Service Corporation International (SCI) 2012 Q4 法說會逐字稿

Welcome to the Q4 2012 Service Corporation International earnings conference call. My name is Loraine and I will be your operator for today's call. At this time, all participants are in a listen only mode. 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. Please go ahead.

Good morning. This is Debbie Young, Director of Investor Relations for SCI.

On behalf of the Company, I want to welcome you to our call today as we discuss our fourth-quarter results and also talk a little bit about our outlook for 2013. Before I turn the call over to Tom, let me remind you that the comments made by our management 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 Web site.

Today's comments may also include certain non-GAAP measurements such as normalized EPS, adjusted operating cash flow, free cash flow, and free cash flow per share. Reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our Web site and in our press release and 8-K that were filed yesterday.

Now let me turn the call over to Tom Ryan, SCI President and CEO.

Thanks, Debbie, and thanks everybody for being on the call today.

Let me begin my comments by giving some overall perspective on 2012 before getting into the details of the quarter and our 2013 outlook. We finished the year on very solid footing. Overall, I'm very proud of what our team accomplished in 2012. Normalized earnings per share grew an impressive 23% to $0.80, from the $0.65 that we posted in the prior year, and exceeded the high end of our guidance.

As we anticipated, our comparable funeral segment for the year was challenging to grow, with continued soft volumes in the first three quarters of 2012, but we were pleased to be able to increase gross profits by more than 4% with an 80 basis improvement in margin. Throughout the year, our operating teams have done an extraordinary job of improving efficiency and managing costs. Most importantly, our funeral segment continued to generate significant cash flow.

On the cemetery side, we once again hit it out of the ballpark. We demonstrated that we are very effective in our pre-need sales efforts. Our comparable cemetery revenues were up more than 6% for the year and gross profits were up an impressive 19%, including the 240 basis point improvement in margin.

Finally, we generated $272 million of free cash flow. We returned close to $250 million to our shareholders through a combination of share repurchases and dividends. Additionally, we directed more than $70 million to strategic acquisitions and growth projects during the year.

As we indicated to you on our last call, the fourth quarter was very active for us in the acquisition arena. We closed on four deals, adding 11 funeral homes to our network. These businesses have combined revenues of approximately $20 million and we welcome them to our SCI family. These successes we achieved in 2012 could not have been possible without each and every one of our 21,000 associates. To them I want to say that I'm grateful for your dedication and commitment and I sincerely appreciate all that you do to make us a better company and to deliver service excellence to our client families every day.

Now shifting to an overview of the quarter. We posted outstanding results in the fourth quarter with earnings exceeding the high end of our guidance ranges discussed in October. Normalized earnings-per-share increased $0.03, or nearly 16%, to $0.22 versus $0.19 in the prior year quarter. This was accomplished by generating strong pre-need cemetery sales performance and increased funeral revenues on higher volume and average.

Now for an overview of funeral operations for the quarter. Comparable funeral revenues increased nearly $18 million, or 4.8%, and was ahead of our expectations. Let's talk a little bit about the key drivers. We were very pleased to see a 1.5% increase in same-store funeral volumes during the quarter. Keep in mind, we had an easy comparable as the fourth quarter 2011 was down over 5%. This quarter was, for the most part, just a return to a more normalized level.

For the full year 2012, same-store volumes were down 2%, which was in line with our expectation. Complementing the volume growth, we also saw an increase in the average sale of 2.3%. Isolating the currency and trust fund impacts, the average grew at 1.3%. This was accomplished despite a 50 basis point increase in the mix of cremation. For the full year, our average was up 2.2%, in line with what we have modeled. This was accomplished by contributions from our new reception and event offerings, refreshed Dignity packages, as well as price modification which offset a 60 basis point increase in the cremation mix for the year.

Lastly in the quarter, General Agency revenue increased $1.7 million on a 2% growth in pre-need funeral sales production. From a profit perspective, comparable funeral profits increased 6% and the margin grew 30 basis points during the quarter. The strong revenue increase was partially offset by higher incentive-based compensation payments, higher healthcare costs, and higher selling expenses related to pre-need funeral sales production.

Now for an overview of cemetery operations. Comparable cemetery revenue increased $21.6 million, or 11.3% quarter-over-quarter and also exceeded our expectations. I must tell you, I'm running out of adjectives to describe the success we've had. Our sales team continues to amaze.

Comparable pre-need sales production grew a strong 14% in the quarter and greatly exceeded our expectations. For the full year, pre-need cemetery sales production grew a little over 10%. This is just great execution. A big thank you to our sales team and sales leadership for continuing to deliver exceptional results.

