Q3 2021 Service Corporation International Earnings Call
Yeah.
Good day, ladies and gentlemen, and welcome to the F. C. I third quarter 2021 earnings conference call.
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I would now like to turn the conference over to Sci management. Please go ahead.
Thank you and good morning, everyone. This is Debbie young.
To our company's review of business results for the third quarter a 21.
Everyone has a chance this morning to review our press release, we issued yesterday.
We begin with our prepared remarks and commentary, let me remind you that.
Some forward looking statements.
Any comments made by our management team that stayed our plans beliefs expectation for protection.
Our forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated such statement.
Risks and uncertainties include but are not limited to those factors identified in our earnings release and our filings with the FTC 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 on our website at investors webcast.
Section.
With that out of the way I'll now pass it off to Tom.
Brian our chairman and CEO.
Thank you Debbie.
Hello, everyone and thank you for joining us on the call today.
I'm going to begin my remarks, with a high level overview of the quarter.
Following by a more detailed analysis of our funeral and cemetery results.
And finally comment on our guidance for the fourth quarter as well as our updated thoughts and expectations now for 2022 and 2023.
As a broad overall comment let me just say that 2021 has certainly exceeded our expectations.
But we have been able to accomplish in the last two years has been remarkable.
Our services and care for our communities has been needed more than ever and in these unprecedented times our team has risen to the challenge with Grace.
Wavering commitment.
So proud of our team and continue to be amazed by their dedication and support.
Now for an overview of the third quarter.
Let's start by taking you back to our mindset. The last time, we spoke in mid July.
We were seeing a declining trend of COVID-19 deaths that began during the second quarter.
This downward trend coupled with the IHS outlook was reflected in our earnings guidance for the back half of 2021.
Shortly thereafter came to impact of the Delta.
And we saw an unexpected surge in COVID-19 and non Covid mortality that began in August and has continued into October.
Therefore, we are seeing in funeral volumes and cemetery revenues that have exceeded our previous expectations.
Now diving into the highlights of the third quarter.
We generated adjusted earnings per share, but dollars 16.
47% increase over the prior year quarter.
The primary driver of the earnings per share growth was a funeral results driven by increases in both volume and sales.
The Cemetery segment also delivered strong revenue growth, which was generated by both at need cemetery revenue growth.
<unk> strength and Preneed cemetery property sales production.
At a high level adjusted operating income grew $74 million.
<unk> contributed over 85% of the increase in adjusted earnings per share.
The remaining increase was primarily the result of fewer shares outstanding.
Now, let's take a deeper look into the funeral results for the quarter.
Overall, the funeral segment performed better than we expected.
Total comparable funeral revenues grew $70 million or 14%, primarily due to improvements in the sales there.
As well as continued strong volumes from the Delta covenant back in from excess non COVID-19 deaths, which tended to skew younger and more pronounced in smaller markets.
Recall, the third quarter 2020 volumes were up about 19% year over year.
We grew another 3% on top of that this third quarter.
Which we did not anticipated in our guidance for the second quarter call.
Core funeral revenues grew by $48 million led by an impressive 8% increase in the funeral sales average and a 3% increase in funeral volume.
The sales average continued decline sequentially.
It is up about 4% over the 2019 pre COVID-19 third quarter.
Our percentage of families selecting services has essentially returned to pre COVID-19 levels.
The funeral sales average is also being positively impacted by an uptick in ancillary revenues such as flowers catering and by a lower discount rate.
The favorable impact of these positive trends has been slightly reduced.
Modest 60 basis point increase in the core cremation rate.
Preneed funeral sales production for the third quarter grew $50 million or nearly 22%, which exceeded our expectations.
Both our core funeral home in Sci direct businesses posted strong production increases against an easier comparison quarter in 2020.
The higher insurance production component also generated a seven $5 million increase in general agency revenue.
We continue to see growth in marketing leads from both digital and seminars that have not only very successfully generated preneed sales production.
We've done it at a lower cost.
Well the core funeral home sales production front we.
We saw average revenue per contract increased by almost 8% to over $6000 as an increasing percentage of our premium customers are choosing some form of surface.
From a profit perspective funeral gross profit increased $40 million and the gross profit percentage grew 400 basis points to 28%.
