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Service Corporation International (NYSE:SCI)
Q4 2019 Earnings Call
Feb 18, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good day, and welcome to the Service Corporation International fourth-quarter 2019 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.

Allie O'Connor -- Director of Financial Reporting

Good morning. This is Allie O'Connor, director of financial reporting. Debbie is off today, so I have the honor of going over safe harbor language with you before we begin with prepared remarks about the quarter from Tom and Eric. The comments made by our management team today will include statements that are not historical and are forward-looking.

These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. In today's comments, we may also refer to certain non-GAAP measurements such as adjusted EPS, adjusted operating cash flow and free cash flow. A reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed this morning.

With that, I will now turn the call over to Tom Ryan, SCI's chairman and CEO.

Tom Ryan -- Chairman and Chief Executive Officer

Thanks, Allie, and thank you, everyone, for joining us on the call this morning. Today, as usual, I'll begin my remarks with a high-level overview of the quarter, followed by a more detailed look at our funeral and cemetery operations, and then finally comment on our outlook for 2020. So let's begin with an overview of the quarter. As you saw in our press release yesterday, we finished the year strong, reporting an impressive $0.06 or 11% increase in adjusted earnings per share over the prior year quarter.

This was despite a $0.03 headwind from a higher effective tax rate. A solid performance in our funeral segment, coupled with lower general and administrative expenses were the primary drivers that led to a $0.60 of adjusted earnings per share. On the cash flow front, we generated almost $157 million of adjusted operating cash flow or a 4.4% decrease over the prior year quarter as higher cash interest and cash tax payments more than offset our increase in operating results. Eric will provide more details in his remarks related to cash flow.

When comparing these results to the prior year quarter, there are a couple of things I would highlight. First, our core funeral locations were hitting it on all cylinders this quarter as we saw an increase in comparable funeral services performed and improved sales average and a more favorable cremation mix change as compared to the previous three quarters of 2019, all of which led to a 10% increase in comparable funeral operating profit. In our cemetery segment, while the reported revenues were somewhat muted due to the timing of completed construction projects as well as sales velocity into unconstructed projects in the fourth quarter, our comparable pre-need sales production returned to the mid-single-digit growth rate that we're used to seeing, increasing 5.2% or over $12 million compared to the prior year quarter. Finally, while not a major influence on our current earnings, we grew pre-need funeral sales production over 12% for the quarter, enhancing the value of our future results by continuing to grow the pre-need backlog and capture future market share.

Now shifting to some more detail around the strong funeral performance for the quarter. From a top line perspective, we had a very solid quarter. Comparable funeral revenue increased more than $23 million or 5% compared to the same period last year. A little over half or $13 million of this top line growth is attributable to an increase in our core funeral home revenue as we saw healthy increases in both services performed and average revenue per service.

Core comparable services performed increased 1.3% compared to the same period last year. Additionally, we are very pleased to report a 2% increase in the core funeral pricing average revenue per case, I'm sorry, having lapped some of the strategic cremation pricing adjustments made during 2018 in certain markets, we were able to achieve 2.7% organic pricing growth at the customer level, which was partially offset by 130 basis point cremation rate mix shift. This mix shift has continued to taper down throughout the year as we anticipated, and we believe that you should see the cremation mix shift settle back in the 100 to 150 basis point range for 2020. The remaining increase in revenue was driven by our non-funeral home channel or SCI Direct, which reported strong increases in both contracts sold and average revenue per contract, resulting in recognized pre-need revenue growth of $7.8 million or almost 30%.

Recall, this represents products sold on a pre-need basis, primarily by SCI Direct, that are delivered at the time of sale, resulting in immediate revenue recognition. Last year, you may recall that during the fourth quarter, we reported lower results as SCI Direct was transitioning preplanning advisors from independent contractor status to SCI employee status, which created a temporary slowdown in sales production. I think it is safe to say that we are back and better than we've ever been. Thank you to Tim and the team for their extraordinary leadership during this transition.

We are very happy to have our counselors as official members of the SCI family. Shifting to funeral profit. On the $23 million revenue growth I just described, we generated an increase in operating profit of more than $9 million and operating margins increased 100 basis points to 21.1%. Selling costs were a little higher year-over-year, partially because we grew pre-need funeral sales production over 12% and partially with the new SCI Direct sales compensation structure which includes a base pay component, we are deferring a smaller percentage of the overall sales compensation.

Speaking of pre-need funeral sales, this was a true highlight of the quarter growing sales production $24 million or over 12%. This increase was fueled by double-digit growth in the number of contracts written for both our core locations and our SCI Direct channel. For the full year, we grew pre-need funeral sales production just under 5%, which is at the top end of our guidance range of 3% to 5%. As we move into 2020, we will continue to invest in the development of our sales organization with best-in-class tools and technologies.

