Q4 2021 Service Corporation International Earnings Call

Pardon me. This is the conference operator, the Sci call will begin momentarily. Thank you for your question.

[music].

Good day and welcome to the third.

The Corporation International fourth quarter 2021 earnings Conference call.

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I'd now like to turn the conference over to Sci management. Please go ahead.

Thank you and good morning. This is Debbie young director of Investor Relations SDI welcome to our company's review of business results for the fourth quarter and the year ending 2021.

Usual, let me quickly go over the Safe Harbor language before we begin with the prepared remarks.

Yes.

Any comments made by our management team the state our plans fully.

Patients are projections for the future are forward looking statements.

These forward looking statements are subject to risks and uncertainties.

Could cause actual results to differ materially from those.

Such statements.

These risks and uncertainties include but are not limited to those factors identified in our news release.

These are available on our website.

During this call May also discuss certain non-GAAP financial measures.

Affiliation of these measures to the appropriate GAAP measures.

Stable.

Our earnings release.

And also in the non-GAAP presentation located on our website under the investors webcast and events section.

With that all the way I'll now pass the call are chairman and CEO .

Thank you Debbie Hello, everyone and thank you for joining us on the call today.

First of all I want to express my sincere thanks to our entire NCIC.

As we now are on the verge of navigating this COVID-19 world for nearly two years I am so very proud of your results.

You've never wavered from your mission.

Continue to do we do best helping our clients families getting closure comfort and healing.

This is a breathing remembrance and celebration.

From a home office teams that worked tirelessly providing support to the field.

Through our field leadership, making critical real time decisions that protect our company our client families and our employees.

And a special shout out to our frontline teammates to provide peace of mind to our premium customers comfort and support through our grieving families.

Our maintenance teams that make every effort to ensure our locations and parks are world class.

Our team.

The details that matter.

Now to the business at hand.

This morning, I am going to provide some color on our business performance for the year and for the fourth quarter.

<unk> some detail around our funeral and cemetery.

Then I will offer some commentary on our 2022 outlook keeping in mind, we must be flexible as we navigate the uncertainty of another year impacted by Covid.

Yes.

First in terms of the full year 2021 results. We ended the year with a strong performance in both our cemetery and funeral segment.

For the year, we grew revenue $632 million or 18% and adjusted earnings per share to $4 57.

57% compared to the prior year.

While we saw a 4% comparable funeral volume growth.

Even growing over a COVID-19 impacted 2020, the primary drivers of our revenue was mid 20% growth in both preneed and at need cemetery revenue combined.

Combined with a strong 7% increase in our funeral sales there.

Timely meaningful action and our share repurchase program and debt refinancing also drove healthy increases in our full year 2021 earnings per share.

Now shifting into the fourth quarter.

We generated adjusted earnings per share of $1 17, 4% increase over the prior year quarter, and a 95% increase over a pre pandemic fourth quarter of 2019.

Compared to the 2024th quarter funeral results drove the earnings per share increase.

Healthy 8% increase in the funeral sales average offset slightly lower volumes and cost increases associated with staffing and energy.

On the cemetery side profitability was relatively flat as revenue growth of at need Cemetery sales and Preneed Cemetery sales was offset by a lower impact from new construction of cemetery projects and increased costs from staffing and maintenance.

Below the line benefit of fewer shares outstanding offset higher general and administrative and interest expense as well as the higher tax rate.

Now, let's take a deeper look into the <unk> results for the quarter.

Total comparable funeral revenues grew $47 million.

Were about 9% over the prior year.

Seeding our expectations as core revenues non funeral home revenues from Sci direct and General agency revenues all saw impressive growth in the quarter.

Comparable core funeral revenues grew $32 million led by an impressive eight 4% increase in the comparable funeral sales.

The core sales average continues decline sequentially and is up about 5% over the 2019 pre COVID-19 fourth quarter.

Our percentage of families looking to have funerals and celebrations of Hawaii has essentially returned to pre COVID-19 levels in the funeral sales average is being further positively impacted by an uptick in ancillary revenues such as flowers and CAGR.

This increase in average was achieved despite a 120 basis point increase in the core cremation rate.

Comparable core funeral volume declined one 5% compared to the prior year quarter.

Slightly offsetting the positive impact of the funeral sales average.

Keep in mind the <unk>.

24th quarter, we're comparing against was acutely impacted by Covid and saw a 17% core funeral volume increase over the 2019 fourth quarter.

