Q2 2021 Service Corporation International Earnings Call
[music].
Good morning, and welcome to the STI second quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions to ask a question you.
You May press Star then 1 on your telephone keypad to withdraw your question. Please press Star then 2 please note. This event is being recorded I would now like to turn the conference over to Sci management. Please go ahead.
Thank you Ryan Good morning. This is Debbie young welcome today to our company to review.
Results from the second quarter of 2021, and hope everyone has had a chance to review our press release issued yesterday before the prepared remarks pulmonary 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.
This lease expectations or projections from 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.
Emitted to those factors identified in our earnings release.
Fillings 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 measures to the appropriate GAAP measures can be found in the tables at the end of our earnings release.
And also from our website under the investors webcast events section.
With that out of the way I'll now pass it back to our chairman and CEO Ryan.
Thanks, Debbie and Hello, everyone and thank you for joining us on the call.
I'll apologize in advance from our voice.
Eric promise.
<unk> works with myself.
This morning, I'm going to begin my remarks, with a high level overview of the quarter.
Followed by a more detailed analysis of our funeral and cemetery results in <unk>.
Finally comment on our guidance and outlook from here.
Before I begin I want to give special thanks again to my Sci.
I mean.
You work so hard to deliver the impressive operating results we reported this quarter.
More importantly, you continue to stay relentlessly focused on what we do best helping our client families and the communities that we serve gain closure and healing process of green.
<unk> Remembrance and celebration.
During these difficult times I, just can't say enough about how you continue to rise to the occasion you truly from my heroes and you have my heartfelt appreciation.
So, let's get right to the highlights.
For the second quarter.
We generated adjusted earnings per share of 92.
59% increase over the prior year.
The primary driver of the earnings per share growth, which are at 34% increase in cemetery revenues from the quarter.
Which was generated by our continued strength.
Preneed Cemetery.
Pre sales production at.
At need cemetery revenue growth.
And highly profitable increase in recognized preneed merchandise and service revenue.
The funeral segment delivered strong funeral sales average growth, which more than offset expected declines in funeral volumes when compared against.
Against the quarter severely impacted by COVID-19, and the commercial restrictions imposed at the time.
Preneed funeral sales production came roaring back with a 57% increase over the prior year quarter.
At a high level adjusted operating income grew 50.
$8 million.
And contributed over 70% of the increase in adjusted earnings per share.
The remaining increase was the result of fewer shares outstanding and lower interest expense and a lower adjusted tax rate.
Now, let's take a look at the funeral results.
Overall, the funeral segment performed better than we expected.
Total comparable funeral revenue grew $48 million or 10%.
Primarily due to significant improvements in the sales average, which helped to offset anticipated lower volume when compared to the elevated pandemic volumes.
Last year.
Core funeral revenues grew $25 million led by an impressive 14% increase from the core funeral sales average.
More than offsetting a 7% decline in volume.
We are very encouraged by the rebound in the funeral sales there.
Our core average revenue per service.
Is up almost 3% versus the 2019 pre COVID-19 second quarter.
Youll recall that in last year's second quarter, we saw concerning drop in the percentage of customers with a service when services were limited by COVID-19, and the related restrictions.
We.
As <unk> seen this percentage approach pre COVID-19 levels as our client families continue to place significant value on memorial day shift and celebration.
Preneed funeral sales production for the second quarter grew an impressive $106 million or 57% which exceeded.
And our expectation.
Both our core funeral home and Sci direct businesses posted strong increases I guess, an easier comparison quarter in 2020.
We continued to see significant growth in marketing leads from both digital and direct mail.
Very successfully.
We have generated preneed sales production.
In addition lead growth from seminars through over 5 times from the same quarter in 2020, which was severely impacted by COVID-19 and related restrictions.
On the non marketing lead front, we saw a significant rebound in grassroots.
<unk> roots events grass roots events at both our locations and buildings as well as enhanced willingness of the customer to meet with us at our location, where the privacy of their own.
With these more robust leads are highly effective sales team have increased to lead to sell rate almost.
17%.
The historical average, which hovered around the 14% range.
From a profit perspective.
Gross profit decreased approximately $8 million, resulting in a lower gross profit percentage of 25%.