Cemetery trust fund income also increased $6 million during the quarter due to the positive impact from the financial markets and increased trust fund balances. The cemetery revenue growth generated profits growth of $13.7 million, or 31.5% for the quarter, and margins increased 410 basis points, 26.8%, which is what you'd expect on the incremental revenue increase we generated. So we're very pleased with our cemetery results.

Now shifting to our outlook for 2013. We are in full swing for what we anticipate to be another strong year in 2013. As indicated in our press release, we're increasing our guidance for normalized earnings per share that we provided to you last quarter of $0.79 to $0.87 per share to a new range of $0.80 to $0.90 per share. At the midpoint, our 2013 earnings per share guidance represents about a 6% growth from 2012. However, if you remove the foreign currency benefit from inter company notes of $0.01 that we generated in 2012, the normalized growth would be closer to 8% at the midpoint.

Just to reiterate our broad assumptions included in our 2013 outlook, we expect growth in funeral revenues will continue to be a challenge. We're continuing to model funeral volumes down in the low single digit percentage range, even though January was very busy with the impact of the flu season. We would anticipate the tapering off of activities as the year progresses. We will continue our strategy to focus on growing our pre-need backlog and we expect pre-need funeral sales to grow in the low to mid single digit range. We expect the funeral average to continue to grow in the low single-digit range as well, absent currency and trust fund impacts.

Speaking of average, for presentation purposes starting in the first quarter of 2013, Neptune will be included in both the 2012 and 2013 comparable amounts. The year-over-year change will not be materially different than what you are used to seeing, it will only impact the absolute sales average dollars, the gross margin percentage and the cremation rate. If you need any help on that, obviously, you can get in touch with Debbie and she will walk you through it.

On the cemetery site, revenues will continue to grow led by strong pre-need sales production. The double-digit growth we have achieved in the last two years has been outstanding. We think this will be hard to replicate going forward. Our models for 2013 suggest growth in the mid, high single digit percentage range versus the 10% and 12% increases we've experienced in 2011 and again in 2012. From a margin perspective, we will continue to be diligent in managing costs but we will face some headwinds from an anticipated increase in personnel costs, specifically related to higher healthcare, insurance expenses, and salaries as well as an increase in pre-need selling costs on anticipated higher pre-need sales.

In conclusion, we could not be more pleased with the trajectory of the results we continue to deliver, and we look forward to the successful 2013. As a reminder, our strategy remains the same. Demographics dictate that our industry will experience a natural growth trajectory over the coming years. We will capture more than our share as we expand our network through acquisitions and continue to grow our pre-need backlog. Meanwhile, we will generate substantial cash flow that we intend to use to capitalize on value enhancing opportunities which includes returning capital to you through measured share repurchases and a growing dividend.

This concludes my prepared comments and I will now turn the call over to Eric.

Good morning, everybody.

I'm going to start this morning -- I'm going to walk you through the details of our cash flow for the quarter and the year and how we deployed that free cash flow to grow the Company and also to enhance shareholder value. And I'm going to finish with a few comments about our cash flow outlook as we shift forward toward 2013.

So as Tom mentioned, we are very proud of the way we finished 2012 on a really high note, delivering strong earnings which results -- which exceeded our expectations. We also generated more than $270 million of free cash flow in 2012. We deployed this cash throughout the year in a disciplined manner, primarily between accretive acquisitions and also returning cash value to our shareholders. The free cash flow generated in 2012 represents $1.24 of free cash flow per diluted share and has growth of 4.2% over 2011 free cash flow per share, which was $1.19. Just to remind you, this is despite slightly higher cash taxes paid in 2012 versus 2011.

We are anticipating cash flow to grow in 2013 and again, this is despite a further increase in expected cash tax payments that I will address in a moment. We have a long history of strong free cash flow despite a variety of economic and other challenges in the current years. But over the last eight years, our free cash flow per diluted share has grown at a compounded annual growth rate of about 9.5%. We strongly believe this is attractive from an investment standpoint and again, especially in today's tough economic environment.

Now let's shift to the results of the fourth quarter and start with operating cash flow, which in the quarter was $92 million compared to $97 million in the prior year quarter. So slightly below the prior year and slightly below our internal expectation. There were really two items that effected our cash flow that were different than our internal quarter to date expectations. First, pre-need cemetery sales were up a strong 14% in the quarter, which is well ahead of our expectations. Again, we were extremely pleased to see this high quality performance from our sales force.