From a profit perspective funeral gross profit increased $10 million.

While the gross profit percentage dropped 60 basis points to 27%.

Fixed costs in the funeral segment includes salaries fringe vehicles facilities and general and administrative expenses.

In the fourth quarter of 2020, those costs were actually down 2% versus the 2019 fourth quarter, even with 17% more volume.

The pre vaccine era of the virus restricted both the consumers and our ability to provide a full service funeral.

In the 2021 fourth quarter these costs increased by 8% compared to the 2024th quarter.

Overall, our fixed costs have increased 6% over the two year period, where let's say, 3% on a compounded annual basis, while we are caring for 17% more customers than we did in 2019.

So bottom line I believe we are managing our costs very well against an unusual and difficult 2024th quarter comparison.

Yes.

Preneed funeral sales production for the quarter exceeded our expectations growing $30 million nearly 14% over the fourth quarter of 2020.

Both our core funeral homes and Sci direct businesses posted strong production increases against an easier fourth quarter comparison in 2020.

Our core preneed funeral average revenue per contract and winning in the backlog now is over $6300.

This is an 8% increase over 2020 and more than $300 higher than our at need average for the quarter.

We continue to see positive momentum in generating significantly more high quality marketing leads at a lower cost through increased focus on digital leads as well as more sophisticated data targeting for our direct mail and seminar programs.

Now shifting to cemetery.

Comparable cemetery revenue increased $21 million.

Four 5% in the fourth quarter.

In terms of the breakdown.

Need cemetery revenue generated $13 $5 million with growth driven by a higher quality core average sale and a modest increase in <unk>.

Contract velocity.

Recognized preneed revenues generated about $8 million of the revenue growth, primarily due to higher recognized preneed merchandise and service revenue.

Yes.

So preneed cemetery sales production grew 30 mid $39 million.

Or 13% in the fourth quarter.

This growth is on top of a 2024th quarter, which grew by 16% over 2019.

Our higher core sales average accounted for the majority of the increase however.

We're still able to grow the velocity of contracts sold by almost 5%, which accounted for the remainder of the sales production.

As I mentioned in my Preneed funeral discussion earlier, we continue to see production growth from our marketing generated leads program that very successfully led to preneed sales production.

Additionally, we're seeing improvements in key sales metrics, such as the number of appointments set and our close rates.

I want to take a moment to recognize the tremendous efforts of our entire cemetery sales team for.

For the full year 2021, they produced one 3 billion cemetery preneed sales production.

This represents a 28% increase over and above the very strong 15% growth in 2020.

This could not be accomplished without a tremendous sales organization that is supported by the tireless efforts of our cemetery management.

Administration and <unk>.

Especially our talented grounds maintenance assumptions that keep our parks.

Cemetery gross profits in the quarter declined slightly by $1 billion and the gross profit percentage dropped 200 basis points to 36, 8%.

Recall that in the prior year quarter, no vaccine exist and we saw fewer visitors to our cemeteries, so labor and maintenance costs were temporarily low.

Now as we normalize the staffing levels and make enhancements in our parks apparent these costs combined with higher selling costs and higher energy costs reduced margins as compared to the prior year.

Now, let's shift to a discussion about our outlook for 2022.

As you saw our earnings release, we issued 2022 guidance of adjusted earnings per share to a range of $2 80.

The $3 20.

Or a midpoint of $3.

At the midpoint. This represents a <unk> increase from our previously mentioned model midpoint of $2 80.

Our third quarter conference call.

The $3 midpoint reflects a 16, 5% compounded annual growth rate over the pre COVID-19 earnings per share base in 2019 of $1 nine well above our historical guidance range.

As you think about the cadence for the year as we compare back to a $4 57, 2021, we would expect negative comparisons for each quarter.

We should we should see continued elevated earnings in the first quarter due to Covid as we are continuing to experience increased demand with funeral volume and at need cemetery sale.

As the year goes on we would anticipate that the COVID-19 impact becomes immaterial and that we should begin to see the pull forward impact from 2020, and 2021, having a mildly negative effect on funeral volumes and at need cemetery revenue.

Thereby making the quarterly comparisons increasingly more difficult.

For the year, we believe the favorable COVID-19 impact from the fourth quarter and the pull forward effect later should effectively offset into an impact that will not be material.

