Q2 2020 Service Corporation International Earnings Call
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Good morning, welcome because they see a high second quarter 2020, <unk> earnings Conference call.
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Good morning, everyone. This is w. young director of Investor Relations for Sci. We welcome you to our call today to go over our business results for the second quarter before the prepared remarks, I'll remind you that we believe making some forward looking statements.
Any comments may Barnett, but team today that state our plans beliefs expectations or projections for the future are forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially from those contemplated in such statements. These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the FCC that are available on our website.
During this call. We will also discuss certain non-GAAP financial measures such as adjusted Dps, adjusted operating cash flow and free cash flow.
A reconciliation of these non-GAAP measures to the appropriate GAAP measures is provided on our website under the investors section in our earnings press release, an 8-K that were issued yesterday.
No. It's my pleasure to introduce our chairman and CEO Tom Brian.
Thanks Debbie.
Hello, everyone and thank you for joining us on the call. This morning.
Yes, the all in our entire team I want to start by saying that I Hope you and your families are continuing to stay safe and healthy.
This morning, I'm going to start by trying to describe the operating environment. We experience. These wells are business performance during the course.
At the end I'll attempt to provide guidance as best I can and the rest of the year considering that continued level of uncertainty around the effects of the covert 19 pandemic.
Like orders from governments.
The evolving patterns of consumer behavior.
Total order, but here we go.
We last spoke in late April while we were seeing a significant increase in field case volume.
Also experiencing a significant decline in preneed cemetery sales production like some 40% in a decline in the funeral sales averaged about 12%.
Both of these key operating drivers being impacted by government mandated stay at home owners, which fueled consumers fear closely interacting with others and gathering and groups settings.
We implemented a number of temporary cost saving initiatives and quickly introduced additional technology to support our operations.
Sales efforts and administrative functions.
Early on.
Hundreds of the funeral volume increases were being felt on the East Coast, Michigan, Illinois in Louisiana.
These markets along with California due to stay at home orders experienced meaningful declines in funeral sales averages.
On the cemetery side, we saw significant declines in a lot of places in Preneed Cemetery sales.
In more pronounced in our larger markets on the West coast.
And we moved into May we began to see averages improve across the country. That's states began to reopen with the northeast being the notable exception.
Subsequently the funeral average improved from down 12% the down about 8% when compared to the prior year.
Cemetery Preneed sales really began to pick up mid may stay at home orders relaxed.
Finished the month strong gross growth across all business units led by our California, and it's fallen a businesses.
A big thanks to our North American sales and marketing organizations.
Whose focus.
And commitment hope to grow Preneed cemetery sales, 19% for the month.
By June case volume was still strong going over 10% well the funeral average continued to improve.
Equally in the northeast, albeit still negative compared to the prior year quarter.
Funeral volume growth was most pronounced in California, Texas in Arizona, and this time, we did not see any material degradation of the funeral average and those specific markets versus the prior year.
Momentum in Preneed Cemetery sales continued in the June finishing the Mark was an impressive 40% growth over the prior year in bringing the quarters Preneed cemetery sales production growth over 10%.
All of our successes would not be possible if not for a tremendously talented embrace team that pull together, while focusing on the safety of our people not our client families selflessly, putting the needs of others about their own.
Thank you change so much for your efforts in for never losing sight of what we're here to do.
Help our families and communities degrading process, it's celebrating the wife their loved ones.
Now for an overview of the results the quarter.
Adjusted earnings per share grew 11 cents to 58 cents per share in the second quarter, a 23% improvement over the prior year, it's significantly better than we expected.
Core funeral profits were the primary driver as a 13% increase in funeral volume more than offset weaker funeral sales averages applied against a very lean cost structure.
Pre need cemetery sales grew over 10% in the quarter. However, however, the majority of these sales were deferred and will be recognized as revenue in future quarters once constructed and 10% this collective.
Because of this deferral cemetery profits are relatively flat.
Higher tax rate in general and administrative costs were essentially offset by lower interest expense in the lower share count.
Now for an overview of funeral operations.
Despite the higher funeral volumes, our total comparable funeral revenues declined approximately 1% during the quarter.
A healthy 13 million dollar increase in our core revenues was more than offset by an approximate 18 million dollar decline primarily from lower Sci direct in General agency revenue.