The.
Total margin generated from the core revenue increase was slightly reduced by elevated staffing and service level costs associated with operating a full service facilities in the current quarter as compared to the limited service structure, we operated under during the second quarter of 2020.
Additionally.
Incremental facilities costs were higher as temporarily deferred repairs and maintenance expense from the pandemic and the Texas freeze combined with higher utility costs put additional pressure on our margin.
Remember $15 million of our revenue increase this quarter was other revenue.
Revenue, primarily general agency revenues associated with our 70% increase in insurance funded preneed funeral sales production.
These revenues are almost entirely offset by a sales call.
And therefore have a negative impact in the immediate term on our funeral profit percentage.
Finally, this quarter saw elevated expenses associated with incentive compensation for our field leadership as financial results for the first half soundly exceeded both prior year and our own expectations.
Now shifting to cemetery.
Our cemetery sales performance continue.
We used to exceed even our lofty expectations.
Comparable cemetery revenue increased $117 million or 34% in the second quarter.
In terms of breakdown recognized preneed revenues accounted for about $89 million or 70.
10% of the revenue growth.
This from Mark will increase was driven by higher than expected Preneed cemetery property sales production as well as higher recognized preneed merchandise and service revenue.
As cumulative trust earnings on delivered contracts were significantly higher during the quarter.
At need cemetery revenue accounted for $18 million or 15% of the growth driven by more turbines performed due in part to the effects of COVID-19.
Additionally, we experienced a $10 million increase in perpetual care Trust fund income due to the timing of capital gains.
Preneed Cemetery sales production grew an impressive $94 million or 36% in the second quarter.
Core velocity or the number of preneed contracts sold increased by more than 20% and accounted for 56% of the quarterly preneed.
Cemetery sales production increase.
Florida sales production increased over $25 million or 60% over the prior year quarter.
Accounting for 27% of the quarterly increase.
While the higher quality core average sale contributed the remaining 17% of the sales production.
<unk> growth.
As I mentioned in my Preneed funeral discussion earlier, we continue to see improvements in the lead to sales range across various marketing channel.
Coupled with a more productive and more efficient sales team utilizing tools like <unk> and.
Salesforce CRM to drive superior.
Sales performance.
Cemetery gross profit in the quarter grew by approximately $57 million and the gross profit percentage increased 490 basis points to over 35%.
The incremental margin on the revenue increases more than offset slightly.
Periods staffing and service level cost associated with operating full service cemeteries as compared to the limited service structure during the second quarter of 2020.
Similar to the funeral segment this quarter saw elevated expenses associated with incentive compensation for our field leadership and financial.
Elevates from the first half soundly exceeded both prior year and our expectations.
Now, let's talk about our revised outlook for 2021.
Back in May we raised our adjusted earnings per share guidance to a range of $2.70.
$3.
As a result based upon results from the first half.
Again, raising our guidance range to $3.20 to.
The $3.57.
This increases the midpoint by an additional 50 cents.
And represents a 17% increase over our 2020 results.
The 2 most significant adjusted assumptions for the back half of the year from our previous guidance. Our number 1 higher preneed cemetery sales production and secondly, higher funeral case volumes and we had originally anticipated.
Impact of COVID-19 variance.
Put upward pressure on the adjusted.
I HMA projections from Covid deaths in the back half 2021.
Within our funeral segment, we're anticipating comparable volume decreases in the high teen percentages for the back half of 2021 versus 2020, resulting in being down mid.
At single digit percentages for the year 2021.
Meanwhile, we would expect the average revenue per case to continue to compare very favorably in the back half of the year, resulting in mid single digit percentage growth for the year 2021.
Finally, we would expect preneed funeral.
<unk> production to continue growing in the high single digit to low teen percentages for the back half of 2021, resulting in a mid to high teen percentage growth for the entire year.
Is this sales production revenues deferred it will have a slightly negative impact on funeral margin.
7 inches in the near term is selling costs should offset General Agency Commission, but.
It will enhance our market share funeral revenue and profits in future years.
On the cemetery side of the business, we would expect patent each cemetery revenues to decline in the mid to high teen percentage.
Purchases in the back half of the year similar to the funeral volume trends.