So how are we going to grow earnings per share at a 16, 5% compounded annual growth rate through 2019 base.

First we reduced the share count with accelerated share repurchases during the uncertainty of the last two years.

The pandemic also forced us to quickly leverage and implement technology in ways that would have taken many years to take hold in an organization of our size.

We believe these accelerated changes have made us more productive with our processes staffing and other efficiencies.

On the sales side, we had to lean on our technological tools to manage allocate leads and develop and train our counselors, which has resulted in a much more productive organization.

Now, let's discuss some of the segment assumptions.

Within our funeral segment, we know we're going to going to have to transition period, where volumes are affected by the pull forward of services into 2020, and 2021 that I just described.

Our expectations for the pull forward continue to diminish as we see a larger number of the younger population being affected by these latest surges in COVID-19 and Covid related mortality.

For funeral volumes were anticipating a comparable volume decrease in the mid teen percentage range for 2021, but at levels that are flattish to a pre COVID-19 2019 after considering the pull forward impact.

Meanwhile, we expect the average revenue per case to continue to compare favorably growing at a low single digit range.

And finally, we forecast preneed funeral sales production to grow in the 3% to 5% range for the year.

On the cemetery side of the business Cemetery at these revenue should correlate strongly with funeral volume. So we expect them to also be down in the mid teen percentage range.

We expect Preneed cemetery sales production to fare much better as we can drive activity with marketing leads so we expect the decline in the mid to high single digit percentage range when compared to a very robust 2020, and then returning to a more normalized growth in 2023.

But on a much higher base.

Beyond 2022 as I just mentioned, we believe the pull forward effects Huawei and the trend of year over year growth should begin as we approach an aging baby boomer cohort with a leaner more technologically efficient and effective operating.

We continue to believe that after establishing a new base year in 2022, we will return to earnings growth in the 8% to 12% range in 2023.

With demographic tailwind and the improvements we have made and plan to continue to make to our operating platform, we expect to capture upside opportunities in the years ahead.

With that operator, I will now turn it over to Eric.

Thanks, Tom and good morning, everybody.

As we reflect over the past seven or eight quarters. During this pandemic.

So proud of all of our associates, especially those who have been on the front lines with our families and communities. We have had the privilege to serve.

Thank you enough for all you've done and the support you have provided during these most challenging of times.

We're all hopeful we are closer to the end of this pandemic, which will enable us to return to some form of normalcy for all of us.

So with that I'd now like to transition to walk into it through our cash flow results and capital for the quarter and full year of 'twenty, One and then provide some comments on our outlook for 2022.

So operating cash flow was approximately $190 million in the current quarter compared to $245 million in the prior year with the primary declined due to an increase in cash tax payments during the quarter to $97 million versus the $36 million in the fourth quarter of last year.

<unk> cash taxes in both periods operating cash flow before taxes increased almost $6 million to $287 million in the fourth quarter driven by modest increases in earnings and favorable working capital, partially offset by $6 million of higher cash into.

Chris.

So as we step back and look at the full year of 2021, we generated $912 million and adjusted operating cash flow.

Representing a substantial increase of $108 million or 13% over the prior year.

Deducting recurring capex of $260 million, which again represents maintenance Capex and cemetery development Capex.

Calculate free cash flow for the full year to be an impressive $652 million in 2021 up $33 million from $619 million in 2020.

So capital deployment has really been a highlight all year for us in the fourth quarter was no exception deploying nearly $500 million.

Which is the highest quarterly capital deployment, we've seen in recent history.

This capital went to reinvesting in our businesses firms.

Spanning our footprint through key acquisitions, and new funeral home builds and returning capital to shareholders now lets talk about the breakdown we.

We invested $110 million in our businesses with $65 million of maintenance capital and $45 million of cemetery development capital spend during the fourth quarter.

From a growth capital perspective, and as I mentioned on our October call recall that we're very excited about the acquisition candidates. We are working with late in 2021.

I am happy to report as you have seen that those acquisitions closed, bringing the total investments during the quarter to $112 million and again expecting low double digit to mid teen IRR on each of these transactions.

These businesses added almost $40 million of full year revenues from 28 funeral homes, and two cemeteries and Ohio.

California, Illinois, Oregon, and Rhode Island.

And most importantly, I would like to welcome the over 300, new associates from the shedding here Miller Jones, Lochner Skyline, Russell Boyle, and Golden businesses to the Sci family.