The incremental margin percentage generated from the core revenue increase was slightly reduced by an increase in lower margin ancillary revenues and elevated staffing and service levels as compared to the somewhat more limited service structure, we operated under during the third quarter of 2020.
Additionally, we experienced elevated fuel and energy related costs.
Now shifting to cemetery comparable cemetery revenue increased more than $42 million or 11% in the third quarter.
In terms of the breakdown at need cemetery revenue generated $20 million or 47% of the growth driven primarily this quarter by higher quality core average sale an impressive increase in ethnie large sale.
And by a modest increase in contract velocity.
Recognized preneed revenues generated about $16 million or 37% of the revenue growth.
Primarily due to higher than expected Preneed cemetery property sales production as well as higher recognized preneed merchandise and service revenue.
Additionally.
We achieved a $7 million increase in perpetual care Trust fund income primarily due to the timing of capital again.
Yeah.
Preneed Cemetery sales production grew $25 million or 8% in the third quarter, which exceeded our expectations.
The higher quality core sales average accounted for the majority of the increase followed by growth in large sale activity.
The institutional implementation of Beacon and our cemetery sales presentations has led to a reduction of discounting that is having a favorable impact on core sales efforts.
Although we expected a tougher comp on the velocity side. The number of training contracts sold actually grew modestly in the quarter, which also contributed to the increase.
As I mentioned in my Preneed funeral discussion earlier, we continued to see production growth from our marketing generated leads program very successfully generated preneed sales production.
Additionally, we are seeing improvements in key sales metrics, such as appointment and close rates.
Cemetery gross profit in the quarter grew by approximately $28 million in the gross profit percentage increased 300 basis points to 38%.
Similar to the funeral segment that incremental margin percentage on the revenue increases was slightly reduced by elevated staffing and maintenance costs associated with operating full service cemeteries as compared to the limited service structure during the third quarter of 2020.
Now, let's talk about our revised outlook for 2021.
Based upon better than expected results for the third quarter.
We're again, raising our guidance to an earnings per share range of $4 15.
The $4 45 for.
For the full year of 2021.
This increases the midpoint by an additional 95.
And represents a 33% increase of our 2020 results.
This raise in our guidance is primarily due to the earnings per share outperformance delivered in the third quarter.
Additionally, we have increased our projected earnings per share for the fourth quarter.
Primarily due to higher than originally anticipated funeral volumes and <unk>.
Higher than anticipated at need cemetery revenue.
Both being impacted by an increase in delta variant morbidity and non COVID-19 excess deaths.
The midpoint of our fourth quarter guidance 89 cents per share.
Still be a decline in earnings per share as compared to the dollar 13 cents earned in the fourth quarter of 2020.
Within our funeral segment, we are anticipating a comparable volume decrease in the high single digit percentage rent in the fourth quarter of this year versus a very strong prior year quarter, which was up over 17%.
Meanwhile, we expect the average revenue per case to continue to compare favorably growing in a mid single digit percentage range for the last quarter of the year.
Finally, we forecast preneed funeral sales production to grow in the high single digit percentages for the fourth quarter fourth quarter versus the prior year quarter.
Yeah.
On the cemetery side of the business, we expect ethnic cemetery revenues for the fourth quarter to be relatively flat compared to the prior year quarter.
This is comparing against a phenomenal 2024th quarter <unk>.
Liberty, a 30% increase in 2019.
As far as Preneed Cemetery sales production goes we expect a flat to low single digit percentage increase in the fourth quarter when compared to a very robust fourth quarter of 2020, which was up over 16%.
Culminating in back to back years of impressive.
Eight plus percent growth in 2021.
I'm, sorry of 2020 and in 2007.
We're looking out over the next couple of years, we expect COVID-19 to have a negative pull forward effect on revenues and earnings temporarily.
Like many other companies, we also expect to experience.
Wage and supply chain cost pressures in the near term.
Having said all that this crisis has accelerated the utilization of technologies, resulting in enhancements, which improve our effectiveness and resulting cost efficiency in our field operations within our sales teams and our support functions.
Compound that with improvements in our capital structure share buybacks and managing our debt maturity profile and we expect to generate impressive earnings per share compounded annual growth rate. Both in the next two years and well beyond.
