Q4 2020 Service Corporation International Earnings Call
[music].
Good morning, and welcome to the Service Corporation International fourth quarter 'twenty 'twenty earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an.
Opportunity to ask questions to ask a question you May Press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Sci management. Please go ahead.
Thank you Andrew and good morning. This is Debbie young director of Investor Relations for Sci welcome today to our company with you our business results for the fourth quarter of 2020 before the prepared remarks, let me remind you that we will be making some forward looking statements today.
Any comments made by our management team that stayed our plans beliefs expectations or projections for the future are forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements.
These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the SEC that are available on our website.
During this call. We will also discuss certain non-GAAP financial measures a reconciliation of these non-GAAP measures to the appropriate GAAP measures is provided on our website under the Investor webcast event section and also in our earnings press release, and 8-K that were issued yesterday with that out of the way.
Let me pass it on now to our chairman and CEO Tom Ryan.
Thanks Debbie.
Hello, everyone and thank you for joining us on the call today.
We hope you and your families are staying safe and healthy.
This morning, I'll provide a little color on our business performance during the fourth quarter.
Then I'll offer some commentary on our 2021 outlook with the understanding that there remains substantial uncertainty surrounding the effects of the COVID-19, pandemic, which could change guidance significantly.
Before I begin I would like to say a few words about this past year.
2020 has certainly been one of the most uncertain and challenging periods.
Any of us can remember as.
As I reflect back on the last 10 months I can say with certainty that our results are a testament to our team's incredibly hard work into the resilience of our underlying business.
I'm extremely proud of our entire Sci team for going above and beyond the call of duty in 2020.
In this difficult period, we stayed relentlessly focused on what we do best helping our client families gain closure and healing the process of grieving remembrance and celebration.
The health safety and wellbeing of our Sci family is a top priority.
Not only were able to avoid any layoffs mandatory for furloughs and reductions in pay as a result of the impact of COVID-19.
We were able to recognize the incredible efforts from our frontline associates with hero bonuses and provide special bonuses for every associate there does not participate in our annual incentive plan.
In 2020.
Our services are needed more than ever I am proud that we were able to perform the significantly increased number of services without any disruptions to our business, which highlights the power of our scale.
One thing that became clear throughout 2020 is that our fundamental business has not changed.
We did not see a wholesale shift in the consumer preferences and our cremation rate remains stable.
Although we were restricted in our ability to have large gatherings in 2020, we heard loud and clear from our consumers that they still have a desire to memorialize and to celebrate the lives of their loved ones.
Virtual arrangements Livestream your services outdoor services drive through visitations radio transmitter graveside services and many more unique memorialization in celebration of life ideas are now a normal part of what we do.
The success in acceleration of these enhanced service offerings have highlighted the importance of innovation in our industry.
We will continue to invest in technologies that enhance how we interact with consumers digitally providing a better customer experience.
Please contact to the arrangement conference and beyond while also enhancing efficiencies in our operations.
As the year unfolded actions, we took in response to in person meetings limitations.
The non customer facing efficiencies.
We more effectively utilize our labor force.
Using virtual training, our customer relationship management system, and other technology tools instead of incurring travel weighted cost.
We drove down our lead cost per sale by accelerating the growth of digital leads and making significant improvements to our direct mail program to drive record growth.
All of the many learnings from this year will make us a better company going forward.
As a result, we are positioned to enter the post pandemic world as a more agile and efficient company.
Now, let's shift and provide you with some color about the quarter.
We last spoke in late October our projections did not forecast a tremendous surge in COVID-19 mortality, but the U S experienced in late November and December.
Just to give you a little color on the cadence of the quarter. Our same store funeral volumes were up 7% in October then.
<unk> grew to 13% in November and an unprecedented 31% in December which is the highest monthly growth rate, we experienced all year.
As a result of this surge late in the quarter. We finished the fourth quarter with adjusted earnings per share of $1 13, compared to 60 cents from the prior year well above the range. We provided to you in October.
Both funeral and cemetery segments had margin improvement of over 600 basis points, driven by double digit top line percentage growth applied against a more efficient cost structure.
We also benefited from a lower share count and a lower tax rate.
Let's take a look at funeral operations in the quarter.
Total comparable funeral revenues grew approximately $49 million for 10% during the quarter.