However at levels that are well above 2019 revenues.
<unk> and low to mid single digit percentage growth for the entire year versus 2020.
As far as Preneed cemetery sales production goes.
We would expect a mid single digit percentage decline in the back half of 2021 as compared to the robust levels of 2020.
However, sales production should be a double digit percentage growth over 2019 level.
<unk> in mid to high teen percent.
Growth for the year 2021 over 2020.
As far as the future years.
I wish I had a crystal ball free.
Not having 1 I will convey what we expect with the information that we have at this time.
We still expect future periods earnings per share.
Share and cash flow results to be negatively impacted temporarily by.
The pull forward of funeral case volume and at need cemetery sales into 2020 and early 2021.
Still efficiencies, we have gained by improving processes leveraging technology.
Synergies have allowed us to produce more competitive and profitable operating platform.
This combined with the capital structure improvement, particularly the share buyback activity should allow us to produce exceptional earnings per share compounded average growth rate even in these negatively impacted.
<unk> here.
Once those pull forward effects fade demographics that at the.
The mid and longer term outlook for Sci is even more impressive.
As an example.
Even in 2022, where we might expect funeral case volume to be down double digit percentages versus 2021.
<unk> performing some 25000 fewer funeral in 2022 than we did in 2019 from.
Remember, we generated earnings per share of $1.92019, we.
We would expect 2022 earnings per share even with a high single digit percentage volume decline compared to 20.
19 to be in the 11% to 15% compounded growth range offset dollar 92019 pre COVID-19 earnings per share by <unk>.
That would equate to a $2.60.
To $2.90 per share approximate result for 2022.
Our models post 2022, we'd say the pull forward effect should begin to wane and an accelerated year over year growth should begin as we approach a favorable demographic impact with a leaner more technologically efficient and effective operating margin.
Last quarter I mentioned, we can see 2023 earnings per share approaching $3 to $3.25.
I believe we're even more comfortable with the $3, 25% possibility today.
In closing I, just want to say, thank you again to our entire Sci team.
Your selfless dedication to our client families and the communities that place their trust.
With that operator, I'll turn it over to Eric.
Thanks, Tom and good morning, everybody.
First we hope that you your friends and your family are remaining safe and healthy during.
These really trying times I want to first and most importantly, echo Toms comments that our positive quarterly results discussed today are a testament to the dedication and hard work of all of our team members here at Sci, which are putting our client families first and 1 of their most dire times.
Of need we appreciate each and every 1 of you.
So this morning I'd like to begin by walking you through our cash flow results and capital deployment for the quarter and then briefly touch upon our revised full year cash flow guidance and financial position.
So let's start with cash.
Cash flow.
We generated adjusted operating cash flow of $192 million in the current quarter compared to $184 million in the prior year, which exceeded our expectations primarily due to the strong preneed cemetery sales production that you saw yesterday in our release and Tom just.
Secret.
In addition to strong operating cash flow results, which again, resulting from EBITDA growth of over $60 million we.
We also benefited by a decrease in cash interest payments of about $25 million, primarily resulting from the timing of our recent debt.
Net refinancing transactions.
I want to go ahead and highlight the transaction that we completed after our last earnings call in light of the continued historic low interest rates, we took the opportunity to issue new 10 year $800 million senior notes at a 4% rate.
We.
Walk these proceeds to refinance our 2021 notes set to mature later this year.
It improved our liquidity tremendously by repaying the $450 million outstanding on our revolver trading almost $1 million at $1 billion of avail.
We utility.
We also experienced a net source of working capital during the quarter, which was primarily due to a timing difference of cash related to 1 less payroll funding this quarter, partially offset by an increase in payroll taxes as we were able to defer these taxes last year under.
All of this act.
These positive cash flow items more than offset an increase in cash taxes of about $89 million, partly associated with the higher earnings and partly due to timing of quarterly cash tax payments last year.
Recall that in the second quarter of last year.
We were able to defer close to $50 million of federal and state income tax payments as allowed by the IRS into the third quarter of 2020.
So let's talk about capital deployment.
We deployed $185 million of capital during the quarter reinvesting.
The cares this is expanding our footprint and returning capital to shareholders.
Now in terms of the breakdown.
