Service Corporation International (SCI) Earnings Call Transcript & Summary

Good morning, everyone. Thanks for attending. Yes, Aaron Foley have been with SCI for about 18 years. Currently, the Treasurer at SCI. A little bit about kind of what we do for people who may be newer to the story of SCI is what we term a death care company, the largest company in this space, in the U.S., North America. We've got about 2,000 locations, 1,500 funeral homes about 500 cemeteries across the U.S. and Canada. I'd say about 7% or so of our revenue, 6%, 7% is based -- I'm sorry, in Canada. And we have been really following the same strategy over the last about -- since 2004. It's really kind of deploying capital, executing on our business managing our footprint but essentially followed or targeted an 8% to 12% earnings growth framework over that time frame. And really, if you look from 2004 to 2019, we've really been able to execute on that and have achieved really closer to 14.5% kind of compounded earnings over that time. So the group -- the company itself was really founded by a gentleman, Mr. Walter Bob Walter. And he actually took over his father's funeral home. And what he found was executing on a clustering strategy, really leveraging your scale, you're able to really aim the operating leverage for your business. So the average funeral home in the U.S. does maybe 100 services a year, meaning the funeral home is working 1 out of every 4 days. And so if you can buy 3 additional funeral homes, then you're able to make sure that, that general director is optimize managing their time, you're able to manage horses and fewer horses and do that. But that's really how we've grown and really focusing in on those kind of urban areas that we've operated in. Now if you noticed, I said up until 2019, obviously, in 2020, there was a rent kind of thrown into the works when COVID really impacted the world. And we saw periods of tremendous growth in our volume during that time frame. The concept of pull forward kind of came to bear where all these debts that have been accelerated into 2020, 2021 and so forth really had to come from somewhere. And so we're now in this period that -- the volumes are subsiding as the COVID experience is waning. And I think we've seen that come backwards and kind of normalize. I think we're that point to some degree. I think that we're also seeing some other changes that I'm sure we'll get into later around a smaller business, that piece of business that we have at CI Direct. We've experienced last 5 years, specifically increasing inflation, increasing interest rates and kind of manage that increasing tax rates during the time as well. But as we're kind of sitting here in 2025, we're really excited to kind of where we stand and really looking forward to 2026 to continue to execute now on a kind of more normalized basis on that 8% to 12% earnings growth rate.

Yes. No, that was perfect thing. touched on already. Anything I step back here, touched on some industry things, America, it's aging. And that's not always benefit for you and you provide services that everyone needs some point in time. Maybe speak to the demographic trends that you're seeing right now? And what are your thoughts on like -- in the short term and the longer term geographically?

Yes. So as I just mentioned, COVID, we've seen kind of subsiding 2022 to '24, it dropped from 6%, 4%, 2.5% decline in volumes over that time. This year, we're actually expecting to slightly down. And so in our minds at this point from here and in the near term, we're in this flattish volume type are. And as we think about the baby boomer demographic, that's obviously a wave that's about to impact or is impacting health care and is going to be impacting us as well. The oldest baby boomers will be turning 80 next year. And in 1946, that's kind of the beginning of that trend and the birth rates over the following 2 to 3 years really took a little bit if time to kind of ramp up. But that's the beginning of the baby boomer. When you look at mortality statistics for people who live to 79, 80 years old, generally expected to live 83, 84 versus kind of the national average of 8 years old or so. And so when you look at the birth cohort of the baby boomers, those who've already passed away and then kind of the immigration that has occurred, it's really kind of made that cohort hole from a domestic perspective. But we expect kind of putting all that together, the demographic will begin hitting us toward the latter part of this decade, 2029 kind of time frame, let's say. And when it starts impacting us, it's not just a kind of a check going up. It's going to be a gradual increase, we believe that probably take us from this flattish volume, maybe up 0.5% to maybe up 1%, 1.5% to 2%. But that trend of growth, we expect that to occur consistently over about 10-year period. So towards latter part of 2030, early part of 2040s until the bolus of that baby boomer cohort kind of comes through the system, stabilizes. There may be a little bit of subsiding at some point in 2040 as we get to the tail end of the baby boomers and then you, of course, got the Gen X after, I guess, coming that also had some good growth trends as well. And so -- that's kind of our near-term perspective, kind of stability, flattishness, this dynamic around COVID actually still exists, but still one of the top causes of death in the U.S. But that being said, the pull-forward dynamic is also kind of embedded into our base as well. And we don't think that those dynamics and shifts are going to cause a big jumps one way or the other really over the near term.