To emphasize the strength of our post COVID-19 operating platform and capital structure.
Will again give you. An example, utilizing the dollars 90 and earnings per share we reported in 2019 as our pre Covid base.
In 2022, we expect the impact of Covid to begin to win.
Thereby bearing the brunt of the pull forward effect.
Even with funeral volumes down double digit percentages.
Now we're thinking roughly 15000 funeral case less than we did in 2019.
We believe at the mid point of our models, our 2022 earnings per share Kim reflect a 14% compounded growth rate over the three year period, resulting in a $2.80 earnings per share for 2022.
Beyond 2022, we believe that the pull forward effects should begin to wane and a trend of year over year growth should begin as we approach an aging baby boomer cohort with a leaner and more technologically efficient and effective operating model.
Continue to believe that we will see 2023 earnings per share approaching $3, 25, which would maintain that 14% earnings per share carrier over the four year period.
I wish I had never heard of COVID-19.
But it is a reality our company country and world have had to deal with and are doing.
I am so very proud of our team what they've done in helping our communities, while finding a way to make our company an even better one in a post COVID-19 world.
All the while generating such impressive earnings per share growth first cycle.
In closing.
You can through our entire Sci team for yourself, what's dedication to our client families and the communities that place our trust them.
With that operator, I'll now turn it over to Eric.
Thanks, Tom and good morning, everybody I think I'm going to start off the same like Tom just ended with the most important messages a day and that's the first acknowledge and thank our great team of associates that all of our funeral homes and cemeteries that have been working.
During these very busy and let's face it very challenging times.
The months of August and September were very busy months for us and I continue to personally be amazed and I have to say also humbled at how well our teams are able to take care of our client families and our communities and then when they need it. The most I want you to know that we appreciate each and every one of you on the dignity memorial and <unk>.
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So in my remarks. This morning, I'll walk you through our cash flow results and capital deployment for the quarter and now I'll provide some comments on our revised full year 2021 cash flow guidance and financial position and then just like Tom that I'll briefly discuss our 'twenty, two and 'twenty three outlook.
So let's start with the quarter.
Adjusted operating cash flow increased 37 million to $232 million compared to $195 million in the prior year.
So the drivers for this growth were the impacts from the Delta variant that drove unexpected increase in cosmic deaths, but we also did see unexpected increase in non COVID-19 deaths that were impacting both our funeral and cemetery operations.
In addition to the strong adjusted EBITDA growth, which about it's about $60 million. We also benefited by a decrease in cash tax payments of about $28 million. So remember in the third quarter of last year cash taxes were unusually high because we had to pay approximately $50 million.
<unk> state income taxes that were deferred from the second quarter of 2020.
So it is positive cash flow items were somewhat offset by a net use of working capital in the quarter, which primarily related to an increase in payroll taxes and again, we will have to remember this remember last year that were able to defer quarterly payroll taxes under the cares Act, which totaled approximately 42.
Million for Sci for the full year of 2020.
So in this current year quarter were required to pay half of that amount or about $21 million and keep in mind. The remaining half the other $21 million will be paid in the fourth quarter of next year of 2022.
So during the quarter. We also deployed about $280 million of capital, which is the second highest quarterly capital deployment that we've seen really in recent history.
This capital went to reinvest in our business as firms.
<unk> expanded our footprint.
And ultimately returning capital to our shareholders.
Now in terms of the breakdown.
We invested $65 million in our businesses with $40 million of maintenance capital and $25 million of cemetery development capital.
Our maintenance capital not only effects improvements made to our facilities.
But also investments in more contemporary customer and non customer facing technology.
For the cemetery development capital spend we started this quarter, making up some ground to our annual target.
<unk> experienced some construction delays primarily on the permitting side for some of our larger development projects, but at this point I still believe we will end the year with around $100 million of capital development spend.
From a growth capital perspective.
During the quarter, we invested about $20 million consistent up $10 million to funeral home newbuild opportunities.
$5 on business acquisitions, as well as $5 million on real estate acquisition.
So just touching on that acquisition pipeline for a moment. We're excited as we look at the opportunities. We are working on for the remainder of 2021 and by the way we remain confident that we'll be able to close several transactions during the fourth quarter that I believe will get us to our 50.