We also deployed about $16 million towards new builds in Texas, Colorado, Washington, and Florida.

This brings total 2021 spend on new builds to $43 million.

With again low double digit to mid teen IRR, which also helped drive additional earnings and cash flow growth.

For the company.

Finally, we deployed $248 million of capital during the quarter to shareholders through dividends and share repurchases and $700 million for the full year of 2021 for.

For the last two years alone we've meaningfully reduced our outstanding shares by about 10% through timely execution on our repurchasing strategy since the inception of our repurchase program. We have now reduced our shares outstanding by just over 50%.

So now let's shift to our outlook for 'twenty two in terms of cash flow and capital based on the guidance range for adjusted EPS of $2 80 to $3 20, which as noted in our press release, we expect our adjusted cash flow from operations to range from 675 million to.

$725 million again, with a $700 million midpoint.

As Tom mentioned at the midpoint of our earnings guidance range of $3, we expect a meaningfully exceeded our 8% to 12% earnings growth framework for Etfs, when comparing back to a pre COVID-19 2019 base of $1 nine.

So from a cash flow perspective.

Our 8% to 12% earnings growth framework generally translates historically into.

And so about a 4% growth in adjusted cash flow before cash taxes.

So adjusting for $150 million of expected cash taxes in 2002.

Our adjusted cash flow from operations before cash taxes is expected to be about $850 million at the midpoint.

This equates to a six 5% CAGR over our pre Covid 2019, adjusted cash flow from operations before cash taxes of $700 million.

Which is similarly in excess of this normalized 4% annual growth that we'd normally expect.

So there are also a couple of items that I would like to highlight when we think about our adjusted cash flow in 2022.

First we will be required to pay the remaining half for about $20 million of payroll taxes that were deferred in 2020 as allowed under the cares Act.

And as I, just mentioned cash tax payments and 22 are anticipated to be about $150 million based on the midpoint of our earnings guidance of $115 million lower than the $265 million of 2021.

And from an effective tax rate standpoint, we continue to model in the range of 24% to 25% in 2022.

One other topic I'd like to dress for 2022, as we look forward for the full year as our corporate G&A expectations now historically, we've guided to around $125 million to $130 million of annual recurring corporate general administrative expenses.

Recently, we have begun a process to reevaluate our overhead structure with all of the initiatives. We currently have underway.

As a result of this review that is ongoing.

We have identified about 20% to $25 million of costs, which we believe may be more appropriately characterized as corporate in nature versus field related expenses that is primarily related to certain technology risk and governance areas. Therefore, when youre modeling 2022 at this.

Point.

I would expect annual corporate G&A to increase to maybe around $145 million to $150 million per year.

With the correspondent dollar for dollar decrease in cost in this segment margins. So therefore with no effect on our bottom line or our cash flows.

So looking forward to 2023, we expect to return to a normalized cash flow growth trajectory with an expected 4% growth in adjusted cash flow from operations before cash taxes, which again is in line with our 8% to 12% earnings growth framework per share that we have.

<unk> mentioned.

So in terms of capital deployment moving onto some thoughts in 2022.

Our expectations for maintenance and cemetery development capital spending is 270 million to $290 million for the year at the midpoint Cemetery development Capex comprises about $120 million of this amount in.

And maintenance Capex makes up the remaining $160 million.

This maintenance Capex of $160 million includes about $110 million of normal routine maintenance capital used at our funeral and cemetery operating locations as.

As well as another $50 million for field and corporate support capital.

$50 million is primarily being deployed towards technology to not only improve the customer experience with ultimately customer facing technology, but also towards network infrastructure.

At our operating locations.

In addition to these recurring capital expenditures of $280 million at the midpoint.

We expect to deploy $50 million to $100 million towards acquisitions, and roughly $50 million more in new funeral home construction opportunities, which together as I've continued to say drive meaningful after tax IRR well in excess of our cost of capital.

So to summarize this for our capital deployment strategy for 2022, we really expect to continue much the same as you've seen from us over the past several years.

We follow a disciplined and balanced approach deploying capital to the highest relative value for our shareholders and of course. This strategy is predicated on our stable free cash flow.

Our robust liquidity, which was over $1 billion at the end of the year as well as our favorable debt maturity profile.

Lending additional support to this strategy our leverage ratio at the end of the quarter landed just under two six times from a net debt to EBITDA perspective.