Both core and non funeral home channels performed very well and were slightly offset by lower General agency revenues caused by a decline in insurance funded preneed funeral sales production.
Core revenues grew $53 million driven by a 17% increase in the number of cases, partially offset by a three 4% decline in the funeral sales average.
The predominant reason for the increase in services performed was due to the direct impact of COVID-19, and to a lesser extent to an increase in non COVID-19 related deaths, such as heart disease stroke cancer drug overdose suicide for.
Perhaps the consequence of a lack of access to health care during 2020.
Words cannot convey the level of my appreciation and respect I have for our frontline team.
The tremendous care you provided record numbers of our client families. During such a stressful time can only be described as for road. Thank.
Thank you.
The decline in the funeral sales average of three 4% was due to some local jurisdictions reimposing restrictions on gatherings given the surge in deaths in November and December.
This resulted in a decline in the number of cases, where the service there.
Cremation mix shift was a moderate 120 basis points and had a minimal impact on a quarter over quarter funeral average decline.
Preneed funeral sales production for the quarter was down one 6% versus the prior year, which is a significant improvement of results posted in earlier quarters. This year.
While we saw record growth in production from our digital and direct mail leads we continued to be hampered by a decline in pre planning seminars due to local restrictions and consumer reluctance on in person gatherings and restaurants.
From a profit perspective funeral gross profit increased $45 million and the gross profit percentage increased 640 basis points to 27, 5%.
Realizing a 92% incremental margin or revenue growth.
Growth in our high incremental margin core business more than offset.
Declines in our lower margin revenue streams.
We also continue to benefit by the efficient management of labor hours with fewer and smaller services as well as reductions in non customer facing costs and certain marketing and promotional expenses.
Now shifting to cemetery.
Comparable cemetery revenue increased $64 million for 18% in the fourth quarter.
At need cemetery revenue accounted for $25 million of the growth driven by more barrels performed due to the effects of COVID-19.
Recognized preneed revenues accounted for $35 million of growth.
Mainly due to higher Preneed cemetery sales production during the quarter.
Preneed Cemetery sales production grew $40 million or 16% in the fourth quarter driven by increased lead sources associated with the higher at need services and burials performed.
The preponderance of the growth $25 million or about 60% was from a 12% increase in velocity for the number of contracts sold.
The remaining growth of about $15 million was primarily due to large sales activity.
We continue to see a more productive and efficient sales force with better utilization of our customer relationship management system and improve conversion rates from our direct mail and digital lead campaigns.
Consumer reception to having a preplanning discussion remains very high.
I want to take a moment to recognize the tremendous efforts of our sales team for the full year 2020, they wrote more than $1 billion in cemetery Preneed sales production. This is a new company record so hats off to the entire sales organization.
Cemetery gross profit in the quarter grew by approximately $49 million and the gross profit percentage increased 680 basis points to 39%.
Growth in revenues and strategic cost reductions combine to drive margin beyond normalized incremental levels.
For the full year 2020, we reported and adjusted earnings per share of $2 91.
A 53% increase over 2019, and one of the kind of year.
As we look ahead, we acknowledge that there are many unknowns facing 2021.
Obviously, the speed and efficacy of the vaccine rollout could have a significant impact on the spread of the virus hospitalizations and ultimately on the number of deaths.
This combined with the willingness of the consumer to transact on a preneed basis may have a material effect on our 2021 results.
There is no doubt that in 2020, we service desk that were pulled forward from a future year.
While we know that the timing of the pull for it is impossible to accurately predict we have developed models based on data from the I H M. A and the C. D C, which incorporate historical trends and current COVID-19 related deaths by age group as well as by <unk>.
Orbit any factors in determining what future years are impacted by accelerated deaths and by how much.
Based on all these assumptions, we believe adjusted earnings per share in 2021 will likely range between $2 50.
$2 90 per share.
We have provided a wider than normal range based on the uncertainties surrounding the impact of COVID-19.
Let's take a deeper dive into our assumptions for the 2021 earnings per share guidance.
We are modeling funeral volume to be down versus 2020, but mid single digit percentage is higher than the 2019 levels.
Due to the expected impact on funeral volumes in the first few months of 2021 associated with COVID-19.