Maybe speak to the shifting of -- preferences towards cremation and then how you're kind of aligning your offerings for that?

Sure. So cremation is a trend that a lot of people when they're new to the story come in and saying, well, this is going to completely destroy -- it's something that is really going to hang the industry. But really when you step back, it's a dynamic and a shift that's been occurring for the last 30 or 40 years. As we sit here today, our core business -- core funeral business has about 57%, 58% cremation mix only. When you look at other Western countries, where cremation mix has also been increasing. You see that, that cremation mix generally seems to stabilize around 75% to 80%. And so we've been in this world now where over the last 20 years, we'd expected 100 to 150 basis points of shift each and every year as we've gone from 30% to almost 60% now. As we get closer to that 75% to 80%, you'd expect that slope to decrease we actually started seeing that really back in 2024. I think we had around 50, 60 basis points of an increase that year. And we were asked, do you expect that this is the new normal. And I think a little too early for us to want to put a stake in the ground. But this year, we've still trended in that range, actually in the second quarter, we were close to 20 basis points, almost flat of shift in cremation. And I think -- I don't think we're ready to say 20 bps, that's probably too low, but 50 to 100 basis points seems about right. And as I mentioned, kind of where we operate, we're in these urban centers A lot of these on the West Coast, particularly have cremation mix is already close to that 75 to 80 basis points. And you're not seeing that much pressure in those geographies as you may be maybe like Alabama and Tennessee and others that have a higher barrel mix. And so that cremation trend again, has been manageable. Effectively, a metric we'd like to put out is about 1% change in cremation mix will equate to about a $15 million, $16 million revenue headwind and about a $13 million EBITDA. And when you're talking about a $1.3 billion, $1.4 billion EBITDA company, it's a hit, but it's a manageable thing. The things that we've been doing over time just to manage that is to just make sure that we're providing the products and services people would like trying to identify new opportunities as well. I think a misnomer as well as if the person wants a cremation doesn't mean they don't want a memorial service. It just means they prefer to be reaming. What you see is America is becoming more secure. We're seeing Americas more transient, and they don't necessarily find as much of a desire to be varied as a result of that. But we still provide memorial services because the family and friends on closure associated with that. And then the final thought I'd impart on that is on the cemetery side, something that we've talked about for a while, but we're really kind of put our shoulder behind , it's really delving into cremation opportunities on the cemetery side. So currently, about 1/4, 20% 1/4 of our unit sales in cemetery are already in the cremation well. And when you think about opportunity and the shift in cremation that we're seeing, how can we capitalize on that -- on the cemetery side. And what we have found to use an analogy is when people would come into cemeteries, they would want to just get a homogenous we've gone and we spent about $160 million in capital now to tier that cemetery to create private estates, all the states, mausoleums, indoor mausoleums, in private mausoleums. So several tiers of inventory. Well, that family may come in wanting to get homogeneous lot, but then they may not be aware of what is out, what the opportunities will be and when -- our sales team is able to show them what these other opportunities are. They've been successful at basically offering up and selling up into those tiering options. The same can be said about what we are expecting is on the cremation side. We think that families may not be aware of the cremation opportunities that exist. We've got these glass-front niches that you can -- we've got column variants. We've got scatter gardens that are available. And if we're able to create the median create the information that both the funeral homes and the cemeteries can use in front of families to say, look, even if you get cremated, these are options for you that rather than just taking the remains, they may say, I'm interested in checking that out and saying what it can go. So we're excited to see how that can maybe play out next year or 2.