Now turning to cemetery operations. During the fourth quarter, total comparable cemetery revenue increased nearly $2 million or about 0.5%. Core cemetery revenue was essentially flat on both an atneed and a pre-need basis. This was despite our solid pre-need sales performance, where we grew comparable pre-need cemetery sales $12.2 million or 5.2%.

Historically, we've experienced pre-need cemetery revenue recognition rates well above 100% in the fourth quarter, as previous quarter sales of unconstructed property were recognized as projects were completed late in the year. While some of that did occur this fourth quarter, not as much did. And additionally, we sold a higher proportion of unconstructed property sales during this fourth quarter. While our pre-need sales production growth did not benefit the profit line this quarter, we will receive that benefit during 2020 when the projects are constructed.

From a profit perspective, comparable cemetery gross profit decreased $3.5 million, and margins dropped 120 basis points to 32.5%, primarily based on the flat cemetery revenue for the quarter caused by the lower recognition rates, coupled with anticipated inflationary cost increases incurred during the fourth quarter. Now let's shift to discussion about 2020. Our guidance for adjusted earnings per share in 2020 is $1.96 to $2.16 per share. The midpoint of that range or $2.06 represents an approximate 8.4% increase over 2019 earnings per share.

This projected earnings per share increase is absorbing a higher adjusted effective tax rate of approximately 24% compared to the 22% rate we reported in 2019, which we estimate to be approximately a $0.05 earnings per share headwind. Normalizing for the tax rate, the midpoint of our guidance, from an operational perspective, is projecting earnings-per-share growth more toward the upper range of our 8% to 12% annual earnings-per-share growth target. We believe this increase will come, as it has historically, with the organic businesses contributing roughly 4% to 6% growth in earnings per share and contributions from recently acquired businesses as well as the effect of the 2019 and 2020 share buybacks contributing an additional 4% to 6% of earnings-per-share growth. Allow me to briefly discuss the underlying assumptions regarding the base business growth for 2020.

First, core funeral revenues are anticipated to grow in the 1% to 2% range. We expect both funeral services performed and sales averages to be flat to slightly up for the year, with the first two quarters reflecting easier comparisons relative to the back half. We expect SCI Direct to grow their revenues in the mid- to high single digits, expanding their operating profit percentage and growing profits by $3 million to $5 million. We anticipate total pre-need funeral sales production to grow in the 3% to 5% range for the year.

Next, after a challenging 2019, we would expect cemetery sales production and cemetery operating revenues to return to growth in the mid-single-digit percentage range, delivering impressive cemetery operating profit growth, with margins exceeding 30% for the year. From a capital and strategic perspective, we will be focusing on staying relevant with consumers, with an emphasis on the growing trends in our industry related to celebration, simplicity and transparency. Our ability to deliver on these, both in personal interactions as well as online, to create a seamless and engaging customer experience will only further deepen the trust we have earned with our client families as well as new potential customers. We will continue to invest in technologies and enhance how we interact with consumers digitally, providing a better customer experience from the first point of contact to the arrangement conference and beyond, while also enhancing efficiencies in our operations with the appropriate controls around cybersecurity.

Look for a slight increase in our spending around cemetery inventory development as well as new construction and development of funeral homes. These facilities are built with an emphasis on modern, flexible designs that appeal to a broadening array of customer desires. With our increasing EBITDA and current debt levels, we would expect a larger share of free cash flow to go to share repurchases, the timing and cadence based on our perceived discount to fair value throughout the year. To wrap it up, overall, I'm very proud of our team's progress in 2019.

I realize that none of this is possible without my 25,000 teammates and appreciate all that you do for our families and for SCI. As we enter 2020, I am so excited about our company's future. With that, I'll turn the call over to Eric.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Good morning. Today, I'd like to begin by addressing our cash flow results, which will be for the fourth quarter and in the full year of 2019, followed by our capital deployment activities for the year, and then I'll end by providing some details of our outlook for 2020, just as Tom did. So let's begin with a discussion of cash flow for the quarter. In yesterday's press release, we reported strong operating cash flow of $157 million for the quarter, which was better than our expectations, primarily from strong operating results from our funeral segment and higher cash receipts from both cemetery installment sales and trust funds.

When compared to the prior year, operating cash flow for the quarter decreased by about $7 million. Increases in cash earnings in the quarter drove gross profit up by about $8 million, but this was offset by expected headwinds from higher cash interest payments of $11 million and higher cash tax payments of $7 million. Maintenance and cemetery development capex for the quarter, which recall are the two components that we define as capex in our free cash flow calculation, were approximately $54 million. This was $5 million lower than the prior year, but generally in line with our expectations.