We anticipate double digit year over year percentage increases through March.
And while we expect a continued impact from COVID-19 deaths, we predict comparable volumes to trend lower for the rest of the year as compared to the very active final nine months of 2020.
We expect the funeral average to be down low single digit percentages in January and February and begin to see favorable trends as we compare back to the early months of the Covid outbreak in 2020.
While we anticipate growth year over year, we still believe we will struggle to get back to 2019 levels. As we believe many people will continue to be reluctant together and large groups.
We expect preneed funeral sales production to begin to rebound in the back half of the year and for the full year to grow in the mid to high single digit percentage range.
Dimitri at need revenues should see significant year over year growth from the first quarter, followed by a comparable decline for the last three quarters as we face a significant hurdle from the 2020 results for.
For the year, we expect cemetery at need revenue to be down versus 2020, but still show significant growth over 2019 pre COVID-19 levels.
Cemetery Preneed sales production grew.
Precedented rate in the back half of 2020, and we believe that momentum will carry over into the first half of 2021.
We expect double digit percentage growth for the first four months of the year before confronting challenging year over year comparisons beginning in May.
For the full year, we anticipate preneed cemetery sales production to be down in the mid single digit percentage range versus 2020.
But still be delivering solid growth as compared to our 2019 levels.
So in closing in spite of experiencing the most challenging environment our team continued to deliver.
We rose to meet challenges never space for our company before.
And you've been an extraordinary example of commitment professionalism and agility.
It's an honor to work with such great people and my sincere heartfelt thanks for the entire SDI family.
As we look ahead I am extremely optimistic about our future.
While we do not anticipate the impact from Covid to completely go away because it's our belief that we should see a more muted effect on our results for 2022.
Therefore, we expect a decline in case volume and at need cemetery revenues and therefore on the associated earnings and cash flow from the pull forward effects of 2020 in 'twenty 'twenty one.
However, the knowledge that we gained from this awful COVID-19 experience is anticipated to produce a more competitive and profitable operating platform for the years to come.
Therefore, we predict an impressive earnings per share growth for 2023 approaching $3 per share.
<unk> from a combination of enhanced market share.
Leaner infrastructure leveraging technology in a more efficient sales structure.
As the pull forward impact wanes and the baby boomers begin to enter their late seventies, we expect a further acceleration of earnings growth.
With our eyes on the longer term, we're continuing to invest in technology and new service offerings that allow us to remain relevant with our consumers and enhance our digital client experience.
And more efficiently and effectively serve our customers.
With that operator, I'll now turn it over to Eric.
Thanks, Tom and good morning, everybody.
And like I've done many times over the past few quarters I'm going to start by providing you with an update on the strength of our financial position that has supported us through these very volatile times I will then move on to address our cash flow results during the fourth quarter as well as the full year of 2020, followed by our capital deployment activities.
For the year, and then I'll end by providing some details on our outlook for 2021.
I think more importantly than any of that before we begin with that when.
When we are reporting our 2019 earnings almost exactly a year ago. Today I don't think any of us could have anticipated what we would be facing in 2020.
During the year, our frontline associates helped our communities deal with this rapidly moving virus with unparalleled poise and dignity.
Particularly earlier on in the year when there was more speculation than there were facts available about corona virus, but even to this day our teams across our network are coming together and sacrificing their personal time being away from home all to support their colleagues.
And their broader communities as well who are managing incur current COVID-19 hotspots.
So words cannot capture how thankful and proud I am of these.
24000 associates and how they have faced adversity of this pandemic with resolve.
And we will continue to help our communities through to the end of this terrible virus. So please hear me say something this morning, very clearly to all of our Sci associates. Thank you.
Now I'll shift to the financial update.
While we entered the pandemic anchored by a strong financial position and a favorable debt profile, we continue to be very well positioned with a significant amount of liquidity of roughly $670 million at the end of the year consisted of approximately $230 million of cash on hand, plus 440 million.
It is available on our long term bank credit facility.
On the higher EBITDA, resulting from the strong Q4 results for talking about today, our leverage remains low at 319 times at the end of the year and as we look beyond the impacts of this pandemic, we still intend to manage leverage in a range of three and a half to four times.
Net debt to EBITDA.