Core revenue growth of $13 billion was driven by a 13.2% increase in cases, partially offset by an 8.7% decline in the average sale.
The average decline was primarily driven by a reduction in the average not as much by depreciation mix.
General and cremation cases, you the service attached went from 63% in the prior year quarter to now 50% this quarter.
Selecting the impacted restrictions on large gatherings.
The reduction in professional service revenue combined with significant reductions in full in catering sales.
It would be overall sales average decline.
The good news is that the average sale was down over 12% in April and has improved to being down 5% in June.
Cases with services attach continued to improve and was 57% the messaging.
Recognized preneed revenue in General agency revenues were below prior year, primarily as we saw preneed funeral sales production decline over 27%.
Social distancing, particularly around our educational events, such as seminars in grassroots event grass roots demands at a more pronounced effect on our preneed funeral sales versus our preneed cemetery.
Gross profit perspective funeral gross profit increased $21.4 million and the gross profit percentage increased 480 basis points to 24%.
Right in our high incremental margin core business more than offset declines in our lower margin revenue streams.
This combined with our strategic management of labor hours reductions in non customer facing cost in certain marketing and promotional expenses led to the impressive you know contribution margin.
Now shifting to cemetery.
Comparable cemetery revenue increased almost $6 million in second quarter.
Driven by a 9 million dollar were 11% increase atneed revenue.
Offset by $3 million decline and recognized preneed revenue.
This atneed increase correlates with higher funeral volume driven by the effects of covert 19.
Well recognized preneed revenues were down.
Preneed Cemetery sales production grew by over $25 million are over 10%.
We were pleased to see large sales matched last year's performance, but even more please see non large sales velocity or the number of contracts increased by over 17%.
Our sales and marketing teams work together to generate additional leads from direct mail and digital sources and we experienced exceptionally strong close rates with these value.
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Consumer in counselor initiatives combined with higher location traffic as timely as we saw many markets reopened a late may and June.
These unrecognized sales will benefit future quarters, as we collected downpayment threshold or are they.
They are constructed.
Hey, Metairie gross profits grew by just over $2 million, that's strategic cost reductions were partially offset by higher selling calls.
We enhanced sales incentives to drive cemetery sales production and we altered our sales compensation plans to continue paying our trusted counselors in late March and April when sales production was essentially shut down.
Are you, saying a press release, we provided guidance for the total year 2020 for earnings per share cash flow and capital expenditures.
We recognize many companies are choosing not to do so we felt providing guidance with a wide range the prudent thing to do.
We're still experiencing increased funeral volume and so far in the sunbelt regions, we're not saying immature pull back in the fuel cell death.
Cemetery sales are continuing to look good and you all have ever we can't predict whether we'll see further government mandated blackouts.
If this were to happen we believed that the mandated social distancing and changes in consumer behavior like we have a material effect on our cemetery sales and our funeral average similar to the patterns. We saw in March and April.
We also could experience funeral average declines as local economy struggle with the effects of higher unemployment.
Also as we look ahead, we've considered that there may be a higher number of families were serving now during the pandemic.
That may is called on US later in the year in 2020 or 2021.
This acceleration effect could cause pressure on funeral volumes and cemetery revenues later in the year.
We also believed that there may still be some reluctance to gather which will likely create an unfavorable lingering effect on our funeral sales out.
Lastly in on a positive note one thing I know for sure. We will continue to manage our expenses and invest your capital wisely.
I was on the longer term, we're continuing to invest around our customer segmentation platform enhancing our digital client experience and leveraging technology to more efficiently and effectively serve our customers.
In closing I'd like to reiterate how much I appreciate all of my teammates both the field and our regional and corporate offices.
Your dedication impresses me more than I can express.
Remember fellow shareholders the heroes and our locations were 365 days a year round the clock and do not have the luxury working remotely.
Our first responders have risen to the challenge, putting others need above their own.
And to them I say, thank you and the bottom of my heart.
With that I'll turn the call over there.
Thanks, Tom and good morning, everybody a first I think it's appropriate to say that all of us that I see I hope you your loved ones your family or friends et cetera are remaining safe and healthy during this time.
Secondly, I like to say, how grateful I'm proud that I am as well over 25000 team members as they continue to provide vital support to those we care for and all the communities that we serve.