100 million dollar annual acquisition target that we've been describing during the year.
And finally, we deployed just under $200 million of capital to shareholders through dividends and share repurchases.
The dividend payments in the third quarter totaled just under $40 million and this reflects the nine 5% increased to 23 cents per share per quarter that we announced in August.
So shifting to a few comments on our updated outlook.
As you saw this morning, we are increasing our adjusted cash flow guidance for 2021 by about $150 million. So the guidance went from $775 million. So newly revised annual guidance range of 850 to 925 million.
So when we compare back to 2020, this new midpoint of $888 million represents an increase of about 10% or $83 million over last year.
So let's talk about a little color on this $150 million in cranes is.
It is primarily driven by an approximate $210 million increase in cash earnings and these are associated with the 95 cent increase at the midpoint and today's revised EPS guidance.
And as noted earlier this increase was primarily due to the outperformance in earnings during the third quarter, an increase mortality as well as expected cash flow increases in the fourth quarter on higher funeral volume and at need cemetery expectations.
The increase in cash earnings is partially offset by about $15 million increase in cash taxes and other working capital uses that are expected.
We're now expecting closer to $260 million of cash tax payments in 'twenty, one an additional $50 million over the $210 million that we've talked about in August again, because of these higher expected earnings.
So looking forward to 2022 next year.
There's still a lot of variables to try to predict you should expect our cash flow to decrease in 2022 in line with the earnings expectations that Tom just described as the impact of Covid Wanes. However, our expected cash flow declines should be buffered by lower cash taxes.
These lower on these lower cash earnings.
And then looking forward to 2023.
We expect to be on an increasing growth trajectory as we approach an aging baby boomer cohort utilizing our services and again, along with a leaner more technologically efficient and effective operating model. So the underlying stability of our cash flows as well as the strong financial position we have.
It gives us the confidence and flexibility to continue being opportunistic in deploying capital to the highest relative return opportunities for many years at least for the next several years.
In closing we continue to have a solid balance sheet bolstered by a tremendous amount of liquidity consisted of about $400 million of cash on hand, plus about $1 billion available on our long term bank credit facility.
Early in the year, we completed a debt refinancing transaction that not only refinance the notes that would've been done later this year in 'twenty, one, but also allowed us to repay the outstanding balance on our revolver, which will provide us with plenty of flexibility to fund our future pipeline of acquisitions.
Our other capital deployment for several years. Additionally.
Additionally, this transaction will reduce our interest rate risk as we increased our proportion of fixed rate debt now to just over 80%.
On the continued growth in EBITDA, our leverage ratio at the end of the quarter remains below three times its actually about two four times.
As we have noted in the past looking beyond the impacts of this pandemic. We continue to expect to naturally lever back up to our targeted leverage range of three and a half to four times net debt to EBITDA and I think this will happen towards the end of 2022.
So finally.
Our results in the quarter as well as the first nine months have really been impressive and I would like to once again, thank all of our frontline associates for all of their efforts, we intend to finish the year strongly and we believe we're very well positioned for future growth.
So with that operator that concludes our prepared remarks, I'd now like to turn it over to you for questions.
Thank you Sir.
We will now begin the question and answer session.
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Yeah.
Yeah.
Yeah.
Our first question from John Ransom from Raymond James. Please go ahead.
Yeah.
Hey, good morning.
Thanks for all the detail on 2022.
One thing that's been a little bit challenging model segment margin with them.
You know big moves in revenue.
If we think about that.
Decline in deaths next year, how do we think about that.
And a couple of ways, one just thinking about your funeral and cemetery gross margin and.
And secondly, how are you thinking about the knock on effect.
That to your cemetery preneed.
Okay. Thank you for the question Yeah, the reduction John once you experienced that.
Reduction in deaths.
Hope for it obviously.
It's going to be more pronounced on the funeral side of the business. So as you think about margins historically on the funeral side has probably been closer to 20%.
So as you think about these declines as a pull forward effect you'd probably expect those margins to dip.
Dip down into the let's say high <unk>.
<unk> is most likely a while that's occurring on the Sim.
Terry side really are.
A lot less so I mean, I think this quarter, we reported 38% I think we're comfortable.