So let's move on to cash flow, which has been resilient for us throughout 2020 cash flow in the fourth quarter marked a much stronger than expected finished for the year supported by the earnings outperformance that Tom just mentioned associated with the surge of Covid related deaths, particularly in late November and December.
We generated operating cash flow of $245 million during the quarter, representing an increase of $88 million for 56% over the prior year.
This increase is primarily related to the growth in cash earnings in the quarter as well as the decrease in cash interest payments of about $28 million.
<unk> as a result of recent debt refinancing transactions.
Also remember we continue to benefit from the deferral of payroll tax payments as allowed under the cares act, which benefited the quarter by about $13 million and for the full year by about $41 million.
These positive inflows were partially offset by $25 million of higher cash tax payments on the higher earnings as well as a net use of pre need working capital, which we have seen all year on the growth in cemetery preneed property sales sold on an installment base.
And as we step back and look at the full year, we generated over $800 million in operating cash flow, representing an increase of $170 million over the prior year.
So let's talk about how we deploy this free cash flow during.
During the quarter, we had a very robust capital program deploy and nearly $325 million of capital to reinvest in and grow our businesses as well as return value to our shareholders.
So regarding the breakdown we.
We invested $56 million in our businesses through maintenance and cemetery development capital spend.
Which was about $2 million more than the prior year quarter, but in line with our expectations.
Full year spend was approximately $185 million, which represents a 9% decline from the prior year as we curtailed or defer certain expenditures during the very early stages of the COVID-19, pandemic, which we expect to make up in 2021 as I will address later.
In my remarks.
During the quarter, we deployed about $35 million towards acquisitions, which was a nice pickup in activity at the end of the year.
For the full year of 2020, we deployed just over $100 million in both acquisitions and growth Capex for construction of new funeral homes.
And then finally in the quarter, we returned nearly $225 million to shareholders in the form of dividends and share repurchases.
With our strong liquidity and cash flow as a backdrop along with our favorable leverage profile, we took the opportunity to deploy a healthy amount of capital to share repurchases in 2020, and the fourth quarter, we bought back about 2% of our outstanding shares, bringing the full year reduction.
And outstanding shares to about 6%.
So let's shift to our outlook for 2021 and in terms of cash flow and capital deployment.
Tom just gave you some color on the ever evolving pandemic, making it challenging to forecast with precision where our results will land in 2021, but based on the range of outcomes for adjusted EPS noted in our press release associated with the remaining duration and severity of Covid, we expect our.
<unk> cash flow from operations to range from $600 million to $700 million in 2021.
There are a few items that I'd like to highlight when thinking about cash flow from ops in 2021.
We will incur three full quarters of what I would consider regular payroll taxes of about $40 million, which were able to defer in 2020 as allowed under the cares Act. Additionally, we will also be required to pay half are about $20 million of these deferred payroll taxes.
The third quarter of 2021, and the remainder will be due in 2022.
These two items, then collectively create a $60 million impact to cash flow in 2021, when you compare it to 2020 associated with payroll taxes.
<unk> federal cash tax payments as state tax cash payments together are also anticipated to be about $25 million higher than 2020 at about $160 million in 'twenty one.
This increase is mostly related to the timing of cash tax payments associated with our stronger than expected Q4, 2020 financial results that will be paid in early 2021.
From an effective tax rate standpoint, we continue to model in the range of 24% to 25% in 'twenty one.
So moving on to some thoughts about capital deployment as we move forward.
Our expectation for maintenance and cemetery development capital spending in 'twenty, one is 235 million to $255 million, which is about $40 million higher than our pre COVID-19 level spend as we proceed with certain projects deferred from last year and.
In addition to these recurring capital expenditures of $245 million at the midpoint.
We expect to deploy $50 million to $100 million towards acquisitions, and roughly $50 million to $60 million and 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.
So with those remarks in closing.
<unk> was by far the most difficult backdrop, we faced and a very long time.
Fortunately, we went into it with a superior balance sheet and it stayed strong for the duration. Despite everything that has occurred 2020 has been an extremely successful year for us while managing through many unforeseen and unexpected challenges again.
None of this could be possible without the resolve passion and dedication of our associates. During this trying year and I'd like to again, thank each of you.
So with that operator that concludes our prepared remarks, I'd now like to turn it back over to you and we will open the call up for questions.