I want to reiterate that we would not be here today discussing our positive quarterly results without the dedication and hard work all of our team members. So to all of our team members here at S.G. I say thank.
So now let's shift to the business at hand today.
My first plan to provide an update on the strength of our financial position, allowing us to whether this pandemic storm and I'll then discuss our cash flow results for the quarter as one of those give some color for the remainder of the year.
So we entered this crisis from position of strength and we continue to be very well position.
We continue to have a significant amount of liquidity and flexibility to me all the needs of our businesses as well as the best and growth opportunities. Our liquidity is remain robust growing to just over $775 million consisting of about 220 million a cash on hand.
Plus $555 million available today on our long term bank credit facility.
We reduced our leverage from 3.88 times at March 31st to 3.79 times at the end of June which is well within our targeted range of net debt to EBITDA of three and a half to four times.
Additionally, let me remind you that other than a small series of notes that are due in November of next year about $150 million. We're also very well positioned with a clear debt maturity profile, having no significant debt maturities until may of 2024.
So with respect to EUR $5 billion, a trust funds, we experienced a 15% return for the core.
March 31st we had a net unrealized loss and our combined portfolios of approximately $460 billion.
Now recall that this degradation as a muted effect on our EBITDA in our cash flows in the near term.
As only those earnings on those contracts that mature will affect us in any given period.
Since then our trust funds have experienced a significant recovery along with the overall market of course at the end of June Thirtyth.
We had a net unrealized gain and east combine trust funds of approximately $63 million.
Salad shift to the corner and specific let's talk about cash flows. So despite the is faced with significant challenges and complexities as a result endemic our business performed well during the quarter supporting the resiliency of our cash flows it S yacht.
With the deferral of certain cash taxes, coupled with strong operating results. We experienced a 100 million dollar increase adjusted operating cash flow corridor to 184 million meaningfully exceeding our expectations. So let's talk about the details behind this hundred million and we really can split.
This into three main buckets first we benefited during the quarter by about $62 million due to the temporary deferral a certain tax payments, we deferred about 47 million a federal and state income tax payments as allowed by the IRS and this gets moved inches.
The third quarter of 2020. So this is just really timing within 20 twond.
But additionally, we deferred 15 million a payroll taxes as allowed by the cares that and by the end of this year. This payroll tax deferral is expected to grow to about $40 million for the full year, which will then be equally paid back and 2021 and 2020.
Two.
Also approximately $20 million. So this cash flow growth is attributable to the increase of 11 cents of higher earnings per share over prior year based on the strength of our operations during the core.
And the remaining 10 million of growth is related to working capital benefits, which are primarily related to improves cash collections on atneed sales during the quarter.
So our maintenance it cemetery development Capex spending totaled $44 million for the corridor, which is about $7 million lower than the prior quarter. This decrease in maintenance spending reflects our actions taken late in the first corridor, which is at the onset other and data.
As a result of all of this free cash flow for the core quarter calculations about a $140 million when normalized for the 62 million no I've told the deferred taxes I just mentioned free cash flow came in at about 78 million, which is still $45 million higher than what we generated in the second.
Quarter last year.
Now, let's shift out of the corner and kinda talk about the remainder of the year mid year through 2020, adjusted cash flow from operations has grown by 95 million from 269 million in the prior year to 364 million today again [laughter] adjusting for the 62 million for.
Taxes, we have grown 33 million, but a solid 12% over prior year.
While we have seen operating improvement since the beginning of this and that it's still remains unclear, whether we'll see any mandated locked down again in the communities, we serve which could obviously negatively impact our cash flows in the back half of this year. Therefore, there's still a high degree the.
Comic uncertainty and the pandemic remains as we all know fluid situation.
While our locations are generally open to serve in their communities we operate.
Our ability to offer a full suite of products and services could be limited in certain geographies, where outbreaks do occur.
These comments, though as a backdrop, let me provide you with a few thoughts on a cash flows for the back half of 2020, that's compared to 29 team.
We will pay as I've mentioned, a significant amount of cash taxes in the second half of 2020.
Our second quarter. This year benefited from that for all the 47 million a federal and state cash taxes I mentioned.