And as we've noted in the past looking beyond the impacts of this pandemic.

We continue to expect to increase back to our targeted leverage range of three 5% to four times towards the latter part of this year as we lap stronger EBITDA quarters.

Moving forward.

So in closing after a very strong 2020, we are very pleased that we exceeded those results in 2021.

We are most proud of how our team has persevered over the last two very challenging years.

Passion and professionalism. Our teams have demonstrated is truly remarkable and we appreciate each and every one of our team members as.

As we look forward to another year I am very excited about the momentum we have moving forward into 2022.

So with that operator.

That concludes our prepared remarks, I'd now like to turn it back over to you for the Q&A session.

We will now begin the question and answer session.

To ask a question you May Press Star then one on your Touchtone phone.

Thank you Youre using a speakerphone please pick up your handset.

Keith.

If at any time your question has been addressed.

Would like to withdraw your question. Please press Star then two.

At this time, we will pause momentarily to assemble our roster.

The first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Thank you very much good morning, everyone.

I guess I'd like to start with.

A few.

Funeral, and particularly cemetery preneed sales.

<unk> quite strong and it sounds like.

You all are anticipating within the 2022 guidance that second quarter third quarter fourth quarters, where we really see the reversion from the pull forward based on.

Your crystal ball at the moment.

I wanted to I wanted to ask a couple.

Commentary pre need it sounds like you think that that will persist for a while longer because we get a little bit more sense of what kind of tail that would be in bridging you to the normal.

Period, presumably in 2023 after that reversion period. Thank you.

Sure Scott.

What we think is again COVID-19 .

Obviously had an impact on our funeral business, obviously has an impact on our at need cemetery revenues.

So our expectations are that as this begins to wane for physically in the last three quarters of the year that our comparisons are going to get.

Down kind of double digits as you think about those two categories and to your point.

When you turn it around and talk about lets talk about cemetery, because thats going to impact EPS.

We feel very good about we actually think we will continue to grow at low to mid single digits for the year, but on the Preneed Cemetery side.

We're saying it.

All at mid teens for funeral volume, we're looking at kind of mid single digits.

How did you do that or why the difference and I think our opinion is this.

We have because of.

Technology technology, and the tools that we have access to and our learnings that we are a much more effective and efficient sales force with better leads.

Better ability to train.

Just much more effective and efficient and so from that.

We think 2022, while it will be down versus 2021 establishes a new base in let's call. It mid single digit down and then we begin to grow up it again, so there really is a I'd say.

Efficiency and effectiveness of everything from the lead coming in to the.

The sales force itself to the sales managers that are using <unk>.

Technology to better manage and develop and train.

<unk>.

So that's the way we view the world is that pre need to kind of got a new base to grow off of.

And at need is still going to be impacted by.

Whats happening with that clearly.

Thats something thats truly up outside of our control.

Thanks appreciate that and then.

At need funeral revenue procurement has been.

It really bounced back nicely I'm curious, it's been about two quarters and team.

The COVID-19 funeral systems policy.

Finance leases with fuels recovery related deaths, how much has that contributed obviously opening up has contributed a lot but how much is the.

Financial assistance program.

Contributed to revenue per funeral service.

In cemetery for that matter.

And how long will that is that program anticipated to persist. Thanks.

So just a little feedback on that it's very difficult for us to measure is the one thing that we have done is we've put the link on our website and I would tell you that.

Very few people ever went there so we're not seeing a big evidence of that contributing to the.

The spin of our consumer.

I think what it has got a couple of things on the preneed side clearly our trust fund income if you look at the market returns or just our returns over the last three years. They are all kind of mid to high.

Teen returns that are accumulated in those in those trust funds, so thats, having a bigger impact on the preneed going at need.

And on the additive side it looks acutely.

Higher compared to 2022.

But.

What's really causing that is remember last year's fourth quarter and most of last year, we saw a real shift to out of service and what we're seeing now is a big return to service and we are seeing.

People that are choosing particularly cremation.

But variable to our spending up for additional services and the like we also are seeing a real rebound in our what we call our ancillary revenues and these would be flowers that are purchased by friends of the family.

As well as kind of catering to these are these are things that kind of went away for a while and not only have they come back but they've come back incredibly strong I think on the flower side, we're well beyond anything we ever saw as a company.