Thank you we will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
If you are using a speaker phone.
Please pickup your handset before pressing the keys.
If at any time your question has been addressed.
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Please press Star then two.
At this time, we will pause momentarily to assemble our roster.
The first question comes from Joanna <unk> of Bank.
Bank of America. Please go ahead.
Okay. Thank you very much for thinking that question here.
So a couple of things I guess first off.
I guess I appreciate the comment on that 2023 EPS close to.
$3.
So could you I guess in the context of frame for us how should we think about your for use of non here in a long term growth targets.
Kind of made it sound like maybe you think it does it does this targets should be high because previously you talked about 8% to 10%. So still kind of can you frame that.
Credit metrics to Alaska will be great.
Sure Joanna.
I think historically as you know, we've given an 8% to 12% range I think more recently, it's been a bit more challenging and we've tended to be more in the eight to 10.
What Covid has taught US really are are a couple of things.
Because I mentioned that I think we're a more powerful company coming out of this and I believe that first.
First of all I think we've had the ability to gain share going forward. We can look today as an example, if you look at the at need services were providing versus the preneed going at need which those numbers typically are pretty coordinated we've seen a consistent.
The increase in the number of true at needs versus preneed going at need. So it tells us that we're servicing more people than we typically would.
I think a lot of that has to do with our scale and our ability to deliver services because unfortunately in many marketplaces.
It's just so overwhelming that a lot of our competitors aren't able to take and people in and because of our ability to scale people.
Two two.
Acquire.
Refrigeration and things of that nature, our ability to have cemeteries, we can perform outdoor services.
And again, we're taking advantage of that opportunity to have deeper relationships with our consumers. The other thing that I think is pretty prevalent for us is our digital footprint and our website, our digital leads program, which feed both preneed funeral.
Funeral volume so as we look forward, we think the goodwill that we gain the footprint that we have for outdoor services and cemeteries. The heritage that we captured by serving more customers. During this time should afford us a better market share and when you combine that with the.
The technology advancements that I think the company has.
Achieved over this period.
We're utilizing technology more and how we service families.
It's allowed us to be more nimble and better at sharing resources of people and things and from a from a sales perspective.
Believe we know with our digital leads programs and effective direct mail programs are finding a more effective and efficient way.
To produce sales.
And as it goes on I think it allows us to expand our span of control the way that we think about it the days of traveling like we did before particularly if you had a region.
That should be dramatically reduces we look forward clearly we need to get out and visit people.
I think at the same time, we will have a more efficient effective and increase our span of control going forward.
So that would push us towards my opinion, probably closer to the upper end of our long term range strength.
Okay that makes sense and then on the last the last point I guess.
Last quarter, you talked about 10.
$10 million to $12 million cost savings for instance.
Pete from Diamond cost structure.
But it's still the same range when you talk about.
Nina.
Cost structure or is there additional.
Efficiencies.
Going forward, because I guess at that point, you kind of indicated could be for more than that number. So any color I guess on that number will be great too.
Yes.
I think those numbers are still very safe is it might be a little a little bigger than that now, but again I think a lot of it is going to determine how this shakes out and what sticks as it relates to.
Preferences of the consumer.
And also I think.
As we normalize whatever normal is true.
Into that cost structure, but I think it's safe to say that 10 to 12 is what we've identified I think theres still a little bit more to be had as we are.
Go about in the post pandemic world.
Okay that makes sense.
No that's helpful I guess.
It's kind of inline with what you were saying, but that's okay.
For more than that.
And I think that from excuse me from the last question. So you did spend some money on non <unk>.
Acquisitions it seems.
Fourth quarter, so kind of how do you.
I expect this to play out going forward.
Is that a smaller competitor is down during the pandemic it sounds like.
Some people might have been pretty much overwhelmed. So thanks for your point about market share gains that aren't there also assets to be actually acquired because they might struggle a day might be feeling that they are too small to kind of any color on that acquisition company outlook would be great. Thank you.
True Joanna we did have a nice fourth quarter of closings and as we look at the pipeline it looks pretty active as.
As we look out into 2021 and 2022, so we feel very good about those opportunities it's hard to say I think it's.
I think a lot of things can impact the timing of People's decisions I think going through something like this surely makes people think twice about.