Yes. Maybe on touching on the decision about what we're very premerger -- the time of sale are you expecting the sales from this and maybe effective backlog if you will?

Sure. So as in my opening, I mentioned SCI Direct, and SCI Direct is our nonfuneral home aspect of our funeral business. It generates about $200 million of our $4.2 billion of revenue. It's about $200 million of our $2.6 billion in premium production. And so that being said, over the last 2 years, it's taken up even though it's only like 5% or so of our business, it's taken up probably 50% of our Q&A questions and 40% explaining that. But ultimately, what has happened SCI Direct has 3 items that we sell on a premium basis. It's in cremation service itself, an earn kit and then away from home travel protection, meaning, if you're 75 miles away from your home and pass away, your remains will be repatriated back to your home. And so about 8 years ago, California came in and essentially said, look, you've been delivering that earned kit at the time of saying. You've been delivering away from home travel protection, but that's through a third party. And you've been deferring your cremation service. Those 3 parts of that agreement are all from their perspective, collateral to one agreement. And you need to defer it all the time of maturity. And we said, well, we've got this 1986 attorney general opinion saying it is okay doing what we do. And on top of that, we've been audited for the last 30 years and had an issue. And so now this is coming up as an issue. And so we bought it for 6 years. And at the end of the day, he said, look, we want to just kind of get this behind us. We saw a copycat situation pop up in Florida, and we said, look, we want to derisk our business completely. And so now, for the most part, we're deferring that cremation service now as we have been historically now we're also deferring that and earned it. And so instead of providing it at the time of sale and delivering it, we're now also deferring that until the maturity or event of detours. And so it's really a timing perspective, and you're seeing the near-term headwind associated with that business shift occur. But that being said, it's something that we will get back in the future. And you're already seeing that that's growing associated with those deferred earnings come out and you're seeing that pre-need matured pre-need line item for non -- teens. We have 13%, 14% of growth in the third quarter, we expect that kind of growth to occur over the next decade or so as that backlog really builds out and we see that dynamic occur. Now we've been doing this in ways. We've done it over 5 ways or so starting really in mid-last year. And so it's become -- it's more choppy than we would but we wanted to make sure that we were managing the geographies right and making sure that they were ready for the shift. Because another thing that we've done is to kind of to some degree is when we've made these shifts to deferring the earned kit, we've also shifted them from 100% trust selling pre-need back contract to an insurance-backed contract. And we've done that in conjunction with the global -- a new marketing agreement for our insurance business that gives us more favorable economic terms. But in doing so, as we sell insurance contract, we're generating general agency commission. So that's helping offset that decline in earned revenue that we've been seeing. So if you look at our press releases, you'll see non-funeral home pre-need sales revenue. And you've seen kind of some headwinds from that over the past 4 quarters or so. But because of the cadence of these rollouts that has occurred as of the beginning of '25, we were 80% of the way rolled down. Midyear, we're about 95%. And today, we're completely done and have shifted those over. But the headwinds that we've seen this year for the first 3 quarters, we're expecting that to subside substantially in the fourth quarter. And as we look forward to 2026, as Tom mentioned on the call, we're expecting some nice growth and strength going forward on that front.

Just remind credit question for -- maybe shifting gears a little bit with your larger pre-need sales, we've seen ship towards cremation, how what have you be seeing in these larger sales?