Deducting these recurring capex items from cash flow, we calculate our free cash flow in the quarter to be just over $100 million which, again, was generally in line with the prior year. For the full year, we generated $635 million in adjusted operating cash flow, exceeding the midpoint of our guidance range provided throughout the year, which was around $590 million. This also compares to $610 million of adjusted operating cash flow for 2018. The increase of $25 million over the prior year resulted from higher cash earnings and favorable working capital impacts that were partially offset by higher cash interest and higher cash tax payments.

So on the topic of cash taxes. As we look ahead to 2020, we are modeling cash taxes increase by about $55 million to approximately $120 million, which will be a significant headwind for our cash flow in 2020. This increase is driven by the higher taxable earnings we anticipate in 2020, tax planning benefits that occurred in 2019 that are not expected to reoccur in 2020 and expect a decrease in benefits from stock option exercises. As always, we will try to minimize cash taxes, but we believe $120 million is a good guidance number that represents an approximate 24% cash tax rate, which, by the way, also aligns with our normalized effective tax rate expectations for 2020.

Maintenance and cemetery development capex combined were approximately $204 million for 2019, which was flat compared to the prior year, but a little higher than our target of $195 million. These investments are important to our business, and you should expect to see us spend at a slightly higher rate in 2020 that I'm going to speak to in a moment. Deducting these recurring capital expenditures from adjusted cash flow, we calculate our adjusted free cash flow for the year at a healthy $431 million or a 6% increase over the prior year. So now let's discuss our capital deployment for the year.

In 2019, we delivered value by deploying more than $400 million toward acquisitions, new location builds, dividends and share repurchases. So let me walk you through the components. First, let's start with acquisitions. We deployed approximately $107 million, which exceeded our target range of $50 million to $100 million.

So I'd like to point out that $56 million of this amount was invested in high-quality business acquisitions in six states in the U.S. and in three Canadian provinces. The remaining $51 million was invested in land for two cemeteries, one in the Los Angeles area and one in Texas as well as other land purchased for the purpose of building new funeral homes. Acquisitions continue to be our best use of capital as they generally result in a low to mid-teen after tax IRR.

Additionally, we remain optimistic about the acquisition pipeline as we enter into 2020. In addition to acquisitions, we invested $36 million in 2019 on the new builds and expansion of several funeral homes during the year, which we expect will provide positive returns to us going forward. Dividend payments in 2019 totaled $131 million, which was an increase of 6% over the prior year of $124 million. Going forward, we expect to continue increasing the dividend as the company's earnings grow.

And as a reminder, we target a payout ratio of 30% to 40% of recurring net income. During the year, we also repurchased almost $50 million of our 2027 notes in the open market to manage our leverage and reduce some of our higher interest rate debt which benefited 2019 by around $1.5 million. And finally, we returned $130 million of capital to shareholders in 2019 in the form of share repurchases. Over half of this amount, or about $77 million, of these share repurchases actually occurred during the fourth quarter as we achieved our desired leverage ratio and then saw a value opportunity to deploy more capital here by repurchasing 1.7 million shares at an average price of $44.66.

Ultimately, for the full year, we repurchased about 2.8 million shares at an average price of $44.54, which has resulted in the number of shares outstanding being approximately 181 million shares. Subsequent to year end, we have continued this repurchase program, reducing our outstanding share count by an additional 400,000 shares for a total investment of about $19 million. Now let's shift to our outlook for 2020 in terms of cash flow and capital deployment. In our press release, you can see that we have provided operating cash flow guidance of $590 million to $640 million range.

Benefiting our cash flow in 2020 are expected higher cash earnings being offset by expected higher cash taxes that I just mentioned. So normalizing 2019 adjusted operating cash flow of $635 million by the expected $55 million increase in cash taxes gets you to a starting point of $580 million. This 2019 normalized base then benefits by about $0.16 of earnings growth, which equates to about $35 million to $40 million of incremental cash flow which gets you to the $615 million midpoint of our guidance range. Moving on to capex.

Our expectations for maintenance and cemetery development capital spending in 2020 is $230 million or about $25 million more than our 2019 spend. Of this increase, we expect about $10 million of investment in developing a technology platform aimed at improving the customer experience. The remaining $15 million increase will go toward cemetery development to continue building out new and unique cemetery inventory to help drive increased cemetery pre-need production. This capital continues to differentiate us and help drive superior returns.

In addition to these recurring capital expenditures of $230 million, we expect to deploy $100 million to $125 million in acquisitions and other growth initiatives, including new funeral home construction opportunities which together drive low- to mid-teen after-tax internal rates of return, well in excess of our cost of capital. We have currently modeled $75 million for acquisitions and $50 million for these other growth initiatives. So as we look forward to our capital deployment strategy in 2020, we feel we have the financial flexibility to continue much of the same successful strategy you have seen from us for many years. We follow a disciplined and balanced capital deployment approach designed to yield the highest relative value for our shareholders.