What they want to do with their lives. So so I think it could have an impact on people, but but for the most part what we're seeing right now what we expect is a pretty robust.
The opportunity set as it relates to that and then I think as Eric mentioned, we probably will continue to increase the amount of spend on new constructed funeral homes. We've also recently purchased land to construct a new cemeteries in certain market. So so I think it'll be a hybrid approach to growing through <unk>.
Acquisition.
Increasing our investment in new builds and new cemeteries.
Great. Thank you I'll go back for the kitchen.
Thank you.
The next question comes from a J Rice of credit Suisse. Please go ahead.
Thanks, Hi, everybody.
Maybe just to try to come.
Hi, Matt.
<unk> comment about cost savings and so forth from a different perspective, when we return to normal post the COVID-19 environment, I guess pre COVID-19, we'd always stocks or.
Sort of talk about funeral gross margins being in the 19% to 21% range and in cemetery margins being in the 29% to 30% range.
I wonder is that sort of where we land or is because of the cost adjustments and so forth is it possible it might be higher than that.
Yes, I think again, it probably depends on working through all of this pull forward noise right, it's going to be hard to predict because we don't know exactly.
With tears in this pull forward occurred or how long the pandemic will continue to be an impact on.
The numbers of deaths I think as you get to a normalized stages, our belief that we probably have the ability to raise those margins you talked about another 100 to 200 basis points.
From from the range that you've talked about so yeah, we feel confident that that both margin and funeral margins as cemetery as we look out let's say to $2023 2024.
Ought to be 200 basis points or so better than the ones you quoted.
Okay, and you mentioned a little step back in price you're getting.
Fourth quarter I know a lot of.
The challenges on the pricing returning had been targeted California and Canada.
Canada did.
The increase in Covid activity across other parts of the country.
In fact pricing there or was it pretty much still constrained.
There's two more markets.
It really Ajay.
Effect and a lot of different markets, but California.
Canada had a more pronounced effect because of the government regulated restrictions in certain other markets like Seattle, I think again, we're pretty limited, but even anytime you have an outbreak in a market I think people have a reluctance to gather people have a reluctance to have a big.
Event.
So we did see it kind of consistently when you see these big surges in and Covid outbreak. So.
It really was getting a lot better all the way through October and November December one.
We saw that impact occur. So so right now we're still very very busy as you can imagine.
And expect to continue to be.
And this first quarter and then I think you would see that average as is.
The infection.
Infections go down when the hospitalizations go down you'll begin to see people.
Spend a little bit more money a little bigger.
Receptions from Hawaii.
And I guess last question in the background we've.
It's sort of been tracking what's happening with the FTC and the funeral rule was there any update from your perspective into what's going on there with the new administration and all.
I'll take that AJ. Good morning, Theres really no update at this point in time.
With the changeover in the administration, there's going to be changeover and commissioners. Some of the commissioners have moved on to other positions.
There is some resignations as well so the framework itself in terms of the Commissioner makeup will.
We will be different moving forward than what it was before too early to tell what that means or where that's going.
Certainly there is a there is a lot of things going on as we all know and our country that may lend itself to more important issues than the than the funeral rule.
But we don't anticipate that the momentum is going to change one way or another at this point in time.
The good news is is we've been very very consistent as we continue to move forward with our strategy.
Regardless of an outcome from the federal Trade Commission to put our best foot forward using our digital sites.
To put starting at prices and premium type enhanced products and service pricing out there and in some cases even.
Testing, some gpl's out there as well.
Not a change in our plan that's something that I think we've been very very consistent with you.
Over probably more than a year that that's where we're going to continue to do for no. Other reason then that's what we think is in the best interest of our consumers and we're going to continue to to meet those needs as we move forward.
Okay, great. Thanks, a lot.
Yes.
The next question comes from Scott <unk>.
<unk> Berger of Oppenheimer. Please.
Please go ahead.
Alright, thanks very much.
Good morning, everyone, and and Eric and Tom I would like to Echo. Your thanks for your workforce certainly doing a lot of our important work in interest condition. The first question I'd like to ask is.
It is on on the cadence of the.
Quarterly cadence in 2021, it sounds from your prepared remarks like you're anticipating.
Probably a lot of business activity in first quarter, but could you just give us a feel.