So I think those are the things really lifting it and if you step back and look at my comments I am saying off of 2019 base. Our average is up 5% now I am very pleased with that I think we're happy but it is not unreasonable right. I mean, you would think over a two year period, if you can get 5% inflationary pricing.

So I think some of it is just the numbers look unusual as you try to compare back but a lot of positive things happening and we do not have any real evidence of FEMA that clearly there is money in the system out there I don't want to pretend theres not.

And that could have an impact on what people want to spend can Smith.

But I don't think it's anything material.

Alright, Thanks, Tom appreciate that one more if I could sneak it in.

This is essentially a 2023 capex question just to give you the question upfront.

But you've been trending prior to the pandemic to 7%.

Capex as a percent of revenue.

And.

Depending on what your sales estimate is for this upcoming 2022 looks like that's going to be up around 9%. It sounds like you have some increased.

Infrastructure technology spending I'm, just curious are we going to see a reversion on capex percent of revenue that if thats the way to think about it back down to like a 7% in 2023 and thereafter or are we going to be at a new elevated level.

Or tonnage going forward, and just kind of a little bit more of what's behind and this increased capex spend thanks.

Hey, Scott it's Eric.

There's a couple of things that are happening here first let's talk cemetery development. So as you know in that 7%. We've always said all else being equal we think we're going to spend somewhere around $100 million and cemetery development Capex per year. If you look at the financials Youll notice that we did spend that in the last two years, we spent in the low eighties.

Frankly for cemetery development. So I think one thing you have to notice is that our cemetery development is going to be higher this year kind of making up some momentum.

And some of the capital that we had in some of those are just projects that got hung up in permitting in California and things like that.

Let's call that $120 million to $125 million, so that's a little bit higher and I anticipate that normalized so that's going to be part of that component going back down to the 97% the metrics you use.

The other thing that I would tell you is our.

Our maintenance Capex.

Normalized around 125 ish million dollars in that ballpark. It was generally that 110.

So area.

Investing back into the funeral homes and cemeteries from a maintenance perspective, and then we had this corporate strategic kind of spend which was about 15 or $20 million or so and that is what has grown that I've talked about on my conference call and Thats been the things that I've said before which are some of the infrastructure as we've gone through.

Remember 2000 locations gone through you can't do that overnight, so thats going to be a multi year project, where we are investing in network upgrades infrastructure, which again is all about the technology, we use onsite for customer facing things such a celebration of life. In addition to some of the software that we use that's all.

So customer facing such as <unk>, plus and et cetera.

Ultimately I think that eventually.

Starts to revert back to the mean, but I wouldn't characterize that probably in 'twenty three I think we need another year or so maybe 18 months to get through some of the stuff. We're doing we've also talked about re imagine which is some of the efficiencies we want to bring Houston technology to kind of the back office part of the field operations.

And that's going to be ongoing as well for a couple of years. So seven answer your question as cemetery development kind of reverts back I think maintenance is here for a little bit longer maybe for another year and 23, maybe leaks into 'twenty four and then it starts reverting back.

That's real helpful. Thank you and thanks for taking all my questions guys I'll turn it over.

The next question comes from Julian I think you with Bank of America. Please go ahead.

Good morning, Thanks for taking the question so.

So thanks for that.

Clarification on the Capex.

So wondering about that number be higher but I guess also.

Relates to.

D&A depreciation and amortization for the year I don't know whether you.

Is there a number you can.

Got it.

Because it seems like.

It could be right.

And then capex.

Correct me, if I'm wrong, and then I guess, Mike Flynn.

Flip this year.

How should we think about I guess thats, what im getting that thank you.

I think D&A is going to be a little bit higher I really do I think it's somewhere around 288 $290 million in that general area.

One thing you have to remember is probably $160 million to $171 million of that Joanna is the D. Part the depreciation but the amortization remember is the noncash call cost that relates to the sale. The recognition of the cost of sale related to cemetery property sold on a free basis.

So from that perspective, the reason why it ends up being somewhat variable because it relies a lot on what the preneed cemetery sales are going to do in the property area.

As we know that's going to be quite different this year than last year. So that's kind of the biggest variable in our DNA, which is somewhat unique to our company is that amortization of cemetery property that you can see on the on the cash flow statement, but it is a very general statement I kind of go with those numbers that I just that I've just described.

To you to help you kind of think about it and model it for 2022.

Okay. That's that's helpful and.

Tomorrow, I guess, one follow up on that.

On the deal.

In Q4.

So again.

Great.