This strategy is based on our stable free cash flow, our robust liquidity, which was nearly $860 million at the end of the year as well as our favorable debt maturity profile. So in conclusion, 2019 was a good year for us. Cash flow strength continues to be a highlight for us. I echo Tom's comments that none of this would have been possible without the hard work of our dedicated associates, and we appreciate all of their efforts.

So with that, operator, that concludes our prepared remarks. And now we'll go ahead and open the call up for questions.

Questions & Answers:


Operator

Thank you. [Operator instructions] And our first question today will come from AJ Rice of Credit Suisse. Please go ahead.

AJ Rice -- Credit Suisse -- Analyst

Thanks. Hi, everybody. First of all, maybe just to ask you to comment on something you did mention in the prepared remarks, which is the notification that the FTC gave that they will reevaluate the funeral rule. Obviously, they put out some material when they made that request for comment.

Anything in that, that you'd like to highlight? It's different than what you were thinking? Have you gotten any feel for the time frame? I know the comments need to be in, in a certain limited number, amount of time. But any sense about what their process beyond that will be to review this?

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Sure, AJ. This is Eric. Good morning. As you mentioned, the FTC is seeking comment on the funeral rule.

The comment, there's a 60-day comment period, and so they are due on April 14. I think the punchline of your question is that of all the questions they asked us to comment on, which are publicly available, nothing really surprised us. We've been expecting this now for over a year. I think we've been talking about it for over a year.

They did ask other questions about cemeteries, crematory and things like that. But again, that was somewhat expected in their last review. The timing is pretty tough to figure out. I think there was a review back in the late '90s that we submitted comments to, and it was many, many years later that ultimately the FTC responded to that with no changes to the funeral rule at that point in time.

So what we do know is we have 60 days to comment. We're very well prepared for that. For the most part, this is about price transparency, which I've described to you before on previous calls that we feel strongly exists in the industry, but there is no real surprises. So we'll meet the deadline of April 14.

And then we just don't know the timing thereafter of the Federal Trade Commission once they receive all of the comments, not just from the industry players but anyone in the public that wants to comment, what exactly will happen from there is open for discussion.

AJ Rice -- Credit Suisse -- Analyst

OK. Great. On the one hand, you had a nice pickup in pre-need cemetery sales production. On the other hand, the recognition rate was a little bit light relative to what you thought.

I know from time to time you guys have called out what's happening with the Asian consumer, particularly in L.A. and Vancouver, those two large markets, for you. Is any of what you're seeing, either the easing of the trade tensions or anything related to the coronavirus and how people are reacting in terms of their purchasing habits, you attribute any of what you're seeing to any of that? And if not, especially on the recognition, if you drill down, what do you think is behind more moderate recognition in the fourth quarter?

Tom Ryan -- Chairman and Chief Executive Officer

AJ, this is Tom. As it relates to the Asian consumer, we called it out because, particularly, if you look at the first and third quarter comparisons, we saw year-over-year drops. And again, there's some seasonality to these sales. As you look at the fourth quarter, we actually had favorable comparisons this fourth quarter versus last fourth quarter, in particular, around the parks that predominantly service the Asian consumers.

Particularly, I'd point out that Rose Hills had a very, very successful fourth quarter and drove great performance. So if you look at the Asian consumer relative to the population, they both grew in this kind of about mid-single-digit growth rates. So we're very, very pleased to see that. Having said it, I don't know that we have great visibility into what's driving any apprehension or if apprehension has gone away as it relates to the trade talks and settlements or now with the virus.

But I will tell you that what we saw in the fourth quarter, and we haven't seen anything different that says, things look pretty good as it relates to that consumer and as it relates to cemetery sales.

AJ Rice -- Credit Suisse -- Analyst

OK. And then my last question would be around maybe flesh out a little more of this IT investment program to improve on the consumer experience. I know there's been a lot of talk over the last few years about your Beacon initiative. Is this related to that? Or is this something completely different? And is there any update on what's happening with Beacon as well as this new initiative?

Tom Ryan -- Chairman and Chief Executive Officer

Yes. We'll bifurcate that question. The first part, AJ, is what we're referencing now because, obviously, we're spending money on the digital experience through our websites and the mobile applications of such and other things as it relates to digital marketing interaction. What this specifically has called out when we're talking about the capital is the development of a system that's going to allow us to interact with the consumer on an atneed basis in a much more effective way.

And it really is not related to Beacon or anything else. It's really about data capture and the ability of the consumer to communicate directly with us online in a private portal and then further development as it relates to taking that initial contact, the arrangement process and really the entire, as you think about, as the client family interacts with us all the way to the end of the process. So this is the beginning of developing that, which we believe is going to result in a more favorable interaction with the consumer and drive revenues. It also allows us to be more efficient when you think about integrating all that information in our system as it relates to scheduling fleets and vehicles.