Even in models, where we see the death rates decline because again, our preneed sales well that's that's a lead source for us we feel like we've done a lot of things to enhance our ability to deliver that so again I think we're very comfortable saying the cemetery margins, if theyre going to pull back into the into the low <unk>, but.
That's probably an area that we feel pretty comfortable about.
And what about the pre need cemetery, preneed and alcohol, but what are you thinking.
I think I mean that would be inclusive right into the margins a cemetery, but but.
As we think about year over year clearly because of the success that we've had we could experience some slight declines in our preneed production, but you know even in a.
In a terrible scenario that we'd anticipate.
I don't see that going backwards very much but I see it declining year over year, but probably a single digit type of area and did John kind of building back on the newer platform because again as you look at year over year trends.
Once we establish that 2022 baseline we get back to what we believe being able to grow that those are in the mid to high single digit percentages and maybe maybe better I mean, we're still trying to measure the impact of the different things that we've done be it from implementing <unk> on the cemetery side.
Be it from utilization of the Salesforce platform and the tools that we use now and we're really are driving better behaviors and we're utilizing fact to generate sales growth we've got better.
<unk>.
Capabilities now, particularly on the digital side and are getting better and better and more effective. So so I just feel very confident that once we work through the book.
The issue with the pull forward.
We're going to continue to grow at very aggressive rates.
And then just last one for me Eric This is a small point, but you know given.
Given the backend loaded nature of M&A this year.
You have an estimate of sort of the full year EBITDA effect in 'twenty two versus the partial year in 'twenty, one just from a timing standpoint.
I don't think we'd do yet because we don't know which ones we're going to close you know what.
The guidance I gave to John if you wanted to model something is you know I think year to date were pretty low in terms of how these transactions at that inflows. So we probably spent in I'll call it $10 million to $15 million and ultimately I think we're gonna get well into that $50 million to $100 million and have more hopeful to get towards the high end of that.
And you know the type of multiples you know them.
And I mean, the pre synergy multiples are in that eight to nine times and then you take a turn off immediately for some of the purchasing power we have and Navy another turn as we find other synergies.
Depending on how well the acquisitions tuck into the existing network, but these particular ones that we're talking about I think we're somewhat pleased with the type of footprint that they have versus our existing network.
And something like five to 8 million wouldn't be crazy just sort of as the incremental contribution next year.
I would say so.
Okay. Thank you that's all for me.
Thank you.
The next question comes from Scott Schneeberger from Oppenheimer. Please go ahead.
Thanks very much.
I'm curious I mean, Tom you covered it but covered it seemingly at a high level about all the efficiencies and cemetery that are going to keep this margin elevated could you just give us I guess a case of magnitude of these main drivers yeah I've heard I've heard.
Sales support a few other items could you just talk about the biggest drivers are degreed magnitude.
What's what's doing it and maybe some anecdotes.
Aryans stadium directly with that you've experienced that that we could better comprehend. How this is how does the patients. These are occurring thanks.
Sure Scott I think you know some of the natural things that are in there.
And part of it's market driven business. So this isn't necessarily efficiency, but if you look at the trust.
Income contributions that you're seeing across the spectrum.
Merchandise and service on the cemetery side and even on the on the funeral side. We've got a really good I'd say accumulative return that's beginning to flow into our margins would our cash flows so start with.
As long as that's still there and again, you could even absorbed but bad year or two because remember that's the cumulative performance over an eight to 10 year period are really strong the other things kind of across the board that I was mentioning because I think I mentioned that we're seeing in operations. We're seeing at the sales we're seeing it in the back office piece.
For instance on the on the on the operational side, we utilize a fulltime equivalent operating metric and through all of this with you know trying to understand better how to utilize people and our resources we have.
Implemented technology and found ways to reduce our part time and overtime usage as an example, within our market and managing staffing levels. So we're seeing that kind of play out and stick to a certain level.
And can utilize that as things change on the selling front we've seen.
As an example.
Digital leads we've talked a little bit more about how we're leveraging that more we utilized webex and interacting with consumers cutting down the amount of time that our salespeople are spending and making them more efficient.
I talked about the two implemented technologies.
<unk>.
Both Beacon and Salesforce as an example, because of the crisis. It forced our entire sales team to really dive deep into Salesforce and now salesforce, they're very very effective tool. It reduces the amount of travel that we have to do it it allows us to train better off that platform.