Perfect.

Closing.

Last years to kind of how do you think about this year in terms of.

M&A you're expecting.

More elevated.

CVD.

Alright, Thanks, Larry delay last year and this happened in one quarter and I guess any kind of change to move.

Sure.

Requirement or rather expectation.

Are the multiples would be moving higher.

Okay, well as I said in my remarks, the official guidance is.

Going back reverting back to our $50 million to $100 million that.

I think we'll spend this year and 22 related to M&A, so with that being said I said that last year too and we ended up beating that handily, especially because of the activity that we saw in the fourth quarter as I kind of alluded to <unk> remarks.

Set in the October call that we are somewhat pretty excited about the pipeline.

It come to fruition and presented itself in the fourth quarter of last year and I don't think that pipeline is shut down overnight.

I don't want to say anything more than that that I guess, the best way to say it is I think we continue to have some excitement early in early in 'twenty. Two the same type of excitement that we that we characterized in the call when we talked about in the fourth quarter as well.

And with that site.

Any pressure on multiples to Bang.

I think generally we're pleased with the type of.

The multiples and we're pleased with the type of <unk>.

After tax IRR that we are able to produce theyre going to be in the low double digit to kind of mid teens dependent on the deal and the deal size.

But no I think we're we're somewhat pleased with the type of returns we're getting.

Okay, Great and then last question so the commentary around that.

Aging demographics.

If I put in the press release.

Which I think was great but maybe.

How should we think about that are you kind of pointing to the concept of we get closer but kind of.

More finite.

In theory there.

Starting to see the benefit in 'twenty, three or just kind of more.

Peter asked me, that's where it's going to be a more meaningful impact. Thank you.

Yes, I think the comment was geared more toward the post 2003 look.

And I think what we're trying to say is a couple of things.

Out about demographics or potential impacts that are not market share related.

And I'd say number one the cohorts that from from Covid that were impacted.

We mentioned the younger demographic, which tends to not be a pull forward effect.

That's really because if you think about omicron and even before that with Delta both of those impacted I would say.

Non vaccinated people that were younger versus the first waves, which were more concentrated when nobody had any vaccinations were more concentrated let's say in the in the nursing home. So I think the waves become less impactful than as you think about the next few years and we'll probably explore this a little more when we get to our Investor day.

Is there is unfortunately, a lot of negative trends out there when you think about I mean, even card to smoking's up for the first time Alco.

Alcohol sales, so many things that impact our health.

Continued we believe to have a near term impact that's not going to revert back to 2019, and then longer term I think which is the bigger impact we're referencing to say look the baby boomers get older.

Every year one more year.

And so we're closer and closer so I think as we think about.

Managing and expectations, we look at the mid particularly kind of the middle part of this decade.

We may have more to do than we originally anticipated.

We're doing five years ago.

Thank you thanks for this color.

Thank you.

As a reminder, if you have a question. Please press Star then one can be joined to the queue.

The next question comes from a J Rice with credit Suisse. Please go ahead.

Hi, everybody.

I wondered if I could first ask about the cemetery production number you were up 13% year to year and I think you said velocity was 5% implying.

Probably pretty robust.

Increase in the averages.

What what did you see there it didn't sound like that was the really high end stuff that you sold on a pre.

Pre need basis, but what is going on with that.

J J I think the.

On the high end sales, we actually saw those slightly down versus the prior year. So you are right, 5% was the velocity of call. It 8% was average can you say how is that possible.

If you remember the whole concept of the tiered inventory it was about building.

Out the entire tiers.

The very top all the way to middle to the bottom and so as you think about the 8%, it's not necessarily a price increase.

Different level of inventories so over the last few years, we've built out more of the stuff. We've enhanced the beauty of the cemetery and I'd say the stuff that people are coming to look at and particularly as we saw more volume they are buying up they are seeing.

Better opportunities or they want higher quality cemeteries, so kind of back to our original plan was build it they will come and that's really how cemetery has kind of worked out for us. So so we're not seeing.

Increases in price necessarily.

Buying up in value chain Thats driving that average revenue per case up 8%.

Okay.

When you think about both businesses and you referenced some and talk about a little from the prior remarks some inflationary.

Sure. It sounds like if you look at it relative to 2019, it's still for your business pretty good on the cost.

Syed compound annual growth of 3%.

But I know that a lot of times, just your absolute price increases youre trying to sell a richer service and all of that but the average price increases year to year tend to be more CPI driven.