So when you think about cemetery pre-need production, we bifurcated between a core sale and a large sale, what we -- is what we defined is $80,000 or above. It's generally around 12% to 14% of our total cemetery pre-need production. And when you think about the numbers backing sales, we're probably talking about something like 600 to 800 contracts that we sell in any given year. And these large sales can take weeks, months, if not quarters, kind of matriculate. Families coming in and picking up exactly where and the cemetery they want to be working with our construction department to design exactly what they're looking for, if they're looking for private family model. These can be sometime multiple million dollar type sales that have occurred. And so they want to make sure that they're doing exactly what they want. They can be very choppy in nature. And we saw in 2024, the first and fourth quarter were very strong from a large sale perspective. The second and third quarter were a little bit lighter from a large sale but it continues to be a source of growth for us. We think that it's going to be stable, if not growing over time. Obviously, when you think about cemetery pre-need sales, it's obviously a discretionary purchase by the consumer, so the consumer sentiment and can have an impact on that. But what also I'd point to is our customer that we are serving is the middle, upper middle and upper income consumer particularly on that cemetery front. And so when you step back and you look at that core business, which is 85% to 90% from the cemetery front, really, we've not seen weakness on that consumer front. It's interesting because you're hearing everywhere that the consumer is slowing down, but I believe that that's more of a component of that entry level or lower consumer because we saw in the second quarter growth in both our contract velocity and the average. And in the third quarter, we grew premium production and -- about 1/3 of that came from large sales. The other 2/3 were from our core business and the predominance of that growth was from contract sales coming through. So we are not seeing yet dynamic that people are talking about as it relates to weakness in consumer. On the large -- back to the large sales front, we talk about, okay, what is driving that? What's going to drive that up or down we've tried to correlate it with the stockpiles, the financial markets. And back in 2022 when it was the worst equity market when the worst combined equity and bond market in almost a century, our large sales were up. Pretty nicely, people have also tried to correlate it to real estate in each of those markets. And I haven't seen a huge correlation there. I just -- I think what happens is people get to a certain age and they want to get these end-of-life plans in order and depending what their balance sheets look like at that time, I think they're to make a transaction and get that in place.

Okay. You talk to the -- in consumer making a step back to the cremations. Is that mostly amid the lower peer consumer or up there?

I don't think it necessarily is. So this SCI Direct business that we've talked about, that's what we call it a price-sensitive consumer, but I don't think it's necessarily all for instance. I think maybe a good chunk of it is. But I think it's also people who just don't value the service aspect that they truly just want to have a cremation, get it completed and maybe the family will have some event somewhere else, sometime later, go to outdoor area and have look at a small outdoor event or do something like that. But you -- so it's not necessary. You can have a cremation service of one of our funeral homes that has a full memorial service, but it can be tens of thousands of dollars, depending on what type of catering do people want. How much of the facilities family would like to use. Do they want the body present for the service, but then a cremation to occur later. And so there are a lot of different dynamics and aspects to a cremation that can occur. But to your point, there's definitely an aspect and there's a component of our price-sensitive consumer that does prefer. We do customer segmentation studies for our funeral business. We've done about 3 of them over the last 15 years. Just to try to get a sense for how the shifts and trends for these consumers are occurring and making sure that as we see these trends occur, we are able to react and make sure that we're doing everything that we can to protect that consumer and do what we can to ensure that they value products and services. And so when the time comes, if they need us, their families will want to come to us to say, look, I've been to a service at your facility or before -- fantastic job. I'd like something for one of my family...

Okay. Maybe sticking on that line, Bob. Have you seen any maybe trade downs in service selection in the middle to lower to the consumer?

It's interesting on the funeral side. We've not ever really seen that. And using the great financial crisis as a litmus does, we've really kind of been constrained to inflationary type price increases. And what you find is even in a situation like that where people are getting hit, one, people don't really want to spend down on mother or fat they go through this transaction once in their life, and they want to make sure that they're remembered, remembered in the way that they want them to be. Another aspect is out of every 10 services that we do or have a free contract back in the month. And so those are already in place and kind of protected. The other 6 that come to fruition. They've got usually some type of assets that they've got other in sets that may not be breed in transacting that they've got available as well. And so we've really not seen that come to bear. Where we did see that dynamic occur or impact us was, again, back in the '08, '09 kind of time frame was our cemetery premium business. Obviously, as we've mentioned, that's kind of discretionary in nature, but it was one of the latter aspects in the latter part of the great financial that we saw that finally get impacting the last 2 quarters, let's say, 2008, we may have seen teen type declines in cemetery production. But as we move forward to March, April following year, you saw that consumer come back very quickly. And so in 2008, I think our symmetry premium was down 7%. 2009, it was up 7%. And so again, I think that people want to get this transaction completed and behind them. Obviously, if there's been a shock in the system, they may not be thinking the first thing they want to do is to get that in order. But once they feel more confident, you see that they come back from the sidelines.