<unk> has reduced the amount of.
Discounting that's being done because it allows us some discipline around that it's tied back into compensation.
So really it's the institutionalization of these great tools that were out there the COVID-19 kind of forces to do and now they're just part of the way that we do business.
On the on the overhead front again, we're utilizing webex meetings, we've cut back dramatically on travel that arent going to return to the pre COVID-19 levels.
We've all insured certain functions.
Around the globe understanding the impacts of being.
Our supply chain. This offshore it found more efficient and effective ways to do that so hopefully that would be that's there's a lot of little things that kind of add up and we're seeing those benefits I believe those benefits are going to stick over time.
Thanks, Tom appreciate that that's helpful. I I have a follow up on that and then another question to follow up real quickly a lot of industries out there are you know enduring the labor shortage.
You guys are showing very nice margins and seemingly operating well in that environment. You just mentioned, reducing part time overtime items like that but could you just touch real quickly on on on on the labor dynamic and if that should be disruptive at all.
Or anything else on the on the labor front, particularly as we enter 2022.
Sure Scott.
Yeah first of all let me say this I think.
Generally our labor when you think about the business that we're in.
It is something that is near and dear to People's hard, but I feel like people view. This is as you know the.
God's work, if you will and so I I analogize it to what goes on in the hospitals I mean people enter this profession, because they want to help others of a different point in time. So I think we start off with we've got a unique workforce that is passionate about what they do.
Having said that you're exactly right, there's labor tightness out there we're seeing it in certain markets. I think we would anticipate that were probably going to see a little bit of a.
Of an impact as we move forward I kind of mentioned in our comments, there's definitely wage inflation going on we've tried to do everything we can by making those adjustments we've over the period of time does some special bonuses hero bonuses for our people we've done at year end bonus last year.
To reflect the hard work and dedication of our folks. So we're trying to do everything we can both monetary Italy and also I would say just culturally.
Support, particularly our field personnel that are out there in the trenches doing this hard work. So so we're very keenly aware of the issue and I do expect some wage pressures, but I do believe it's very manageable, particularly as you look at other industries I mean, I don't think we're a trucking industry I don't think.
Some of the some of the things you're seeing on the restaurant side.
There's not the same level of passion, when you think about our workforce.
They're doing every day.
Thanks, Tom I appreciate that follow up I guess, the other question if I could a funeral revenue per service.
Over 2019 levels could you just speak to what has occurred for that too.
Our returns have strongly thank you.
Yeah, I think what it's saying is we're seeing more and more people that are beginning if you remember Scott 2019 to 2020, we got a pretty significant drop in the people choosing service some form of service whether information are very old and we were a little concerned about and I think there are some.
<unk> pundits out there, saying this is the end of the traditional funeral service and people are going to be more efficient and we were pleasantly surprised that those levels have rebounded and rebounded to a point I think in October now where burials higher information back to pre COVID-19 levels.
We're just seeing people that once they find what we do remember at celebration.
That they're choosing those things when they when they choose.
That's where they're coming to us for and our people are great given that services. The other thing is some of the ancillary things that we do.
As an example, we're selling a lot more flowers than we did.
Two years ago, three years ago, four years ago, and a lot of that quite honestly is being driven by a great digital strategy.
Jamie Pierson and her team have helped us tap into and we feel really good about that going forward and when you look at the if you look.
Look at the catering side really the same thing so a lot of ancillary products and services that go into that the other thing that I would just mention is the preneed backlog.
We've spent a lot of time developing that for any backlog with our salesforce and we're seeing average is coming out of the backlog now that are super impressive.
And Ah 6400 dollar level in that trust.
Trust income buildup selling good product that's coming out. So I think those are the things that are really probably over the edge pushing this past 2019 level.
We see those trends continuing.
Yeah.
Great. Thank you very much.
Thank you.
Our next question comes from Joanna <unk> from Bank of America. Please go ahead.
Alright, Thank you Krish I guess, a couple of follow up questions.
This question around the direct D. So when you were talking about Oh, I guess pushing.
Oh are you still expecting those deals to be done this year. When you talk about your 2022 outlook does.
Does that include that amount of deal contribution that you outlined.