And that was associated with a pandemic relief from the IRS and that will be paid again and the third quarter.
Benefiting the second half of 2020, well also be an estimated $25 million of additional payroll tax suffer deferrals in the back half of this year.
Finally, we expect cash interest to be around $10 million lower as we look to the back part of the year as compared to 29 team, which is primarily associated with lower rates on our floating rate debt as well as that benefited from debt refinancing and redemption activities that we've already complete.
Got it over the past year.
As you saw in our press release, putting all of this together, we're providing normalized operating cash flow guidance of 600 to 660 million that's for the full year 20 <unk>.
This updated guidance is reflective of the adjusted EPS guidance, which is in the press release.
Payroll tax referrals from the care sacked lower cash interest and Laura cash taxes, along with other working capital sources.
Furthermore, our expectations for maintenance and cemetery development capital spending for the year is now expected to range from 165 to 195 million with the same midpoint, we've discussed before of $180 million.
The underlying stability of our cash flows and if you know cemetery business as well as our strong financial position really gives us confidence in the flexibility to also continue being opportunistic and deploying capital for the remainder of the year, we continue to seek value enhancing acquisitions.
Yes, I believe for the year, we will end up in the 50 to 100 million dollar spend range that we normally target for business acquisitions. However, we could be at the lower end of this range based on recent activity.
We also expect to continue deploying capital towards new funeral homes and other expansion opportunities to further grow our business and our target markets.
So in closing I'd like again, thank our nearly 25000 team members for their dedication and perseverance through these challenging times, we will continue putting the needs of our associates and the needs of our business is first to against safely navigate this pandemic we.
Leaves us approaches in the best long term interest of our company and all of our stakeholders and has reflected all that has been accomplished by our teams and the first half. We're excited about the momentum we have going into the back half of this year.
So with that operator that concludes our prepared remarks, and we'll now go ahead and open the call up for doing that.
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Todays first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.
Good morning, guys its Daniel on for Scott.
Congratulations on a good performance and the quarter [noise].
Could you elaborate a bit on the drivers of the cemetery preneed sales and maybe help us get a sense all of the magnitude of each and elaborate a bit on what you're seeing into the into July thus far.
Sure Daniel This is Tom Thanks for your question.
So on cemetery sales.
Sure.
Yes, its first important to point out if you looked at our cemetery atneed cells, there up more dramatically than we've we've ever seen them and that is being driven by the fact sporting you know more people are.
More families are going through the experience of losing loved one and as that is happening it's driving traffic in your cemeteries. So so that is continuing to happen we've seen it happened throughout the second quarter and so I want to point that out because that also if you think about it if if I lose dad I'm I made by space for <unk>.
I'm too so.
So you're getting a pretty good lead source, what we call a companion sale, it's helping drive that and that's just you know small part of it. The second thing that we've done that we talked about standing up technology is we now are getting very good and very effective through training of going through virtual appointment. So we're able to interact with consumers.
Whereas if we can't get into their homes or they're not capable to come into the cemeteries.
We're able to transact with them.
Provide information and alike.
As as part of our strategy also because we need these you're going to be difficult times, we added additional incentives for our salespeople to sell cemetery.
We have lifted some restrictions as it relates that's all column customer incentives. So we're utilizing some zero percent financing terms, we're utilizing a little more discounting.
And and those are the types of things that I think are happening now there are allowing us to drive cemetery sales with a more attentive customer because there's more of them there and that's leading to a lot of the success that we're experiencing in May and June and we're continuing to see that's excess roll into July.
So we feel very good about our team I think our sales teams in Iraq and being able to stand up this technology, they're utilizing a lot of the tools that would they are using before but now it's their life, what they're not able to travel. So we're utilizing salesforce to to monitor appointments and which leads to.
Two.
I'm, sorry monitor lead which leads to appointments and then after appointment setting you know can we close that sale and and were able to help our teammates in a senior level as they're managing the various businesses from their death, but they're able to provide I'd say more productive.
Training and development.
In this cobot environment.
Thank you and that was very helpful color.
I recognize one early to think about next year.
Please give us some perspective on how do you think about any pull forwards dynamics or as we tried to to model out going forward.
He didn't know I'm, assuming you're talking about both funeral and cemetery there.
Yes. Please.
Okay. So.