For how we should think about each of the quarters.
Maybe at an annual contribution or something similar.
Sure Scott.
I think in my remarks, I tried to give it.
A bit of a monthly.
The impact for you but.
Clearly, it's really about comparing back to 2020 is the hard thing I think we're seeing a surge.
That continued from the last couple of months of 2020 into the early part of 2021. So like we said, we would expect double digit percentage growth in funeral and cemetery.
Really occurring throughout the first quarter.
And even into into April.
As you get into the sales.
If you remember last year, the second quarter really was a tale of two things happening while we saw a big increase in case volume in late March and early April the average went down pretty dramatically.
In sales, we dried up in April we had a really difficult preneed cemetery sales.
Going on there, but we really began to rebound as you got out of the quarter. So the second quarter is not as big of a hump.
Because of the challenges in the first part of it and then as you get to the back half for the year, It's really a I think a tough comparison.
Because youre going to see you know case volume being a tough comp at need Cemetery Preneed cemetery as well. So so a big piece of this is going to be in the first quarter.
I would expect kind of.
No.
A comparison for the second quarter and it'll be pretty.
Normal and then as you get into back half for the year.
I Hope I hope that was viruses is more contained and again then we would expect.
Sure.
A tough comp as you get to the back half for the year, but but overall, it's going to be a very.
<unk> solid financial performance for the company.
Thanks.
Aye.
In cemetery pre need I'm, just curious in Lee and thank you for <unk>.
Difficult with consideration of pull forward and just 2021 alone forget about 'twenty two 'twenty three 'twenty four but thank you for your your stock.
On those but just curious specifically on cemetery preneed sales.
It's been quite elevated.
Are you thinking about that multiyear run rate, what we should expect.
It kind of the cadence for that as well you've touched upon it but I'm curious to hear maybe a little bit more.
Commentary on that thanks.
Sure Scott I think.
I think like we said for 2021.
We would expect it could be slightly below the levels that we performed in 2020, but again a healthy clip over 2019. Thank you for.
We come out of that.
We feel very good about it because couple of things happened Youre developing heritage as you sell into those cemeteries and again thinking of family trees youre connecting to more families more opportunities to kind of spread out within that.
Influence what you have the other thing.
We're doing a lot more outdoor services in our cemeteries. So we're bringing a lot more people into the cemetery grounds, gaining familiar already seeing what we see so I see a lot of.
As it relates to that as it relates to digital leads in our ability to convert those and so the only thing that can be a bit of a drag is the fact that in this pull forward youll have less people coming through the funeral homes, which again wood wood.
I'm at the number of new context that you have but I think with technology and with a more efficient.
Sales for us better leads.
And net.
The goodwill that we have gained we expect can occur.
To return to levels, where we can grow them again in the high single digits percentage is going forward in a more normalized environment.
Thanks Thomas.
Nick one more and it's going to be it's going to be two separate parts.
The first day, if you could just provide a project update on on Beacon, serving serving cemetery just curious on where that stands and then also I heard you say that youre going to be.
Buying or have been buying some cemetery land, which I don't think its something <unk> been too active doing in the past I'm curious might we see.
Im sure Thats in areas of high activity might we see you do something like that will land as well in areas, where kind of admin as an offset move and in consideration of contribution if that were to happen. Thanks I'll pass on that.
Yes, I'll take beacon for Tom.
Beacon is going well believe it or not during the pandemic, we've been able to continue to work diligently through all of our processes and get this get it rolled out, particularly just so everybody remembers.
Our cemetery segment, who has previously rolled out to most of our funeral segment still have some issues around the pandemic rolling outlet in Canada and places like that.
Cemetery for probably about 90% there.
And we're very pleased with the progress that we've seen with that I think our expectations were to see a little bit of a favorable decrease in our discount rate as we did that as well as some favorable moving an average sale.
I would caution the way I would say this because I think we're seeing positive results for the same time.
I don't know if a good analogy, but it's kind of like trying to measure the afternoon Breeze during a hurricane.
Very difficult with the type of activity that we've had.
The accretable growth that we had in our cemetery sales to kind of isolate everything and attributed just very specifically.
VK.
So I say that with that caveat, but hear me say very clearly.