Yeah.
Oh, Yeah, that's I think 2022 it would reflect that you're in and again.
I hesitate, there's so much uncertainty around what's going to happen.
So we're just trying to give you guys our best guess.
That that assumption really we'd say that COVID-19 kind of.
It goes in a corner pretty quickly here and we're going to have a little bit of a.
Continued impact from that the other thing that we're trying to wrap our arms around it.
What we're seeing in excess death is not all COVID-19.
Again, we're beginning to see deaths related to a variety of other things probably more tied to both physical.
Physical health and mental health.
We cant project, what's going to happen with those numbers.
People, obviously, a lot less people went in for cancer screenings for for annual Checkups and the impact of that is surely being reflected in the numbers and I don't think that's something that necessarily goes away. So there's a lot of uncertainty around what we think those volumes are and.
In my opinion, we're probably being a little conservative to say hey, if this one away how are we going to manage our cost structure, what are we going to do with her.
Excess cash.
But again I think as we get closer and hopefully.
February well have a better idea of really what's going on.
So I feel pretty good about our 2022.
Sure.
I just wanted to confirm that and the other one follow up on that discussion. When you talk about multiples are you seeing are multiples moving higher I guess there are other players in the market.
Oh.
Also doing more consolidating down the location.
In the U S. So is there.
Some pressure on multiples and I guess also.
That can kind of acceleration or slowing down of the deal activity next year.
Yeah, I think first let me speak to the accelerating clearly the buys and tax planning.
Been out there have motivated some people that were probably in the window thinking about solar business to get out there. So I do think we're seeing an influx of activity associated with that and to Eric's point is why I think we'd expect the fourth quarter to be a nice closing quarter as you think about acquisitions.
As far as pricing goes I guess I'd say two things.
Clearly a little more.
Robust activity, that's probably putting a little bit of upward pressure. The other unique factor you have as COVID-19 right. So my selling off by 2020 results. My 21 results or 19 result, so I think that's one of the confusing aspects of trying to understand what are you paying a multiple off of that.
Again, probably put some confusion and maybe a little bit of upward pressure, but overall I mean these are still deals that are the ones that we're looking at in competing for they're going to have meaningful internal rates of return that.
Are you in and our other stakeholders would say a good use of capital team. So we feel good about.
Thank you that's helpful and one last steps.
You mentioned I guess, it sounds like a way to it's obviously been.
On the right.
So far this year.
But a very strong revenue.
Imagine yourself, but you also.
You mentioned elevated.
And then as your costs. So how should you think about the magnitude of things. Thank you.
Sure so the elevated energy costs again.
Again, I'll really tie it back you would think about it we've got with <unk> hundred funeral homes at all have electricity air conditioning, whatever it may be clearly we operate a lot of vehicles. When you think about the energy costs, particularly both in the cemetery and at the funeral homes. So there.
Those are really just correlate what's going on with natural gas and oil prices, which as we all know we are very very low and we enjoyed that benefit and they've really spiked up over 80 Bucks gases trade between five and have happened six bucks. So those.
Convert into usage in our home now the good news is for US is where we're utilizing technology to manage those costs a little bit better. So we've got existing programs and improvements that we're working on today I think it will allow us to manage usage better both from an environmental person.
<unk> as well as kind of lowering the calls so we're on it and.
I believe we will manage that but I think you can correlate that with what's going on with natural gas and oil prices pretty well, it's not doing it is not a meaningful enough number to move it I just want to give a little bit of flavor, we sell the funeral side.
Incremental revenue should deliver somewhere around 65% margin.
I think we saw 50 758, so explaining why didn't you get the 65% a little bit of a synergy a little bit of it some of these other things.
So we still feel very good.
Very able to manage those energy costs staffing costs.
Really you know whatever comes our way.
Okay.
Okay. That's very helpful color. Thank you so much.
You bet.
Thank you.
This concludes our question and answer session.
I would now like to turn the conference back to Sci management for any closing remarks.
Thank you again, everybody for for being on the call today, we really appreciate your questions and your comments.
And the only other thing I have to say is go Astros.
We'll talk to you in a few months. Thank you very much.
Thank you.
The conference has concluded.
Thank you for attending today's presentation you may now disconnect.
Okay.
Yeah.