So on the almost funeral side of things.
We believe we're now in this so this is an updated number not for the quarter, but to date already we probably provided services to about 12000.
Cobrand cases.
Which is not insignificant.
And and so with that typically when we see a a flu season, you're going to see a pretty significant pull forward because a lot of times with the flu it's going to.
You know result in death with people that have it you know help other health issues are elderly a lot of times, there and retirement communities are home.
So were used this thing you know probably pull forward of.
60, 70, 80 per cent, sometimes probably closer to that which worried about Kobe and I don't think we.
We don't know yet is truly the answer is covert when you looked at it when it first started in the United States on the East Coast. We saw a significant number of cases coming out of retirement communities nursing homes and so when you think about those numbers those probably were cases that were.
Pulled for I mean, clearly all these are pulled forward. The question is did you pull it forward from 2020 later 2020 and 21 or from another day.
So that may play out a little more like the typical flu as you're seeing it spread across the country in particularly seen in some of the but later states are called Sunbelt States.
That percentage of what I'll call nursing home customers is going down we're seeing a lot more people, but you never would have expected.
To have a death, but that's occurring so so I think that percentages will change as as time goes on so I wish I could be a little more you know predictive for you, but I think that's the way to think about it you don't cemetery side like I said before I think when you have an increased number of cases.
It is going to generate some lead opportunities because again on cemetery side, if I have a death a lot of family members that want to be adjacent.
To their loved ones and so it may inspire them the purchase property on the preneed basis.
Having said that I think our Salesforce has adapted so powerfully what's going on they've embraced the tools and technology.
I think we've learned a lot through this crisis and how to sell better how to how to present better how to develop better. So I'm really optimistic about our salesforce is ability to continue to drive improvement and 2021 I'd just caution you with if we work to Expiries.
Since you know again I hope I'm superior for this virus and we saw the number of case and the funeral go down a bit that's going to two you know take away. Some leads that that you're experiencing now that you won't have in 2021, but I think we feel really good about our ability to sell in 2021.
And I think no the funeral side of things, we're getting better all the time were more efficient more effective if you look at you know the the loyalty scores of our consumers into the coming back I think we're doing so many things to embrace ourselves with our potential customers and our community.
So I think 2021 is gonna be a good year I just think we have to understand that we probably some of this case volume.
As a being pulled out of 2021 and what percentage of I can't tell you then.
Thank you that's very helpful.
I'll try and all right. Thank you very much.
Our next question today comes from A. J Rice at Credit Suisse. Please go ahead.
Oh, hi, everybody a couple of questions if I could.
So obviously the cemetery production was a stronger than expected and it sounds it sounds like one of the front I mean, it sounds like you did a good job on the <unk> transitioning to a virtual sales and so forth, but it sounds like one of the dynamics was also that people that had a spike in Dallas, whether its covert related or whatever.
They went to buy the cemetery bought they bought multiple plots.
Is there any way to parse out how where you stand relative to their traditional sort of free need.
Ali activity, how much that is off versus this phenomenon.
Just an uptick in atneed that had some spillover effect into cemetery production.
Yeah, Jay Thanks for your question.
Don't have the specific numbers in front of me and I Didnt want to.
I don't want to give an indication that that's some majority of it it's not it's one of many factors. So if I were to speculate and again I'm speculating we grew no production some 10%.
I would say that that's probably you know somewhere of the no call it 20% to 30% of the increase I think a lot of that too has goes back to you know, we we really hustle yeah, we got to <unk>. The way. This thing kind of transition is we started out in April with the real.
Decline.
In the number of lead and we rotated pretty quickly and generated new leads through digital technology and through some enhanced a direct mail campaigns and with those new leads a may you began to see is setting a lot more appointments and so the appointment count began to.
Go up and again this is outside of the the walk in business and from that appointment count what we're doing really good our close rate wasn't quite as good again, because it come to the some of the virtual technology and by June we really had at home and we had the number of appointments or very very high and our close rates as it relates.
There's appointments you know jumped to levels you know, we really haven't seen in recent years. So.
So I think a lot of this really has to do with that I mentioned the incentives before we enhanced the incentives for the sales counsellors on directed at cemetery, the customer incentives were much better way and so if you saw A.J.R. production was up but our GAAP revenues were slightly down and what that means.