We invested 51 million and our businesses with $36 million of maintenance capital and $15 million of cemetery development capital spend.
Our cemetery development capital spend.
<unk> is still a little lower than our expectations as we've talked about with you last quarter as we continue to experience certain construction delays primarily on the permitting side on some of our larger development projects, even with that said, we believe we will still achieve our target of around 105.
In our $1 billion for the full year.
From a growth capital perspective, we invested about $10 million towards the new build and expansion of several funeral homes.
These newbuild should provide us with great low double digit percentage returns going forward and expand our footprint and desire.
5 novel markets.
So touching on the acquisition pipeline for a moment through today our acquisition spend is just under $10 million in 2021 on the heels of Covid, we're coming out of the gate with acquisitions a bit slower than the than we would've hoped for but we have a really good pipeline.
Xyrem opportunities and we believe we can hit our targeted capital deployment range for acquisitions of 50 to 100 billion for the full year.
Finally, we deployed $116 million of capital to shareholders through dividends and share repurchases.
Dividend payments in the second quarter.
<unk> totaled $35 million or 21 cents per share.
Now I'd like to shift to a few comments on our updated outlook.
Unexpected higher earnings that Tom just described we are increasing our cash flow guidance from $6.50 million to $725 million to a new.
New revised guidance range of $700 million to $775 million.
This increases the midpoint by $50 million to $738 million or just over 7%.
Pulling the pieces together with the $50 million increase in cash flow guidance at the midpoint.
<unk>.
Is driven by approximately $100 million increase in cash earnings, which associates with a 50 cent increase at the midpoint in today's revised earnings per share guidance.
This increase was partially offset by $30 million of increase in cash taxes that are expected in.
And $20 million of other working capital uses.
And when you think about cash taxes, we're now expecting closer to $210 million of cash tax payments in 2021.
Or an additional $30 million over the $180 million, we guided to you in may as a result of these higher.
<unk>, we've been describing today.
Our expectations for maintenance and cemetery development capital spending for the year remain unchanged at $235 million to $255 million.
So in closing let me just say a few words about our financial.
Position.
We continue to have a solid balance sheet bolstered by a tremendous amount of liquidity.
<unk> of about $400 million from cash on hand, plus.
Plus about $1 billion available on our long term bank credit facility.
On the continued growth in EBITDA.
Our leverage ratio at the end of the quarter remains below 3 times actually at about 2.5 times.
As we look beyond the impacts of this pandemic, we continue to expect to naturally lever back up to our targeted leverage range of 3 and a half to 4 times.
Debt to EBITDA.
The underlying stability of our cash flows as well as our strong financial position that I. Just described to you. It gives us tremendous confidence and flexibility to continue being opportunistic in deploying capital to the highest return opportunities.
Net earnings for the remainder of this year.
And as we conclude the first half of this year.
We are extremely proud of the achievements that we have accomplished and again the credit goes to all of our 24000.
Sci associates out in the field serving the families.
But in the families first at their time of need.
We enter the second half with a lot of momentum and I'm confident we will continue to execute our strategy and delivered strong operational and financial results throughout the remainder of this year.
So with that operator that concludes.
<unk> times in my remarks, and we will go ahead and pass it back to you and open the call up for questions.
We will now begin the question and answer session to ask a question may prices start then 1 on your telephone keypad, if you're using a speaker phone. Please.
And from your handset before pressing the keys to withdraw your question. Please press Star then 2.
At this time, we will pause momentarily to assemble our roster.
Okay.
Okay.
First question is from Joanna <unk> from Bank of America. Please go ahead.
Good morning, Thanks, so much for taking the question here.
So again I appreciate all the commentary about the second half.
Oh go ahead great.
And what it implies for the year and I guess can you just flesh out a little bit more.
Dynamics around the cemetery preneed sales.
I mean, he said.
Does it surprise you.
Okay any kind of idea in terms of what's driving that and kind of what gives you confidence that that will continue into second half.
Just kind of pull forward sales as in like I'm just people, obviously are thinking about there.
Mortality and whatnot, so it was kind of making because.
This isn't something you pay yourself kind of flesh out that the dynamics of those dynamics force. Thank you.
Sure Joanne Thank you.