Continues to be finalized and rolled out it continues to be working well and it's continuing to meet our long term expectations in our opinion in terms of helping grow average sale in the cemeteries as well as <unk>.
Continuing to reduce discounts as well.
The next step for the funeral segment is probably moving on to our.
Sci direct brands.
And we will continue to work on that during 'twenty, one and we're very excited about that.
As well.
Tom do you want to comment on the purchase of cemetery property then.
Sure Scott.
The cemetery property, we're talking about is generally very high velocity markets for us. So it's places where we've got a big presence of sales and marketing.
In places, where we felt like it was in the best long term strategic interest for us to expand into different parts of larger cities. So it's a pretty isolated and there's really no land to so I'd say to fund that we just are in all of these cases, it's cemeteries that we're going to immediately begin to develop and expect to begin.
Selling but for some of these as an example, I'll give you. One is we did not have a big presence in southwest Houston and a lot of the growth for Houston, if youre familiar with it is going out west and south and so we just felt it was prudent to position ourselves in that area, where all of this growth was now not all of it is the <unk>.
Ideal age for us, but we've got a got to have that ready and I think it affords us an opportunity to manage the west side of Houston in a different way.
But that's just an example, and I don't think you see a lot of it but but it's important for us to do.
Thanks for all the color guys.
Thanks, a lot.
The next question comes from.
Next question comes from John Ransom of Raymond James. Please go ahead.
Hey, good morning, everybody.
Just a couple of cleanups of what was the Eric what was the year end share count.
Year end share count was right around 179.
Okay.
And as I think about share kind of first half versus second half.
Maybe an earnings and EPS.
Percentage first half versus second half in your guide would be helpful. And also what are you assuming that capital targets.
At need funeral volume decline and how do we think about the decremental margin from that's helpful guys.
Yes.
I think the way I think about it is when you looked at 2020 kind of played out John from a first half second half base.
Basis.
The first quarter, obviously, it was pre COVID-19, but when you really look at the $2 92.
Youre looking at I think of it as more as a general statement as one third in the first half from two thirds in the back half for the year. So.
Logic would tell you it would probably flip on us in a normal type year, and so youre, probably looking at somewhere in the ballpark of if you think of the center of the guidance.
Being $2 70.
Here Youre looking at.
Something like two.
Two thirds in the first half for the year.
And one third in the in the back half of the year.
So there's a real question.
That's pretty logical what I, just said does it give you too much insight, but it's very difficult to know when the COVID-19 pandemic and EES and when is the volume going to ease. We certainly are seeing that as we speak into January as you know and it's starting to trickle a little bit down.
And in February.
When you think of the components in the back half related to a funeral.
Funeral volume.
All in you could easily see something.
In the mid teens high teens, maybe.
Maybe even down into the very low 20%.
Type range.
Again, it all depends on efficacy of vaccines speed of vaccines, where it's going.
But that is kind of what we are modeling right now as we.
As we speak.
And if you had to get from that you've talked about this before but.
Interesting I guess and a morbid way that.
If you look at the at depth.
2020 versus because of the depth or about the same.
But as we know Covid wasn't a 100 per cent of the excess cash if you had to guess.
And the excess desktop what percent do you think is truly our COVID-19 vessels.
Other things that we talked about the thresholds suicide lack of cancer screenings and whatnot.
Yes, I don't know how to venture a guess Tom you go ahead if.
You want to grab that.
Looked at.
Just going off the CDC data I would say.
John that about two thirds of it or COVID-19 deaths somewhere around that number which leaves a third of what we'll call excess deaths not directly related to the corona virus, causing death, but may be.
The impact of of what's.
Happening with the lack of health care access for lack of.
Yeah.
To drugs and things of that nature. So so yeah, I think it's probably that and that was a little harder to model because you'd say, what's the long term impact on our mental health physical health of going right years without screenings are or access to doctors or appropriate drug regiment. So.
So you got to kind of shrinking a little bit differently.
Sure.
Thank you that's it for me.
Okay. Thanks, Sean.
It appears there are no more questions. Therefore, this concludes our question and answer session.
I would like to turn the conference back over to Sci management for any closing remarks.
We want to thank everybody for being on the call today, Please stay safe.
We look forward to speaking to you again at the end of the first quarter, which will be in our late April so be careful talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
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