Is we had no not an insignificant amount of people that didnt put 10% down or you know took the zero percent financing now weve taken into account. When we think is potentially make canceled because probably some of this business has a higher likelihood to cancel but so far so good our collections have been great. So we believe that.
Production going to turn into GAAP revenues in the third quarter in the fourth quarter. So.
So I would tell you I don't have specifics, but but that is not you know the majority reason, it's just one of a few reasons why we're we're doing so well thank you.
Okay. Another question is obviously you've got to good margin.
Leverage or gain in the general business I know last quarter.
The.
Big bike in cases in New York, There was some discussion about well at some level, we don't get the operating leverage off the incremental case it ends up.
You know all most hurting margins, because we're sort of bode well.
And that sort of indicated maybe there wouldn't be as much margin leverage on these incremental cases, but it looks like that you did see that now I know there was a lot of property specific initiatives as well that were designed to the pull costs out can you sort of.
Parse out in your mind, how much was well the leverage on the incremental case was actually pretty good or.
It's just really mostly just company initiatives and how sustainable is some of that going forward.
Sure I do I think most of it is you know a bifurcate the two first to say.
Our field management did a spectacular job and the incremental volume did produce the level of profits that that the you would expect and we had kind of warranty you guys. I think ahead of time, we were concerned that may not be the cage and some of that may have been my experience that I saw in Europe.
If you remember this summer in Paris, where we experienced an extraordinary number does some because of what we had to deal with the company.
We experienced you know we didn't get the throughput that you expect in the business and I'll. Just tell you that that did not happen. Our teams did a fantastic job of managing their cost their staffing and so the field really drove a lot of the salary and wage.
Savings that we experience and remember we didn't let anybody off we didnt for this was managing.
You know the workload between part time and overtime and the like but effectively utilizing people and as you'll recall in the northeast, particularly we had.
Similar ROIC helpers come in from outside of the state to to to assist our friends in the northeast and vice versa. We're seeing that happened again today in different markets like Florida, Texas. So.
So that is real and that is something that I think if it happened again, we'd continue to do and that was led by our field management.
At a higher level, yeah, we're really took on some things like noncustomer facing costs, which are.
Were easy to do I mean, we cut a lot of travel.
Lot of things that we spent money on you know trips incentives things like that that just you know kind of faded out our lawn and grounds on cemetery side, we manage better than expected and that was very purposeful. We kind of went in and said how many you know what's our cycle on Boeing special projects.
And we found some some better ways to maintain the grounds and save some money there and again that I.
I think continues to happen and then I think media spend you know we spend money local advertising national media different forms of media and you know because of what's going on a it just made sense to tone that down and we haven't save a lot of money and up and we're going to tone. It back up at some point, but I think it's going to be different you're probably.
Spend less money because we learned a lot to this crisis. So so a lot of levers a lot of good things.
I think you know the learnings across each of those things that I talked about that's going to allow us to make some of those savings very permanent and some of them. We'll come back is as things normalize.
Okay, all right and maybe just one last question I know a discussion about.
What was happening with average revenues for a funeral.
You know there was an expectation coming out of first quarter, there would be down.
Low double digits, low 10, 12% or something and you came in better than that where where was the variance was better than you were expecting and you think any of those declines are permanent or do you think or will you still think we'll see it returned to normal at some point in the future.
Okay. So AJ a if you take the month, it's probably easier to see this we were down in April about 12%, 11% of that was people not spending it's kind of what I referred to on the call its people not buying catering or flowers or where maybe you know not having a service so 11 of the.
12% decline was that and then the other 1% it's just our typical mix change.
As you got into May remember that 11% number because that's just a ticket walk you know somebody walking in and spending in May that 11 went down to 6.7% and in June it's down to 3.1 person.
So it gives you an idea of you know with the quarter. The quarter has you know many turns and Swiss as we sit here in June and July that gap is very different than where we started now to your point as I think about going forward.
I I believe and again this is Tom opinions or maybe not worth as much.
It's going to be a little bit of an issue because I think there are people that for at least the next 12 months is you know we understand this virus right, there's going to be some reluctance together and you know larger groups for awhile and so I do think Theres, a hangover effect I just don't think it's that big.