First of all I would say, obviously, we believe that cash.
Covid deaths have had an impact on our ability to generate leads and generate production.
So some of this is.
For lack of a better term pull forward, but I guess when you know the preneed cemetery sales side, but with so many potential customers I don't even from here.
It's not like it's a.
It's really an opportunity to capture it.
Still think a significant portion of this relates to I think the people realization.
Can focus on what we do and I think as long as COVID-19 around and maybe a while after that I think their aperture for what we do is going to continue to be available and the last piece that I think is just true and I think Jerry <unk>, who runs our sales force.
Free because.
Oh man.
We have found a better way to manage and we're managing with less travel leveraging technology I'm.
Focused on leads what we do with those lesions in excess so you heard me reference the lead to sales percentage is at 17%.
And it used to be at 14%. So we're getting better leads we're following up better we're utilizing our tools salesforce customer relationship management of Beacon and so I think there's an element of continuation.
The other thing that gives me confidence on the and we've referenced this a little bit on the cemetery side.
We've been.
Selling a lot of merchandise and services remember those get deferred and put into dress upon and.
And if you look at our numbers. This time those are up pretty significantly why is that we've sold a lot of premium customers and those monies invested in trust funds and Theres. Some cumulative trust earnings in there that roll out as we deliver.
Merchandise and services, so that again will be something that a lot of benefit in the back half of the year of 2022 going forward for all those reasons. So hopefully that helps answer your question.
Right no that's good color and I guess because to your point, though similar dynamics between females.
Sales production also I'm sorry nicely.
Right so.
So I guess, it's kind of similar dynamics I've been interest. Thank you.
You have obviously.
You mentioned that the sales people make more efficient by just the whole point of them being out there right and what kind of are able to do.
Dose.
Good day person right that's driving that.
Okay great.
Exactly so and I think with slightly different about funeral been debated.
A better comparison and growth and probably will be as you think about the back half of the year.
Funeral leads a lot of them were dependent upon seminar.
I remember from seminars effectively shut down last year. The other thing about funeral, we do follow up events with our families. But once we got our funeral follow up that's typically generates leads well last year and almost no let us from their homes.
So I think the dynamics of.
So opening up again people feeling more comfortable that tends to give a boost back to funeral maybe.
More relatively than even cemetery cemetery, we can do it outside your generally showing people through the cemetery. So theres just a different dynamic, but we feel very positive.
Dave about the momentum in both channels and I. Just think funeral has got an easier comparison as you think about the second half of the year versus cemetery cemetery will continue to be very strong.
Well I appreciate it if I can squeeze a follow up too.
Something you said before.
So the funeral average sales.
Essentially yeah.
The above 2019 levels, so things really came back pretty nice day.
Are there still some markets, especially close Oh, you know for activities or are you pretty much open. Thank you.
It's pretty much open you know the last 1 to Canada was was pretty shot.
California has gone back in certain pockets to 2 masks inside but.
As of right now.
Seeing people.
As you can see in the numbers choosing to celebrate memorialize.
Get into gatherings, and we think that's such a positive thing I mean, you probably noticed in here.
Formation rates flat for the last couple of quarters, I don't expect that to continue but I.
I do think people are.
Focusing on what's important in their life from the people that it's important in and.
Net aligns well with what we do so we're happy to be of service to our to our families.
Hum.
Great. Thank you.
The next question is from Scott Schneeberger from Oppenheimer. Please go ahead.
Yeah.
Good morning, Hi, it's Daniel on for Scott.
Could you guys elaborate a little bit on the expectations for our cemetery and funeral.
No margins please.
<unk> cash and also discuss the efficiencies you guys a game that can be sustained with some perspective on on how margin should expand a little bit longer term as well. Please thank you.
Sure.
Eric do you have the Martin's.
I wanted to talk to you at some point.
Yeah.
You know the margin is essentially.
For for the as you know, we had a little bit of pressure.
Relative to the incremental revenues that Tom has already described in a lot of and a lot of detail. The question is for the back half of.
What will that look like and what will it look like.
As it relates to <unk>.
The revenues in the back half because of the volume declines that will ultimately potentially occur during the day.
During the quarters.
And that's hard for us to predict as it relates to the Q3 and Q4 volumes I mean, Tom did mention.