As I have been describing though for the past couple of quarters, most of our growth in our pre-need cemetery property sales are increasingly made on an installment basis, with average payment terms of around five years. So, while we continue to see an increase in cemetery revenues, the associated cash will be received in future periods resulting in a use of working capital during the quarter of 2012.

Also described in previous calls, at the end of the third quarter, we rolled out a new purchase order and accounts payable system. While we said before we are very excited about this new and improved system and expect it to generate significant synergies as we gain greater visibility into company expenditures. But we did experience more cash outflows during the fourth quarter as we caught up from the initial implementation of the system from the third quarter of 2012.

Now, other components of cash flow. Let's start with maintenance CapEx and cemetery development CapEx, which again are the two components that we consider our recurring CapEx. This, for the quarter, came in at about $33.5 million. When you deduct these returning capital spending items from our cash flow from operations, we calculate our free cash flow for the fourth quarter to be $58.5 million.

For the full year of 2012, cash flow from operations was just over $380 million. And when you deduct the recurring CapEx of $109 million for the full year, that results in our free cash flow for 2012 of just over $271 million. As I mentioned before, this represents $1.24 per diluted share, or a growth of 4% year-over-year.

So let's talk about how we deployed this free cash flow. During the quarter, we continued to deliver on our commitment to return excess cash to shareholders and we are also very active in the acquisition market. First, in the fourth quarter we repurchased 3.1 million shares for a total investment of just over $42 million. For the full year 2012, we bought back 15.3 million shares for a total investment of about $185 million. This represents a reduction of about 7% of the shares that were outstanding at the beginning of the year. And as of today, we currently have approximately $190 million of repurchase authorization remaining and our current shares outstanding have been reduced now to just over 211 million shares outstanding.

As Tom mentioned earlier today, we also had a very busy acquisition quarter, closing on four acquisitions for a total investment of about $46 million. We funded the acquisition from our cash balances in December. This brings our total acquisition investment for the full year to more than $65 million in 2012. We're very excited about these new additions and their anticipated positive and accretive contribution to both earnings and cash flow as we look forward in 2013. Lastly, I wanted to mention that during the quarter we did refinance our 2014 notes, effectively extended this maturity to 2020 and opportunistically replacing 7.375% with 4.5% debt.

So now let's look forward to 2013. In 2013, we expect to continue to generate attractive operating cash flow and we remain comfortable with the guidance we provided in October which was $375 million to $425 million of operating cash flow. At the midpoint, this implies growth over 2012 of nearly $20 million and this $20 million growth is accomplished, again, despite the headwind of an expected increase in cash taxes. Again, we expect the recurring cash taxes in 2013 to be in a range of $35 million to $45 million, which was up from just under $17 million of recurring cash taxes paid during 2012.

Our recurring CapEx guidance remains unchanged as well, at $105 million to $115 million, which results in anticipated free cash flow for the full year 2013 to range from $260 million to $320 million. On a per share basis, this equates to $1.20 to $1.48 range for 2013, and that's using a fully diluted weighted average share count of 216 million shares, which is what we are currently modeling for 2013. At the midpoint of this range, it represents a growth of more than 8% over our 2012 free cash flow per share. But if you normalize the cash tax increase that I just described to you, it's actually more like a 17% growth in free cash flow per share.

So, we enter 2013, both financially strong with a solid balance sheet and great liquidity. With our recent refinancing, we continue to have a debt maturity profile with no meaningful debt maturities until April 2015. This profile and favorable leverage metrics position us well to continue to explore value enhancing opportunities for our shareholders in 2013. So, our first priority is to continue to invest in opportunities to grow the Company for the future. You can expect this in 2013 that we will target acquisitions, again, at the appropriate returns. We have a healthier pipeline of profitable growth opportunities now than what we have seen in a long time.

We will also continue to invest in pre-need initiatives, which is not a very capital intensive initiative as we've described in the past. Our backlog of pre-need revenues, which will be recognized sometime in the future, is now $7.4 billion, which adds to the stability and predictability of both our earnings and our cash flow streams. Of course, consistent with our track record, to the extent we have excess cash remaining and conditions are favorable, we will continue to invest in share repurchases. So, in conclusion, we look forward to another successful year in 2013 with anticipated growth of approximately 8%, and both normalized free cash flow and normalized earnings per diluted share at the midpoints of our 2013 guidance.

So with that, Operator, that concludes my and Tom's remarks. We will now like to turn the call open for questions please.

Thank you. We will now begin the question and answer session.