Maybe jumping years a bit on the consolidation opportunity. 34% of the market operators consolidate you're at 17% of the revenue feels like there's quite the opportunity here. How would you say the opportunity is looking for you guys right now for the quarter?

Yes. So that market share is based on revenue in the U.S. and Canada. I think we've got a great pipeline. Deals that are either under contract under LOI or evaluating those. We've got a target spend of about $75 million to $125 million. We have a team that on corporate development that their job is to go out and cultivate relationships with targets that we would like to kind of fill out our footprint. And so I think the tuck-in type acquisitions that we do a great job at completing are going to be there. There's nothing at this point that makes me think we're going to be, particularly for 2005 outside of that range. But of course, we'd love to see more 2024. We were about $185 million of acquisitions, and that was primarily made up of 2 chunkier deals that came through. And those deals are out there. But what you find is these are very generational families and they're pretty strong as well. I mean the cash flow strength is just very consistent coming through. And unless you have a family whose subsequent generation -- don't really want to be part of the business anymore. If you have the kind of owner of the business is ready to retire, we kind of have to wait for that experience because what we target is a mid-teen-type on our acquisitions. And back in the '90s, we didn't really talk about this, but back in the '90s, the entire industry is just accretive EPS accretive roll-up type strategy. People were paying 15, 20x type EBITDA multiples just to get people off with them. That's the only way really to get them to sell until they're -- outside of fair pricing. And so we learned from that, realize that focus on return on invested capital end maintaining the health of your company. But I think that us, as well as the industry, has stayed pretty disciplined in that regard. We do try to make sure that, look, we want to be the preferred acquirer that's out there. And when I think about that 17% to 18% by revenue market share, where we are today and think about our footprint, I think that a good gut feel probably around 25% to 30% would be a good target to be yet to be in those urban areas that we want to be in to make sure that we're taking advantage of our scale has opportunities. But it will take some time to get there. But from a chunkier acquisition type perspective, the bigger consolidators that are out there, it's going to be a difficult play to follow, if you will, because a lot of the current operators, Carriage, Parkland North Star, they have been born from our previous FTC divestitures. They've been born from just assets that we've decided to hive off that we didn't want. And so as we think about a consolidation opportunity and kind of build out our DCF model to evaluate at the end of the day -- IRR we can model in synergies, but we have to get comfortable with whatever amount of EBITDA we would have to divest. And under the previous administration, we may have had to divest, let's say, just example, 55% of that EBITDA just make sure to get FTC clearance under the current administration, I don't think that goes to 0. I think it's closer to maybe 45%, let's say, 40%, 45%. But again, you've got put that 3-year algorithm and see what your IRR comes back with. And I don't think that there are a lot of good opportunities in the U.S. on that front. But in Canada, there is a nice opportunity up there. It's a private company called Arbor Memorial, and we would love to acquire Arbor. It's a family run business up there. It's about the same size as ours. But again, I think we'll be patient and cultivate that relationship. And when that family is ready to do something, hopefully -- they'll -- we're going to get acquired.

Maybe in with this tuck-in discussion. Maybe talk to the economies of scale you get. And then what would make you acquire choices operators?