That we do not have a crystal ball, but we do use the IH and me statistics from the University of Washington, and there's no doubt that things appear to be picking up from a COVID-19 perspective.
In the back half of the year I do think some of the things that put pressure on the margins during this quarter.
Such as part time and over time to some extent is now, but it ramped up and I think there could be some pressure as a comparison in the back half of this year COVID-19 because of 2000.
'twenty, but there's other cases, where ICP for example, our incentive comp plan I think we have that in a place where we're very comfortable with based on our projections.
Through through the second quarter. So I think the punch line is.
I don't really expect it to be.
Bunch of pressure.
As it relates to the back half of the of the year, but really from those fixed costs that we just described.
And ultimately it's going to be a question of throughput.
And what you saw in the second quarter is that the model that we have in terms of incremental Maher.
Margins based on more volume.
Clearly worked you know 80% dropped to the bottom line and then we had some fixed cost per.
Pressure, so it's a fixed cost per leaves itself.
According to what the margins are going to do are going to be a function of what do we think the volume is going to be in Q3, Q force a little bit out of our control.
We'll ultimately.
I think we could see a little bit of headwinds related to it but it's going to be somewhere in the ballpark of the very high teens and maybe with some.
Some volume help we can get into where we kind of were in the second quarter as well.
Got it.
Awesome.
So what I was going to stand apart.
Sorry, the second part of it.
Question, you asked about what are the some of the sustainable things from the model and I think in that regards what we're finding is from a from a selling cost perspective.
Both from a from a leads management cost per sale.
Cost per lead and in looking at travel and entertainment and utilizing technology to leverage more those are tools that are allowing us to reduce the cost of sales or think about selling.
Other thing is by.
Utilizing a lot more technology, if you look at our staffing metrics.
Just to give you an example.
Our full time staff as you think about a quarter.
Probably runs about 71.7200 ftes in the funeral segment.
And that's pretty consistent whether you go back to 19%.
'twenty 1.
The difference is the way we utilize the part time metric pre pandemic, where 'twenty 100 on average in a quarter.
Personnel for the pandemic and the pandemic we've dropped the <unk> hundred so pretty significant now that was because we didn't have.
As a lever to funeral, we had a more simple structure because we couldn't operate.
At full tilt now we've moved that back to about 1700 or 800 in this quarter, where we did a lot more funerals than we did in 2019. So I think the way to think about this is we found a staffing metric model that's more efficient.
<unk> more effective in how we service clients even in a full service mode that we're in today, so a lot of little things like that debt.
I think it allowed us learnings.
Over the long term manage more effectively when you think about the cost.
Yeah.
Got it very helpful color. Thank you.
Just a quick 1 on cremation.
<unk> not changed so much from a year over year basis recently I understand the comps is a it's a factor there as well, but could you speak to where you see the cremation mix are going near term and what kind of trends you've seen in the quarter.
Yes, so what we saw was effectively flat this quarter last quarter.
Historically that range has been about 100 to 150 basis points per year.
There's a lot of different opinions.
And I Trust, our Chief operating officer very much on this.
And I.
I think what he sees and with the feedback.
I think we would expect that that may be the 150 basis point move is over for a while.
<unk> net a lot of people are seeing value in memorialized nation value in the cemetery as Youre seeing in cemetery sales production. So again, we don't know but.
I think our expectation is it will slowly begin to grow again.
Maybe not the historical levels we've seen.
Yeah.
Got it thank you very much good work.
Okay.
The next question is from P. J Rice from credit Suisse. Please go ahead.
Hi, everybody.
Just maybe quickly to follow up on that last discussion around cremation rate do you think much of what Youre seeing there was just debt.
Cremation was elevated a year ago because of the.
Inability to have normal services or do you think that's really not part of it.
I think theres, a little bit on that Ajay for sure, but I think we even saw it in the first quarter, you know where you are comparing back to as much.
And so again I agree with you I think the flat of this has a little bit of what happened last year.
But I think again just from the.
Talking.
Net to people that are in the field and what people are doing.
It's a sentimental thing where people are saying you know life's too short and I'm going to celebrate that people love and and it's important to me. So so again I just provide that feedback I don't know where it'll normalize out again, we do anticipate.