(Operator Instructions )

AJ Rice, UBS.

Hi, everybody. A couple questions if I could ask. On the flurry of deals at the end of the quarter there, can you give us a little more flavor? Maybe you mentioned it, Eric, and I missed it, but what was the revenues added from those deals in aggregate if you have that, and also are these traditional mom and pop type facilities? Can you give us any flavor for what the businesses look like?

Sure, AJ. This is Tom. As Eric mentioned, there is really four deals that closed, all great businesses. It's 11 funeral homes and they generate, on a pro forma basis, probably just over $20 million. They are family-owned businesses. One is in Virginia. There is others that are in Texas, others on the East Coast in Connecticut and New York. We are very, very pleased with, again, the management teams of the business that we have acquired. We really look forward to being able to partner with them to generate great returns on these businesses. So very excited to get them all and in demographic places where we want to be.

My sense of it in chatting in the fourth quarter with you guys was that there was sort of a push among some of these to get done by year-end, but in hearing your comments today, it sounds like the pipeline, even though the whole capital gain year-end stuff is done, there is still a pretty good backlog going into the new year as well?

Really appears to be, AJ. I think it's a different level. Anybody that was going to get it done in the next six to nine months probably hurried to get it done by the end of the year, but the pipeline is robust. There's probably not a lot of activity that's going to close in the first quarter, but we are very active in getting out and talking with people and reviewing financial statements. We see a robust pipeline as we look forward into 2013 and even into '14.

Okay. Just if I could get -- again, I was trying to write fast. If I missed something you said on this legal defense number of $6.6 million, forgive me. Can you give us a little more background on that? Is this a new level or was there a run rate of this that you've been incurring that you just haven't been breaking out and now you are breaking it out? Just a little more background on what's going on with that.

Well, we incurred it in the quarter and its primarily related to disputed legal defense costs. Also some minor legal settlements that are kind of all bundled together. We have ongoing legal fees and settlements, AJ, as you know. In a particular instance, we are dealing with our insurance providers for recovery of legal fees paid. We tend to have a deductible. Generally, once you reach a deductible, insurance companies provide fees coverage for those fees. This is a case where that's not occurring.

I'm hesitant because lawyers are dealing with this and I really don't want to get into the specifics of any case or settlement because, again, the settlements are confidential to protect the parties and legal counsel advised us not to disclose specific legal fees incurred on matters. I want to leave it general. I tell you, it's a cumulative number of a number of cases. Some are related but not all one case.

AJ, just to add to that, what really differentiated this is the fact that we believe they are insurable costs and they are being disputed. So we broke it out what we hope to see in G&A and what we hope to see is a credit come through when we receive payment as we work through this with insurance companies.

So the dispute is not with he lawyers over the amount but the dispute is with the insurance companies as to whether --

That's right. What separates this is dispute with our insurance companies is what we meant to say that we hope will be reimbursed.

Okay. And then maybe a last one for now. You made a comment that the flow didn't really -- I think you said didn't really impact too much in the fourth quarter but has had some impact in the first quarter. I know in previous times where we've had a really robust flu season that there is actually tended to be a little bit of a ripple effect that goes on for a few quarters. It doesn't sound you're, in terms of -- I don't know whether it affects the immune systems of elderly people or what it does, but it seems like last time we had a big flu season there was -- it carried over for a couple quarters. You are not baking anything like that into your guidance, doesn't sound like. Any comment about previous experiences?

Yes, AJ. First of all, I would defer to you, the expert on flu. I would ask you that question. We did see solid results in the fourth quarter on a comparable growth basis. We don't believe there's much of an impact of flu at all. We definitely are seeing a flu impact in January results, and you are right. I think, again, there has been different trends as history has shown us.

All we're saying is from our modeling perspective, we are not going to get out ahead of ourselves. We are going to maintain what we thought. Again, there could be some upside to surprise us, of course, but we do think that while you may see a robust first-quarter, you could begin to see that taking case volume out of Q2 and three and four. That's the way we are looking at it now, but we are not in the prediction business either. I will leave it at that.

All right. Thanks a lot.

Okay.

Thank you. Clint Fendley, Davenport.

Thank you. Good morning, everyone. First question on the pre-need cemetery. Another quarter here of very impressive results, and I'm just wondering how much of this reflects possibly a change in your sales efforts versus very possibly strong demographic trends that you are beginning to sell into. I'd like to maybe just get a better understanding of how sustainable these results might be over a longer period of time.