Sure. So from an economy of scale, when we acquire someone, switch to our casket agreement we can get a switch to our marker agreement. And we're able to buy granite markers gas gets earned cheaper than pretty much any -- our scale and our teams that kind of manage that business. We've obviously also got a back office that we're able to really synergize that to -- from a trust processing spectrally tuck those in to our current businesses or operations. So from a back office perspective, we've got healthy economies of scale, even the backlog as it relates to this insurance agreement with the economics associated with that new marketing agreement able to, because of our size, which drive better economics there. And then on the trust funds, we've got about $7 billion of trust funds that, again, we're able to pull those assets work with investment managers to create common trust funds, separately managed accounts and other vehicles that will help reduce the costs associated with them. So those are examples of economies of scale that able to generate. Now as it relates to an acquirer of choice because what you find is what you will find is former owners are our biggest or and kind of proponents to other owners that are out there say, look, SCI is a great acquirer. And what we do is, even if it's a spectacular facility that we're acquiring, we'll find some way to deploy capital to kind of spruce it up to do something to -- because at the end of the day, that owner's name stays on the side of the wall. And so we want them to be proud to have sold to that. Additionally, we give the owner's flexibility look, if you want to stay working full time, you can do that. If you want to come full time, you can do that. And if you want to pack up and go to Florida, you can do that as well. So given the flexibility to do that, we don't come in and just lay off a bunch of people to generate those synergies, the back-office type synergies that I was talking about. We allow natural attrition to occur to kind of rightsize that business model. And so we -- currently, our -- we generally pay about 8 to 10x EBITDA for our acquisitions. I'd say that we get about turn half of synergies on top of that. But because of that dynamic I was just talking about, it may take 12 to 18 months to kind of get to where those levels are and expectations. But we've also got a former owner's counsel that gets together twice a year, but they all talk about opportunities, their colleagues and friends. We even have owners on that owners counsel who aren't even from companies we've acquired. And so it just -- it really helps to that we're helping to build a community. But at the end of the day, we hope that they're proud to be part of.

We touched on the M&A growth now. Maybe shifting gears a bit with growth 8% to 12% goal you guys set out there, you -- 5% to 7% base business growth is in there, what the driver is going to be?

Sure. So this 8% to 12% that I mentioned back from [ '24 ] as we look to 2026 and really beyond until we -- the baby boomer demographics start impacting us, which should help boost it even more but that 8% to 12%, as you mentioned, is 5% to 7% base business. And the pieces and parts of that flattish volume on the funeral side, low single-digit growth from average. That should drive low single-digit growth in the top line. We do have a big fixed cost structure, though. And so that's going to grow. We believe that inflationary type level, 2.5% or so. And then we're going to net positive margin dollars, but margin percentage is probably going to stay stable. On the cemetery side, target mid-single-digit growth in cemetery pre-need sales. When you take into account the recognition rate, which is generally around 95% of that production that we've got impacts the top line, so a low- to mid-single-digit growth in top line with that fixed cost growth is going to help drive not only margin dollar growth, but maybe 40% to 70% -- 70 basis points of margin expansion. It's really that algorithm that helps drive that 5% to 7%. And then, of course, the remaining 3% to 5% is going to be driven by share that we've been effective at reducing the shares outstanding from 2004 -- $40 million. We're now $140 million today. We've also, of course, the $100 million of acquisition spend that we drive to. And then we incur about another $80 million or so of growth capital, whether it be building new cemeteries or new funeral homes to help fill all our footprint in that regard.

Maybe just digging into some of the revenue line a little bit further, pre-need -- some prior customer computer customers. Can you give us a color of the which the preferred age preference in transient...

Yes. Usually, the first kind of touch point that a customer has with our industry is when a loved one has passed away whether a mother or father or someone else, and they get on the cemetery side interred. And then the family has to make a decision. Do they want to be entered around the family. So from a proximity perspective or what do they want to do? And what you find is people will generally go ahead and kind of walk in that property sale, the property sale, and that's what we find close to the early 60s when that occurred. On the funeral side is generally the early 70s when families come in and say, look, I want to be either buried. I want a celebration of life where everyone comes in and parties and we all drink old fashion or do something like that, just get something in place in that regard? Or do I want something more somber, just more low key and more traditional. And that is the early 70s kind of getting that in place. They don't want their families to be burdened with that decision. It's not necessarily a financial decision that they're making. It's really more of -- making sure that, that plan is in place and they know that their families don't have to deal with that when they pass. And then the early 80s is usually the time of that occurs.

Okay. And then maybe just shifting gears over to SCI Direct the change in selling trust on the treaty product, the insurance for the premium products. What was the main driver force there?