Support it to begin to growth maybe.
Maybe just not at the levels we saw.
So, but youre right Theres, a truly amazing second quarter Theres a comparison issue.
Yeah.
Okay. When you think about the funeral averages and the strength you saw there is there.
<unk> way to discuss.
What youre seeing in terms of the average is coming out of the.
Our backlog to free.
From preneed dad need versus the walk in at need and does that give you any gauge on how far you bounce back and how far you may still have to go as we returned.
The normal.
Yes, I think if you look at for instance for this quarter I believe our at need walk in average was about $5800 in the core part of our business. So I'm going to talk not Sci direct per minute and our preneed going at and he was about $6400. So you got about a $600 delta.
Delta, that's what's coming out of the backlog and so when you think about the robust nature of that backlog and our ability to continue to grow it.
What we're putting into the backlog today is just over $6000 on the core side. So.
Again, I think that tells us is that.
Customers are paying.
Paying up more premium day, they want remember.
Remembrance, they want celebration and they want to be able to agree they wanted to do a lot of the traditional thing so.
We view it as 2 things 1 there's probably room on the ethane side for increases.
We like.
What's coming out of our backlog and more and more will come out of our backlog as you think about how this rolls out in the future.
Yeah.
Okay, and then maybe finally on capital deployment.
You're expressing confidence or Eric is on the.
Acquisition pipeline.
Does that mean.
There's deals that are pretty far along are you.
Hey.
Your you haven't done much but you're still saying that you can think you can do 50 to 100 and then on the buyback I know in this quarter you did about 81 million.
Is that seems a little above average for sure.
What is there any update.
Thoughts on a quarterly run rate to contemplate for that.
Hey, Jay I'll take the share repurchases first.
The $81 million is pretty much in line with what you've seen in the first quarter I think we did a $106 million.
Last year, we did over $500 million deployed to shares the answer to your.
We're going to deploy capital to the highest relative return opportunity.
And ultimately.
We believe shares are good value, where they are and we've been purchasing through tenant timelines. All during this period and we will continue once we get out of this period doing open market repurchases.
<unk> in terms of the level of those repurchases that's going to depend on the relative valuation with other opportunities.
Excuse me in the relative opportunity with how we feel about the.
Intrinsic value of the company, but you know I'm trying to tell you very clearly as we.
We will continue.
Our expectations are to continue to deploy capital towards our share repurchase program at these levels. So I hear that very clear subject to what I've already described.
In terms of the acquisition pipeline I think you know things ebb and flow and with Covid, you know, there's always some timing issues and things being delayed.
But I think what we're trying to communicate to you is that there is a pipeline out there that we are involved in and we are active in and that gives us.
That gives us optimism and confidence that we will continue down that down that path I don't really want to say anymore than that at this point in time, but it's a good pipeline.
Okay, great. Thanks, a lot.
Yeah.
The next question is from John Ransom from Raymond James. Please go ahead.
Hey, Good morning, you know I was just remembering that your stock used to be a dollar a share back in the late night as I think about that.
Like that basis.
Question I have Arab is yeah I liked your 'twenty.
25000, fewer funerals and here's our earnings compared to 2019 could you just.
Help me understand how much of that is just a structurally better cost structure.
Much of that is higher pre need and how much of that is.
Anything else you want to help us with.
Well.
I think Jonathan as you think out to 2020.2.
The capital structure loans, probably 45, 50 cents and I'm doing this from memory. So forgive me if I'm off a little bit.
I would think the cost side.
If it is again, probably another 15.
Hi, Hi.
Team since.
And then I think Theres real upside clearly, we're gonna make less money on the funeral side right.
5000 guests.
And cemetery because of the levels that we operate in today.
From the server model in leads.
There's going to be.
Significantly higher we think about when you think about it you heard me referenced last time I kind of went back into the ticket 2019 level and we believe we can grow cemetery sales 7% compound.
And if you believe that is the right way to think about it then you can come up with a number that says no I know what my access 2020..1 sales are but theres nothing we believe that shouldn't stop us from compounding at 7 and you know a lot of our models now run higher than that.
When you think about what type of levels of Preneed Cemetery should.
