Yes, Scott, I think we felt like based again, and this is a little bit of crystal ball, but we feel like this was though -- '24 was kind of the last year that we had the net true hangover as you think about the impact. So I think the way to think about '25 is you still have a few things in your face, but they're so slight that we believe our market share gain and the natural debt rate will overcome it. So as we think about '25, we feel good about flat to -- and again, you never know what happens in the flu seasons, but we feel like it's a positive comparison as you move out past 2024. And then as you get into the back half of the '20s, a lot of things will move in your direction, including demographics. I think you're through the headwinds of COVID. And again, with our growth in preneed, we believe continuing to capture market share that should be reflected in our funeral volumes as you think about the back half of the decade.

For -- Eric, one for you. Just -- and then a quick final one after. But Eric, what are you thinking about interest rates in the variable for the back half of the year? Just any change to what you were thinking last quarter's update. We have a guidance update, but specifically on that line.

Yes. I mean we're about 7.4%-ish right now on our floating debt. Most of the comparison, first of all, the tough comparison is going to be the first half of this year. Because it was already up about that point as you got to the second half of '23. When you look forward, though, the rest of the year I think like everybody else, we thought there could have been 3 or 4 rate cuts and now we're probably thinking that it's more like 2-ish rate cuts in the back half of the year. Obviously, we could be wrong. But the one thing that I would tell you, Scott, is that's not very material. Our -- it's -- the floating rate debt is about 30% of our total debt and would just take a 25 bps cut and the floating rate expected to follow and just happened in the last couple of months of the year, it's not going to be very material with us at all. So it's not going to move the needle -- not going to move any of the guidance or anything like that. But so as you know, in the modeling though, we obviously took a little bit of a lighter point of view in terms of cuts, like most people have reading the market and some of the comments out there.

Appreciate that. And then that last one, just cremation mix. The year-over-year a little lighter than historic trend. Is this just a factor of comps or year-over-year comps or anything else we should be considering there?

Scott, I'm thinking Jay Warren called you maybe. I think our belief is that the trends will probably revert to the mean. I think what you've seen over a number of years, sometimes we've experienced 200 basis points, we experienced 50 basis points. And so it can ebb and flow, and we still think more likely than not, we're somewhere in the 100 to 150 basis point change a year. We have noticed that in our numbers, and we're excited about it. We think it's great. I just don't know if it's a trend yet to call.

The next question comes from Tobey Sommer of Truist.

And Debbie, the century mark seems like on apropos time. The -- could you comment on your expense inflation, how you see that trending in '24 versus last year, particularly on the labor and merchandise side.

Yes. On the merchandise side, again, we've got long-term agreements that have inflationary caps on them. So I feel like we have a good handle on knowing what our inflation will be and generally, I would tell you, it's been trending lower than general inflation. So I think we've been able to hold merchandise costs through those contracts also, I think, just kind of proactive transition to different products, which are pricing and products team do a great job of flexing in. So really not seeing anything that we're not happy with there. On the wage front, we're like everybody else. And I think we have experienced over the last few years, wage inflation at above 4%. And what I'd tell you is we're starting to see in '24 is that to normalize a little more and reach back into the high 3s. So I think we're seeing some wage inflation subsiding. But obviously, since wage inflation was probably closer to 2% over the last 10 years or so. It's still elevated as you think over history, but we're definitely seeing it subside a bit and push back towards the 3s and out of the 4s.

And if you were to look at your customer base and your sales experience, on a low, mid and sort of high-end customer bases. How -- what sort of story would the revenue trends tell us in cemetery and funeral if looked at through that lens?

Yes. I think it's less an issue on funeral and probably a little more issue on cemetery. And that really gets back to the preneed nature of cemetery versus atneed. So from an atneed perspective, I think people make decisions and spend money and they find a way, right? They pass the hat, they do what they got to do, and it's something that's important in emotional forum. Buying preneed cemetery property is a lot less emotional. And so I think you -- when you get into periods where interest rates go up or things like that happen, you're going to be a little more price sensitive. I would tell you, again, at the high end, we see a lot of demand and continued success at the mid end -- or the mid level, I'd say, we continue to see a lot of interest and good activity. And even at the low, we're still seeing good activity. I think I would tell you by looking at the data that consumer is a little more challenged than the mid-level consumer that I think you're seeing other industries talk about. And again, I just think that gets back to inflation. And not our product, but their everyday lives and how they're being impacted by the price of gasoline, the price of groceries. So yes, I think there's probably a little more difficulty to think about the low-end customer and their willingness to engage in a product that they don't need exactly right now. So we try to -- as you know, we've put together some plans and strategy to help them get into those contracts, whether it's terms or interest rates, but keep that consumer active. And I think we've done a pretty good job of it.

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

We want to thank everybody for being here today. I want to reiterate Debbie Young and what a superstar she's been to us. We love her very much. We're going to miss her, but, we're so happy for her next chapter. So Debbie, continued success, and we're going to miss you girl. Thank you, everybody.