I think we're now seeing like I said, a 3% to 4% year over year decline.
That may be tough to fill that gap for little while I think one day if it does because if we've learned one thing we know that our families really really want to go through this you know grieving process celebrate a like live so I don't see that culturally going away I just think there's.
There's a concern around the spread of kogas, but it's probably going to be a hang over for the next 12 months or so.
Okay, great. Thanks, a lot.
And ladies and gentlemen, as a reminder.
That's a question. Please press Star then one.
Next question today comes from John Ransom with Raymond James. Please go ahead.
Hi, everybody I know holes and one this quarter, either so and to give you a lot. They still go hauling 158 years and.
The.
Thanks for that plight left Eric.
The.
As we think about modeling funeral ass paid for the rest of the year is that down three that you mentioned in June is that a pick up assuming that the world Kinda States is holding pattern of rolling shutdowns, but nothing you know not going back to pre pays one do you think that's a good way to think about it.
Yeah, John I think that is you know could we get a little bit better yes.
At some point, you're going to lock yourself right. So when you when you talk about month over month or.
Quarter year over quarter year. So as you get into March of next year, you ought to have a pretty good you know tailwind helping out.
But until we get to that point I think that's probably the best way to think about job.
And this is mostly the at need to the pre need going out needed that still hanging in people aren't you know when they differ but they're not asking for their money back.
Yeah for the most part yes, we've seen a little bit of that but so so the gap and trendy going that needs a lot better.
Yes. There are you know you are going to have the or the the few that come in and say, hey, I'm not gathering or I'm Gonna do 10 people right or one of the money back so, but yet okay, not not not 3% gaps maybe 1% gaps on that.
Okay. Second question is I know that you know cemetery, it's grown faster than funeral preneed for awhile, but I've never seen a gap quite like this or just what is it about the way. There's two products are sold that explains such a disparity I mean, we modeled.
Down correctly and funeral, but I'll I'll be honest, we didnt see such a disparity that you'd do so well and cemetery, but struggle yeah. So much on the funeral side. This is just help us understand why this how this takes us all differently with of explained such a big gap.
Sure John.
So on the cemetery side, we're experiencing a little <unk> number one recall that we're incenting our salesforce, the so little bit more cemetery.
And we're not doing that on single today I don't think that's the biggest reason, but I think it's important to understand.
The second thing is like I said, there's an immediate need if you think about it as I have a death and I'm hearing I loved one so if I'm very my wife, I want to buy the space next year and if I don't do it now then somebody else could buy the space next year. So I'm sure. There's a there's a locked in you know you need to.
Make a decision to do something whereas let's say a companion funeral sale.
I got time right. It doesn't really matter. So so I think there's an urgency for that for that cemetery sale.
The other thing that's that's a very impactful is we get a lot of our leads on funeral from from two sources that kind of dried up for now one its seminars you mentioned you little bit. So we have these grassroots events or educational seminars, which generate a lot of interest and leach.
Those of shut down to effectively zero because they were in restaurants. There is work up you know 70, 580% of the the conversions off that were funeral and that's kind of going away and that we've done some additional lead work to help going on I think it's getting better but that was kind of a job through the system and the other thing is just refer.
Oh, Yeah, we generate a lot of leads off of having a service then following up with friends and family. Afterwards, you know, bringing flowers over or a phone call well people aren't as receptive to follow up visits right now so.
Because funeral was so vested in those two lead sources.
I think it's been.
Impacted more dramatically. The good news is again, it's kinda like what you're standing <unk> funeral average, we're creeping up better and better in general because we're taking these new leads that are coming from digital are coming from direct mail and we're getting better and more effective at how we use and so I think you're going to see improvement.
You know as the back half of your comes in on funeral, but it isn't it at Harvard just because of that that lead source issue.
Right no more Golden Corral meals, you know I'm with 50 or that's exactly.
We're going to work we were going to have one we're gonna have one called hold them one in Florida, but named after you've got an unrealized ever have one or are there.
The other just to remind us.
Cemetery, certainly more heterogeneous it can be a 100000 dollar monument or a 300 dollar bronze marker, but just at a high level whats. The median versus average you know sale. If you will and how much of that are you generally booking in the quarter you sell at versus how much you're deferring just to level set that for folks.