It was really that business shift that we've done, where we're now deferring the earned kits. That's a big chunk of it. But on top of that, this marketing agreement that we entered into in July of 2024. We'd really been with the previous insurance companies 25, 30 years. We own them really at some point and sold them in the late '90s, early 2000 from a liquidity perspective. But at the end of the day, in late '23, early '24 we start an RFP process to evaluate that marketing agreement. And I think we kind of hit when the iron is hot because interest rates were kind of close to their zenith at that point. And insurance companies obviously have to manage 2 interest rates to a certain degree because they're required under regulatory requirements to maintain a very significant portion of fixed income to back that up. And so as that interest rate was higher, the size of the economic pie was also higher. And so the incumbent insurance company did put forth RFP response that provided for higher economics than what we were getting. But the current provider just provided for a lot more economic. And it's basically taking commission percentage of 26%, 27%, up to closer to 35%, 36%. And when you step back at really no cost to it. And so you've seen a big step up on the core business from July '24, really June '25 until we lap that associated with that increase in general agency commission. But having that percentage, when you kind of step back and you want to do a trust contract or do you want to do an insurance contract. The insurance contract at 35%, 36% makes that NPV a lot easier to say, yes, it makes more sense shift toward an insurance contract versus trust. And so those 2 dynamics really were the deferral of the earned kit and the better economics on the revenue helped push forward that shift. And on the funeral side or on the core side, I'm sorry, we've kind of already been at that 70% basically in 30% is trust. We've tried to maximize that percentage of insurance. The 30% just for your benefit, is really made up of terminal imminent contracts, people who were writing pre-needs for who are expected to pass away because they're in hospices over the next month or so. The insurance company really doesn't want to get those into their backlog and then have to ship them out. And there's also a premium tax associated with it. So we try to incentivize counselors that if they expect this to occur that they ship to a trust terminal in a contract. And then there is some state regulation in New York, for example, who can't sell insurance, we can only sell a trust product. And so those are the dynamics there that have driven that.

Okay. Then maybe digging a little bit deeper partnership with or make you gave the last that partnership here? Are there any points you'd like to highlight for the benefits? Any headwinds you can -- to the partner?

Yes. I would say -- they're definitely new products that the core consumer had to wrap their heads around. And so that created some volatility on the SCI Direct side because they've been 100% trough, we've got to get those counselors insurance licenses, which has created a lot more headache, I think, than we had anticipated when we rolled this out. Additionally -- and Tom mentioned this on the call, on the core, when we made this shift in the core business, we decided to completely not sell what we term a flex product. And essentially, what that is, is when you buy an insurance product, you generally expect covered that if it's over a 5-year payment plan if you pass in year 2, let's say, insurance will kick in and cover the remainder of that contract. Now what comes with that is a premium, an insurance premium that the consumer pays over the life of that contract as well. While there was another contract available called flex product. And it's an insurance product, but there's no insurance really benefit to it. So if you pass in year 2 of 5, the family, really, unfortunately, has to come out of pocket for the rest. And when we did a but it has no insurance premium. And so the counselor didn't have to sell that insurance premium and the benefit of it. So when we took away that flex product. what we found is, one, there was a big chunk of counsel that's pretty much all we -- so it was a flex product. And so that made it a lot more difficult for them to wrap their heads around and do -- but then there was also even on the core there is a middle-income consumer may not want that insurance benefit. And so we've had to pivot a little bit in that regard because we have seen some weakness on the production front. And really focused on our West Coast markets shift to the flex side product to protect that reduction because at the end of the day, even though we're selling that flex product and I didn't mention this, but we get a lower general agency commission. We'd rather that consumer be in our backlog secured as a future market share, if you will, rather than risk of the shift into another provider.

It was great, Aaron, giving any on comments I'd like to make -- questions.

Now this has been great, Tom. Really appreciate the conversations. Our first having you host as a fireside chat. Really appreciate seeing you all as well and at the conference as well.

Thank you.

Thank you very much.