So it's really a first step in developing that approach that Eric is referring to. And I'll let Eric talk to the Beacon part of your question.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

On the Beacon part, AJ, I'm not sure there's really that much of an update because we're continuing the development of the application. If you recall, funeral continues to be well utilized. From the last time, recall, I said that there's some certain states in Canada that are not open for business yet on the funeral Beacon application, but about 90% is, and it's being very well utilized. I think that, that with a lot of reasons are some of the drivers that are causing double-digit growth, for example, in the fourth quarter related to our pre-need funeral sales.

So that continues to be something that's very effective for us. On the cemetery side, it's more of the same. We're continuing to develop the application. Not to be a broken record, but it's complicated by the numbers of vendors and different products that we have in the merchandise area as well as the uniqueness of each and individual cemetery property within each of the 450 cemeteries.

So we help to continue to develop that during this year and probably have maybe a better update late in 2020 as it relates to cemetery.

AJ Rice -- Credit Suisse -- Analyst

All right. Thanks a lot.

Operator

Our next question today will come from Joanna Gajuk of Bank of America. Please go ahead.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks for taking the questions. So a couple of other topics. So the funeral segment, obviously, was very strong in this quarter.

So can you talk about the different pieces and specifically the organic sales average? I mean, I know you mentioned the easier comps in terms of the, I guess, the repricing of the direct cremation business in the past. So is that kind of the rate we should be expecting going forward? Or should it normalize to below the rate that was printed this quarter because you had 2.7%, it is a pretty strong number. So I'm just kind of getting trying to get a sense of how we should think about going forward on that organic sales average?

Tom Ryan -- Chairman and Chief Executive Officer

Sure, Joanna, it's Tom. Good to hear from you. As we think about average, we feel really good, I think, about 2020. I think we said in my guidance that we expect funeral revenues to grow between 1% and 2%.

We believe that volumes are on a good trajectory, and we believe sales average, in particular, is on a good trajectory. I'll refer to, the comments were the preponderance of the big changes that we made, and we made them in stages, but we went into certain markets, and I think it's about 300 locations where we adjusted particularly cremation pricing on what I'll call the simple consumer in those markets. And by making those onetime adjustments, it resulted in what we felt like capture of market share, which was offset somewhat by the lower pricing and then from that new pricing level, we'd be able to do inflationary pricing from there on. So what you saw in 2019 was the fact that you had that pricing pressure flow into the average.

And for the first time in the fourth quarter, and John Faulk assured that this would happen, and none of us believed him. In the fourth quarter, it showed up like we expected or he expected. And so we saw a very good average. And I think as we look at 2020, we would expect that trend to continue, particularly in the first half of the year into the third quarter.

And then it maybe gets a little tougher, but we feel pretty good about our average. We feel really good about where we're priced in these markets, very competitively and now, particularly with that, what I'll call, simple cremation consumer. On the volume front, we're feeling very good as we look at volumes for this year. If you recall, last year, we had a really bad first quarter, down 5%, and we said, "Hey, if history holds, don't worry." And sure enough, the down 5% turned out to be relatively flat.

So I don't get too excited. As a company, we don't get too excited about flu season because, again, they tend to push things in the quarters, but for the year, we're competing effectively, and we feel like doing a really good job capturing market share through pre-need, capturing market share through the digital interactions that we're much more offensive about today and also just our incredible local leadership that's competing more effectively for the business.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

OK. And then so, I guess, you mentioned the digital interactions, and I appreciate the commentary about the investments you've been making in terms of the platform and how you're going to try to improve the consumer experience. But is there anything specifically in those efforts? Or maybe anything else you're thinking or planning to do as you prepare for potential changes that might come from the FTC in terms of the funeral rule? Or are you going to first wait and see where it comes out?

Tom Ryan -- Chairman and Chief Executive Officer

Joanna, that's a good question. We'll deal with the funeral rule. Like Eric said, we've got a process. We want to be a good part of the industry to talk about what's great for the consumer.

But between you and me, we want to do what's right for our consumer with or without the Federal Trade Commission, this ruling because we feel like transparency is important. And for us, the definition of the transparency isn't solely related to price. I mean, as Eric has, I think, pointed out to you guys, we survey our customers. We get a lot of feedback.

Sometimes price is very important. As an example, this simple cremation consumer, price is very, very important. And if you look at a lot of our, particularly, SCI Direct and other, we have pricing already available online because it's very important to that consumer. Our concerns are -- and we have starting-at pricing, I think, now at 300 going to 500 Dignity locations.

But our concern is, what are you conveying to the consumer that finds value and reputation, the quality of facility, if you're not providing that along with price, then are you really educating the consumer to the level or you're going to confuse the consumer more if you're not doing that. So I think our strategy is, how do we convey in a transparent way all the attributes that are important to the consumer. And that's what we're beginning to do and to try to do. One of the things that we're really emphasizing now that we talk about is reputation and our online reputation.