Sure, Clint. What you've seen in the last few years, again, in 2011, we grew pre-need cemetery about 10%, 12% in 2012. We are modeling you guys to high single digits because, again, as the base gets bigger, it just gets harder and harder. But I will tell you this, I do believe that the demographic impact is having an influence. As we've mentioned before, I believe the average pre-need cemetery sale customer is 62 to 63 years old. We know there is more and more of those folks every day, because the baby boomer's now at the top of the range are going to be 67 this year. So larger pool of people to sell to is clearly having an impact.

I also would have to say, and give credit to our sales and operations leadership and what they've been able to accomplish in developing sales managers and developing sales folks and generating leads. Lastly, also, I think what you saw the push in the fourth quarter. I think there's a little more emphasis here. That is, if you remember in the third quarter, we finished a lot of big projects. Recall, we recognized some revenue related to projects that have been constructed.

It's my opinion that when you've got constructed inventory that people can see, they are more excited about it. You are getting more people out there to see the property itself. A lot of times when you see this kind of surge in construction, you will get a little bit of the wind at your back as it relates to generating sales growth. So it's hard to bifurcate how much is what, but all three of those things are factors into why it's growing, and it's our belief that we can continue to grow it for all of those reasons. It just gets harder because as the mountain gets bigger, it's just harder to move it.

Thanks. That's very helpful. I wondered also, just switching over to Neptune. I wondered if you had possibly a general update there, how you are feeling about that business as we look forward to the coming year.

Yes, as I mentioned before, when we first partnered with Neptune, probably a little bit of growing pains coming out of the gate. I will tell you over the last few quarters, we've been very excited with the performance. One of the things I think was difficult out of the gate is we are growing faster than we thought. We are opening new offices. And when you open new offices, there's going to be challenges in transition and opening up and getting effectiveness on the ground.

We are seeing that effectiveness in the new offices. We are ahead of pro forma as it relates to getting out there. I'm also pleased because of the way that we have been able to continue to grow it. We anticipated 2013 that we will probably open an additional eight offices in new cities, so the momentum is solid and exciting as we think about Neptune.

Excellent. Last question here. I understand your comments earlier on the volumes and not wanting to get ahead of yourselves. Just wondered if you had an expectation of the strong volumes that you've seen in January would likely carry over to February -- into February? Or, do you think all we've really seen is may be just earlier than usual flu season here?

Well, I think it's more severe, no doubt about it. But I do think we saw, if you track the flu index, it's beginning to trickle back down as you get into early February, but I think it's too early to tell. So it's still probably having an impact, but surely not the impact we saw in January. It was about as big an impact as I've ever seen in my business career.

Got it. Thank you guys, and congrat's on a great quarter.

Thank you. Bob Willoughby, Bank of America.

Tom or Eric, you've touched on a lot of the positives on the fourth quarter, a lot of trends that went your way. A little surprise -- the guidance boost a couple pennies on the high end of range. The driver there, it's not the death rate. It doesn't seem like you have much in share repurchase's in the numbers. Is it simply just an administrative expense line item or the debt refinancing that is getting us to that higher range? Have you assumed any aggressive assumption elsewhere?

No, I think the big drivers are cemetery production. At the end of the day, Bob, we had such a good fourth quarter and now you go back and say, can we grow at the same percentage rate as we thought we were before? We are saying yes. Now you are growing off that bigger base. That's really the trajectory it's taking the number up. Other than that, I think everything is pretty much what we thought it was.

I would agree. You are basically taking the $0.02 that we exceeded our internal expectations during the quarter and pushing it through into the guidance. As Tom is saying, you can grow off of that then. And then holding the cash flow neutral with the guidance we gave because of the working capital movement toward installment sales that we've been talking about. So same relationship really as we talked to you about in October, Bob.

And you said, I think, 216 million shares outstanding this year. That reflects really no activity from the fourth quarter close, is that --

211 million shares outstanding, Bob. 216 is the diluted number that we were modeling with. The answer to your question is yes, because what I said in the remarks was that we used our cash balance to go ahead and do the acquisitions during the month of December. And so we are -- in January we have been building that cash balance back up is the way I would say it. But once we get up there, then it would be the standard strategy that I described before where you would say acquisitions to grow the Company at the appropriate returns and share repurchase's will be in that mix, consistent with our track record.

Okay. And you referenced the $65 million deal spend in the flurry of activity in the fourth quarter. Is that a reasonable expectation for the year? Another $65 million, or would it be somewhat down from that based on the higher fourth-quarter?