So when you think about you know the non large sale you think of the blended sales Ben I'm, making this up John so it's not going be perfect.
So think of it to the 4000 dollar sale.
And more likely than not.
That's gonna be maybe five to better use so when you think of five.
I will say 3000 to that could could be the property and the other you know 2000 would be a service and merchandise gene I bought.
So in that case, typically if we sell it and we get 10% down and it is constructed we're going to take the 3000 to income in 2000, you're going to get transferred and put into the Trust fund right over time.
Hey, I'm missing here, you're paying that commission day, one on the 5000 right.
5000 exactly.
You're paying the commission on your recognizing 3000 them, but you are probably only collecting.
A fraction of that for the cashes here just collecting a fresh it for a fraction of that especially if it's a like a for your five year contract or something.
Yeah, it's a bit on but on average our typical downpayments, probably really is about 40%. So okay. So on the fringe you're going to have some of that and we probably are definitely our average down payment down this quarter versus most because it's the right, but generally it's it's pretty good cash in hand, and and again when you think about selling something.
And your ability repossessed, it's pretty easy and cemeteries. So so that's a pretty good.
Collateral.
Interesting.
And then.
If we think about.
The.
Yeah. The more interesting question I think I'm, so a year from now things hopefully are back to normal.
What what permanent and structural changes well that than they did I see I either cost or how you got a marketer business or philosophical [laughter]. What do you think six what do you think sticks and then what do you think is just this is a temporal reaction to an extraordinary pandemic.
I think the biggest learning for US first of all I think leveraging technology. We've a lot of companies and said this we have advanced our use of technology, yeah, three or four years over the last three or four miles.
Yeah, it's really great timing, because we had a lot of initiatives that were driven off introducing more technology both to the support side of what we do so think of the back office, yeah mechanisms that happened and the customer facing so we're in the midst of developing.
A product it was going to make us more effective and efficient anyway and make it better at interacting with consumers and through this you know we've accelerated the weakness we didnt cut back on that because we view. This is a huge opportunity to advance the ball I think isn't as a company. We're all more tech savvy.
We are less afraid to to jump into that we learned a lot of things around you know I think media spend at a local local and national level. So I think there's quite a few things.
That are change on and the other one I think that we've learned is travel you know we were you know and a lot of companies like this that called heroic travelers, where we'd get out quite a bit and beat the bush's and see people and that's an effective way to demand it sometimes but I think what we're learning it's with these technology to your top.
Her manager being driven off of you know data and Anna and I think on the Salesforce side for sure the feedback from our senior sales leadership across the board has been saying Tom Weird so much more effective because we're utilizing these tools I understand what's happening and you take corrective actions would be helpful and.
And so I think you'll see no less.
You know travel and entertainment and things like that across a lot of countries now that doesn't bode well for the restaurant business, but where the hotel business, but I think that's got a collective learning corporate America.
No its beacon in our future on cemeteries that so kind of everybody on I think.
No. It's in a feature but air go ahead.
And Josh God.
And then pretty well I mean, one thing we have been doing is executing continued to execute on the planet I laid out in previous quarters, and so I think we have upwards of let's call it probably two thirds.
The 500 cemeteries your show that have kind of been implemented at some stage as of right. Now you know it's difficult and [laughter]. You know you saw the volatility that we're obviously seeing its difficult to isolate it but I think when we do get to it and we show pre and post implementation.
Yeah, I do think we're starting to see you know some some decent movement in both the cemetery average sale kind of what Tom just mentioned as well as.
You know some better control of visibility into the discount so the cemetery property. So yeah behind the scenes there's been some improvements specifically related to that in our cemetery business.
I think will benefit the future when we get back to more you know kind of normal tops.
Right.
Okay. Thanks, so much good job. Thank you.
Ladies and gentlemen. This concludes the question answer session I'd like to turn the conference back over to management for any final remarks.
Don't want to thank everybody for participating on the call today and I want to also make sure that you guys stay safe and healthy and.
I'd be careful with all this we miss getting to see everybody, but but that they will come to so please stay safe until the next time and we'll speak to you I believe in a in late October Thanks, again for being on call.
Thank you Sir This concludes todays conference call. We thank you all for attending today's presentation. You may now disconnect your lines have a wonderful day.