And you're seeing now, I think our ratings are up to 4.7 stars, which is pretty impressive. And that wasn't a focus until about a year and a half ago when Jamie Pierce came and got us to focus on that. And I think it's been tremendous feedback. We have instances where people are saying, "I selected you because you have a lot of reviews and you've 4.7 stars or you've 5.0 stars", whatever the case may be.

So these are little things. As time goes on, people are going to utilize these tools more. We're going to be in a place to capture that, particularly as it relates to our competition. So those are the little things that continue to add up that allow us to compete more effectively.

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

That's very good color. I appreciate it. And just to a quick number question. So the G&A, you flagged that, that was down year-over-year because there was $3 million of the insurance proceeds.

But even if you adjust for that, it was still pretty good number. So the question I have is, is $28 million kind of per quarter a good runway going forward? And the other numbers question. As you increase capex, how should we think about D&A for the full-year 2020?

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

D&A, I don't expect that big of an increase. I think D&A was just south of the $250 million, it's probably around $245 million. So maybe that goes to somewhere between $250 million and $255 million, in that area. I don't see it moving that much.

As you saw, as you mentioned, G&A was down to about $120 million, which is down pretty significantly, maybe about $20 million than the prior year. But that really, the anomaly really, Joanna, was in the prior year. It had to do with the accruals that we had to make related to a total shareholder return plan or a performance unit plan. And as the shares really moved north and last year, in 2018, we had to true-up all those accruals.

So we kind of had think of it as a onetime bump in that accrual that really you can see in the $140 million plus of G&A last year. So what do I think this year? I think it's maybe a little bit more, obviously, inflationary-type increases and all of those costs. So maybe it's not $120 million, maybe about $125 million to $130 million in that ballpark for 2020 in terms of G&A.

Operator

Our next question will come from Scott Schneeberger of Oppenheimer. Please go ahead.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Thanks very much. Good morning, guys. I guess I appreciate the outlook for pre-need. It sounds like, in both segments, you're looking for mid-single-digit in 2020.

I know you don't give quarterly guidance, but curious if you could follow-up some of the prepared remarks with how you think about the cadence, particularly for cemetery pre-need sales growth and consideration for recognition of that revenue? Thanks.

Tom Ryan -- Chairman and Chief Executive Officer

Sure, Scott, good to hear from you. I think on the cemetery side, as you think about, first of all, let's just get into recognition rates because I think that's important for people to understand. A lot of times what happened is we've got these plans on the books to construct this inventory. And so in the early quarters, you're selling into that unconstructed.

I'm generalizing here because it can happen at different times of the year. And so what typically occurs is your recognition rates will range between, call it, 85% and 90% for the first quarter. And again, I'm rounding here, so please don't hold me too literally. In the second quarter, it tends to follow that pattern.

By the third quarter, your recognition rate gets closer to 100% because you're actually completing some of these projects and you're recognizing some sales from a prior period and then, obviously, you're still selling into unconstructed too. So that's 100%. And historically, in the fourth quarter, you crescendo with this, call it, 110% to 115% recognition rate because you now have maybe two to three quarters or four quarters of selling into an unconstructed project and you complete a lot of them. And remember, construction in certain parts of the country is hard to do when you get into winter.

So a lot of activity in the summer months, a lot of activity in the fall months. So that's the typical cadence. What you saw in 2019 was a higher recognition rate early in the year. We were in the, I think, the low 90s, as I recall, in the first part of the year, and we ended the fourth quarter at around a flat 100%, which is probably the lowest we've seen.

So again, I think what really happened is we had inventory that was available to sell that was constructed on the ground, and we sold a lot of that, and we didn't sell as much of the unconstructed stuff. And therefore, that didn't flow through in the fourth quarter. I would expect next year to be a little more between the two, probably a little more emphasis in the fourth quarter than the 100% we saw this year. And probably the first part of the year in the high 80s, approaching 90% as you think about recognition rates.

On comparisons, you can go back and look, and I'm speaking from history, so forgive me. I think the first quarter is a tough comp, as I recall.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

It is.

Tom Ryan -- Chairman and Chief Executive Officer

I think the middle of the year is a little easier. So I think that's the way you think about whatever that comparison may be. This first quarter maybe one of the tougher comparisons. And quite honestly, the tale of the first quarter is going to be told in March.

That's a big sales month for us as you think about, particularly in some of the parts that have our Asian consumers. So again, I think we'll do well. There's always a crossover into April. We feel really good about coming out of the gate right now on both parts of our sales, on the cemetery side and on the pre-need funeral.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

OK. Sounds good. Thanks. May or may not be a segue to my next question.