I'd say it's reasonable, Bob. It really just depends. It's hard to predict when they come and the size of what comes, but I'd say that's within the realm of our expectations.

Okay. Great. Thank you very much.

Thank you.

(Operator Instructions )

Duncan Brown, Wells Fargo.

Hi, good morning. Talking about more pre-need cemetery being done on an installment basis. With some of the cash still to come, how do you all think about the risk of customers not paying future installments? Is there any sort of a metric that you can provide? What percentages don't pay the full amount after you've already signed them up for a contract?

We look at cancellation reserve, and that's a great point, Duncan. I want to make the point very clear that we look at the quality of these sales when you see a mix shift towards installment. We are very clearly continuing to see good quality sales. What you ultimately look for is a cancellation rate or a change in your cancellation rate. We have looked at that during 2012 as we have seen this shift, and we have not seen a deterioration in that cancellation rate, which is great news. That's why, again, we continue to drive community service sales the way we are doing profitable as they are.

Duncan, to get at the other part of your question, we have seen paid in full type contracts go -- I'm estimating here -- let's say 40% of our contracts a few years ago were paid all up-front, and now that is shifting down into the 30s and maybe high 20s. More people financing. More people financing over long-term. We are seeing people shift from three and four year paper into five-year paper.

A lot of that is a function of the consumer. As we are growing, think about a cemetery and the radius around it. You are beginning to sell the people that are further and further away, and Eric referred to community service. Think of that as outside sales versus inside sales. You are getting to people that weren't really thinking about cemetery property, but now they think it's a good idea. They are more likely to finance.

Eric is right. We are looking at this. We are very cognizant of collect-ability. But compared to other industries, think about it. If you don't pay for your cemetery property, it's not too hard to repossess. We are sitting right there. It's not a car we have to send somebody to get. I think from a risk perspective, we feel very comfortable about where we're headed, what we're doing, and the cash will follow.

That's helpful and just a follow on that, for those that do cancel, let's say they cancel at year three, are there any payments -- back payments that you would owe them from year one and two, or is it just a straight cancellation?

In the property area that we are describing, it would be a straight cancellation. When you get into merchandise and service, now you are getting into trusting rules and it's by state and such so it can get a little bit more complex. The answer to what we've been talking about was pre-need cemetery property, so the answer is it would be just a straight cancellation.

Great. Thank you. You highlighted two sort of one-time items, the $4 million and the 6.6 related to legal costs. I know you can't talk in too much detail on the legal front, but how should we think about those two items in 2013? Are those unique to Q4? I know you had a little bit on the outsource provider and accounting in Q3. Is that primarily behind us, or what should we think about those one times?

That's correct. The transition cost related to the movement of the accounting providers as well as the payable and purchase order system are, for the most part, vastly behind us. In terms of legal fees, we will always be the size of our company have legal fees going forward. This, again, was a little bit unusual in terms of the way it was -- we were disputing it related to insurance companies.

I think the way to think about those legal fees, like Eric said, there's some possibility we're going to get reimbursed fees. The other way to think about it, as you think about what it will cost to defend some of these cases that are being segregated out, I think we -- I think the trend would say it's not going to be as much as you saw this year.

Okay. Perfect. Last one for me. Last quarter I think you were asked about the possibilities of looking at a non-traditional REIT. I think you said you were forming your opinion and obviously looking for anything for shareholder value. Can you provide any update on that front for us?

What we've concluded is we would have to split the Company in two companies. We'd have to do a property company and an operating company. It would be a complex transaction, potentially taxable, potentially not taxable. It just depends on how you could pull it off. Ultimately, we think the value is there today with the company that we have, specifically the interactions on our combination facilities, which is 57% of our cemeteries or that like have a funeral home on top of it. And there is tremendous synergies for us and tremendous one-stop shopping synergies and enjoyment that the customer has as well.

We also have, as we all know, an organic play coming down the road. Whether that's 5 years, 10 years, or whatever you think it is in terms of growth from the baby boomer generation affecting this industry. Of course, you have further consolidation in this industry, as we've proven to you in the fourth quarter and we'll continue through acquisitions. So there's a lot of things that are going our way right now which, in our opinion, outweigh the fact that we believe and our advisors believe, our experts believe that we would have to split the Company in two to transition over to the REIT structure. Not saying never but not in the near future is the way I would describe it.

Great. Thanks for all the color.

Thank you. I will now turn the call back to SCI management for closing remarks.

Thank you, again, everyone for being on the call today. We look forward to talking to you in April with our first-quarter results. Have a great day.

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