Be out in a given year 'twenty 'twenty 2 'twenty to 'twenty 3.
So that allows you some pretty spectacular numbers on that lower share count more effective.
Operating platform. So you get to these numbers like we're saying for 2023 to $3.25. If I told you.
Are you in 2019 will broke E. P. S 10 per cent a year I think it's like 268 to 70 year cause its own right and so I'm telling you. Okay. We got to use a 3 endemic where now we're at 325. So that tells you that's really cemetery, both both property production in merchandise and service revenues.
But there'll be delivered.
Combined with.
No again the bed.
Operating structure better capital.
And we're still and now we've got a really good trend for funeral right. Because funeral is gonna be challenged but the good news is that that pull forward is going to wane and so year over year comparisons are going to get.
What kind of tailwind.
I feel really good about you know as we think about moving out to 2025.
What type of growth you can see with an S. Yahoo.
Hey, Tom did you just turned tailwind into a verb I like that somebody who says Oh.
Yeah.
Okay, Alright that no more I'll just be serious no more no more comedy Act.
On the other.
The other question I had was.
You know the surprising thing last year to US was you know how much cemetery preneed correlated to stronger funeral volume. So if you go down the other side of that slope.
Yeah, just is there a rough rule of thumb say for every 100 points of.
Mineral that you know funeral volume decline you know that.
That equals X dollars of maybe pressure on cemetery preneed or is it not that easy.
Do you think about it that way.
I don't think it's so easy to think about it that way Jerry's or.
Would you have any comment on that.
So I don't think so I mean, I think I think would obviously every time you have a case, there's an opportunity to follow up which you know Lee is there.
As a way to generate a lead.
And I would tell you the 1 thing that is slightly different today about our model.
Model and a lot of this is with our new Chief marketing Officer, Jamie appears not new anymore, and you're well, but Jamie is really.
It turned up.
The capabilities as it relates to digital leads and debt actually feeds into direct mail, although we don't think about a direct mail digital but there's a lot.
Science behind the technology that we have a much lower cost of direct mail in a much more effective piece and so that has taken what used to be marketing leads in the 10% to 15% of our lead process now as of the 25% to 30% and those are much more effective work workable leads and so.
About that that really isn't driven off customer walking in so I think we're less leveraged to the funeral volume as you think about our ability to drive cemetery sales production going forward than the pre Covid Sci is the way to think so.
So that's why I think we're pretty confident about.
When you think of me to do this.
And the 1 nice thing about cemetery, because it really is a heritage sales when you get Tom in your you know, there's an opportunity to get Thomas brother, Tom sister, everybody loves Tom and John I know you are part of that group.
That would make you a potential growth.
[laughter].
Continued everybody loves Raymond.
So it reminds me.
Beacon in cemetery, you've got a lot of discussion a couple of years ago.
And part of that was hey, we can simplify our product offerings. You know not have 87 turns that we're selling.
Where are you in that process, there's still more upside than what the shopper.
Thank you for your debt.
We've kind of got it in most of our neuro about 90% of the network and I would tell you it's hard to understand what the impact is but here's what I know for sure.
It's a much more robust efficient sale. So when you think about our ability you keep your interest.
You kind of answered a lot the number of contracts our sales counselors can do a lot more than a day and they used to get.
The other thing that we're finding because you have the ability to kind of control the pricing and everything else as we're seeing less discounting so higher average sales more throughput through the system.
This rapid I'd say you know that's a big function of.
Beacons contributing to that I also would tell you that I think.
Are embracing our customer relationship management system, which we've had for a while and we were good at it but now when you couldn't travel it was your lifeline.
It's become.
Pipeline for our sales organization.
<unk> and all the potential that was wrapped up in that and so we're actually making.
So useful now are trying to make adjustments to it to make it even more useful people are embracing so.
While it was always embraced I think it's embraced throughout the entire sales organization now those 2 things are.
Very big reasons, why we're confident about the future.
That's it for me thank you.
Excellent Thanks, John.
This concludes our question and answer session I would like to turn the conference back over to Sci management for any closing remarks.
Well, thank you everybody.
Thanks for being on the call.
Stay safe out there and we look forward to talking to you again in October.
Every week.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Act.
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