I'm curious what swing factors you're looking at when you consider the low end or the high end of the guidance range for this year? Just what would have you most concerned? And then where do you have a good bit of confidence? Thanks.

Tom Ryan -- Chairman and Chief Executive Officer

So I think the biggest swing factor in any year is going to be pre-need cemetery sales. That is the toughest one to predict. There's a lot of execution. I'm probably less concerned when you think about funeral volume.

Again, we get overexcited about flus and non-flus. And the truth is, I think we're competing very effectively. We're pretty good at predicting that. I do think we feel like we've got a little bit of momentum on funeral average this year.

That should probably give us a better result than we've seen over the last couple of years. So again, that could be a thing that, that were to change any significant way, it could have an impact. And then I think pre-need cemetery sales, those are the big ones, which is going to generate a lot of cash flow. We're going to deploy it wisely.

So as I think about risk factors, that's probably it.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Great. And then the last one, you just brought it up, Tom, kind of flu and ebbs and flows. Could you just address what you're seeing this year? I mean, a lot of headlines, obviously, around flu, international and domestic, in particular, is where this question is going. But it seems like a lot of activity this year, but perhaps a lower mortality rate.

Just curious what you're seeing how it's impacting you and how we might want to think about that in the early half of the season?

Tom Ryan -- Chairman and Chief Executive Officer

Yes. My mom always wanted me to be a doctor, and I'm going to play one right now. So first of all, the flu impact actually began a little earlier than usual this year. But the surge in — and that was around influenza B strain.

I've learned a little bit about these two differences. Influenza B usually develops later in the cycle versus the beginning of the cycle, and it tends to be harder on kids. And again, this gets back to which flu strain impacts immunity systems or lack thereof. So it's hardest on kids and people under 25.

So what you saw, while there is a higher incidence of flu, the hospitalization rates and mortality rates are actually pretty low, even as the incident rate climbs. I think you see that in the hospital, it never is well. What's really unusual about this is the last time this happened was in 1993. So it's been almost 27 years since we've had this kind of influenza B strain come first.

And so it's really, really unusual. So the flu is prevalent. We're not necessarily seeing it in the deaths rate. Now remember, we're not comparing against a hard number.

So we're doing fine as it relates to volume, but you could have expected based upon what was going on the flu that it would be something a little more severe. But we're not seeing that at least so far. Obviously, flu season is not over. And if influenza A strain becomes more prevalent, that tends to have more of an influence on the elderly, and therefore, will probably result in more hospitalization and probably result in more death.

So we're watching those things, but that's kind of what we're seeing right now, Scott.

Scott Schneeberger -- Oppenheimer and Company -- Analyst

Great. Thanks appreciate the color. I'll turn it over.

Operator

Our next question today will come from John Ransom of Raymond James. Please go ahead.

John Ransom -- Raymond James -- Analyst

Hey. Good morning. My mother always wanted me to be a funeral home director. So that's weird.

Tom Ryan -- Chairman and Chief Executive Officer

There's still time for you.

John Ransom -- Raymond James -- Analyst

Just on the celebration of life. Are you seeing a material trend in services you're performing that are now outside of your core funeral homes and maybe in a third-party location?

Tom Ryan -- Chairman and Chief Executive Officer

OK. John, let me answer that. So I think we're seeing a little of both. I'd say that we're capturing a lot more celebration.

And I'll break that into, what I'll call, traditional celebrators is a term we use around here a little more. So we're seeing a lot more people that are choosing to celebrate versus more, but it may be a little more subdued than it's appropriate to do in a church or appropriate to do in a funeral home. We're seeing another one that I'll call a party celebrator that, again, with these more flexible facilities and particularly in Florida, in your area, and I'm sorry if I can't hear you because Tanzberger is banging a bat on a trash can, so I can't hear, but in those areas, we're seeing more of those, and we're capturing a lot of that. And actually, as one of our initiatives today, we're looking at expanding the opportunity to capture that consumer that's willing to go to a funeral home as long as it's a modern, flexible facility.

That's a lot of our strategy. I do think from our research that we just did, there's an element of a consumer out there that we probably were never capturing as it relates to the event. What I do believe is that we're capturing the cremation in a lot of cases where they're coming to us and say, "I'd like a direct cremation. Can you perform the service for me and return the remains of my loved one." And then they're going out and at a later date, or whatever the case may be, having some form of celebration in a unique spot.

So I do think there's a trend of people doing that, that is interesting. But I think we're looking at ways to tap into, one, are we capturing enough of the service itself? And then is there a way that we could be helpful in that celebration? And again, it's such early days, John. I wish I could tell you we have the perfect answer. I don't know if we can be helpful, if they need our help.

I don't know if they saw some of our more modern facilities if they would think that's an acceptable place to have a celebration. So I guess, I would say we're seeing more celebrations than we're capturing, but we believe there are also more celebrations occurring that we may not be a part of that piece. And that's part of our thinking right now, is to can or should we tap into that and what's the value proposition for the company.

John Ransom -- Raymond James -- Analyst

OK. And just the last one for me. If I could pick on you a little bit, you're probably a year plus behind on rolling out Beacon to cemetery. And just kind of curious, I know it's complicated, but do you think that form will follow a function here in terms of, say, well, maybe we don't need 197 blue urns, maybe we can simplify what we're offering and use Beacon as an excuse to streamline some of the complexity in the cemetery line?

Tom Ryan -- Chairman and Chief Executive Officer

I think we are doing some of that. But I think it's actually more complicated than you think because it isn't just urns. I mean, if you think about every cemetery property, it's going to be unique. There are going to be different sizes.

They're going to be different names of gardens. So it really is a truly complicating factor. And again, I think that's why we were hesitant to try to give a whole lot of how long this is going to take. What I will tell you, John, is, my feeling is this is the right path for our company.

It is going to take longer, that's OK. I think we have a lot of other ideas about how we're going to drive cemetery sales. And right now, Beacon doesn't need to be that reason. But I think when we have everything on the system, when our sales teams are up and running with this, we believe it's going to result in a better sale, more robust sale.

And also, I think, a more efficient sale. So I hear you, and I think we are trying to simplify to the extent we can. The cemetery is such a complicated animal as it relates to the property itself and the different options that we have in the cemeteries that already exist because, remember, some of this inventory is already built. So you're not going to throw it away.

Could you be a little more streamlined on how you develop your future inventory, absolutely, and I think we'll do some of that.

John Ransom -- Raymond James -- Analyst

Right. That's it for me. Thank you.

Operator

Our next question today will come from Duncan Brown of Wells Fargo. Please go ahead.

Duncan Brown -- Wells Fargo Securities -- Analyst

Hey. Good morning. Just two quick ones for me. One, it looks like there was a divestiture in the quarter.

Any color you have there would be helpful? And then appreciate the guidance on M&A outlook for 2020. I wonder if you could give us a little more color on what you're seeing? Any changes in multiples, anything like that, as you're headed into the rest of the year?

Tom Ryan -- Chairman and Chief Executive Officer

Duncan, as it relates to the sale, I think I told you from time to time. We have real estate in some very nice areas of certain towns. And so from time to time, we get offers, as the Godfather says, you can't refuse. And so this was a particular opportunity where we had a great business and a great location and real estate developers overwhelmed us with opportunities.

So we had a pretty significant gain as it relates to a location sale. Again, we have a strategy to continue to capture that business, but if you think about the multiples, it was one that we just had to take. So it's a nice generation of cash for us, and we can redeploy it. As it relates to acquisitions today, we're still seeing a lot of activity.

I think because of the changes in cremation, because of probably the demographic of the ownership, we expect and continue to see people willing and wanting to sell. I will tell you, I think it's gotten a little more competitive in the last year or so. And we are starting to see a little price creep as it relates to certain opportunities that are out there. And again, we've seen some competitors face some pretty significant premiums.

I would tell you that on the ones we really want, we get very competitive. Sometimes we are limited and restricted by the FTC and restraints around transactions that we've done previously. So those consents can be an impediment for our ability to compete for some of those. So I think in a lot of our cases, you're seeing us beginning to build a lot more locations.

We're going to spend $50 million on locations this year, and that's one of the reasons because it allows us to compete in markets and it allows us to take, again, this concept that John was referring to. As you see more consumers that want celebration, you need a flexible facility. And some of these facilities are buying, the buildings are 40, 50, 60 years old, they haven't been remodeled. The rooms aren't set the way you want them.

So I think you're seeing a shift from us to say let's build what we want, and we're going to compete and buy the things that we think are the highest value for shareholders. So a little more pricey, but still seeing a lot of activity. We had a lot of activity in the fourth quarter. And I think we've got a lot of activity and deals that will close in the first quarter.

Duncan Brown -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. At this time, I'd like to turn the conference back over to SCI management for any closing remarks.

Tom Ryan -- Chairman and Chief Executive Officer

Thank you so much, everybody, for being on the call today. We look forward to speaking to you again at the end of April. Have a great week.

Operator

[Operator signoff]

Duration: 57 minutes

Call participants:

Allie O'Connor -- Director of Financial Reporting

Tom Ryan -- Chairman and Chief Executive Officer

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

AJ Rice -- Credit Suisse -- Analyst

Joanna Gajuk -- Bank of America Merrill Lynch -- Analyst

Scott Schneeberger -- Oppenheimer and Company -- Analyst

John Ransom -- Raymond James -- Analyst

Duncan Brown -- Wells Fargo Securities -- Analyst

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