As we see CPI and other inflationary and indexes increase here in the last six nine months.

Have you looked at that.

Are you.

Inclined to move your pricing more in line with what the.

Current inflationary trends look like.

Yeah sure, we really tried to look at it on a market by market basis, So I don't want to generalize and say.

From a national perspective, so most of our cost tends to correlate with labor. So the way we try to look at this is if we.

We're seeing labor.

Cost increases in our market, we're going to adapt to that and huddled up as a team and say.

Here's what we're facing.

We've got to if we have to maintain these key employees then let's get a plan together to figure out I would pay for it and so I would tell you that that's that's probably the most.

The way that we approach pricing within a market clearly we have some some thoughts and ideas, but that's really being driven by local market conditions.

Okay.

Your perception is you have the ability to to make those price adjustments as needed theres not resistance.

People still relatively.

Immune to what people pay a year ago, and so that theres been a price adjustment in.

And any sense.

We do hedge I think where we've done that because we're very sensitive to that we do not want to <unk>.

This ourselves if you remember a few years back we really made some adjustments, particularly to the cremation side of our business to be more competitive in that market. So we are absolutely sensitive to that monitoring that and I know of no market, where we've made those adjustments where we feel like it's.

Come back in our face so we're careful they're not going to be egregious price increases, but but again I think if we're seeing some labor issues, which you can see from time to time, let's say in a hot market where.

It's labor competitive with other industries be it real estate or are there other folks.

We have more ability to pass along those inflationary costs and again, we try to engage the whole market and saying Hey, how do we solve this problem. If we really are losing people need price increases then let's come up with a game plan to where everybody wins.

That's an approach so far has worked clearly there is inflation in the system and we're going to have to deal with that in the coming year.

Okay and then just lastly, just another aspect of the deal activity in the fourth quarter.

Should we think about this is.

Just sort of normal succession planning come into fruition that maybe got put on hold a little bit during the pandemic or.

Is there any other dynamic people burned out post pandemic with everything they've had to deal with.

And therefore looking to make a transition that maybe wouldn't have been independent and we hadn't happened or is there any other dynamic at work.

You see that's prompting some of these transactions.

I think it's a little of all of the above.

For sure I think that.

You continue to have kind of an aging transition problems. So every year.

Businesses that we're buying generally are they generally are not startup businesses right. They are generational businesses.

So I think that is definitely playing an impact I think having gone through COVID-19 .

Everything Thats happened over the last couple of years is from talking to some people that are making these decisions. They are saying I want to enjoy life and so I do think thats had a bit of an impact and let's face it.

What's the best time to sell your business when our pro forma have volumes up in that.

The starting point of any negotiation clearly, we're not going to pay for what we believer onetime business, but I think all of those things kind of come together.

For us a little more activity in Eric referenced.

We're clearly seeing more deal flow.

Opportunities to grow and again, I think we're going to be selective but.

We're excited about what we're seeing now and I kind of think this will go on for.

A little period of time.

Hey, guys.

Exactly right.

Okay, great. Thanks, a lot. Thank you.

<unk>.

The next question comes from John Ransom with Raymond James. Please go ahead.

Yes.

Hey, I'm still Mad at you guys said that mailer.

Predictably.

I'm, a boomer, but I'm kind of a young bloomer so.

It was very targeted John .

[laughter], Yeah, I've tried to get healthy during the pandemic.

The.

The question I had is.

If you look at the full kind of excess pull through which is a nice euphemism of course of the last two years.

And what's your what is your current thinking let's just say that's a little over 100000 excess funerals.

What's your current thinking about the pull through of that as we look out over the next like one year three year five years have you been able to get any insight into that.

Yes, I think it was a little bit different than what we originally said earlier in the pandemic. That's the first thing to say first of all the 100000 for US is really more like a 120000.

We believe we are.

The Cove in ancillary desk that we did which was about $50020 70021 is a very rough estimate when we first set a third a third a third I think we're very much often I think we've been trying to say that we're learning as we go forward and trying to figure it out.

But I think the tail is much longer is the first thing I would say, it's not just a three year event and a second let's say, it's roughly maybe even half to a little bit less than half of that a third a third a third so when you think of that way.

<unk> of <unk>.

<unk> <unk> thousand $14 $15, 16% area.

Im talking way too precise.

Start because we haven't experienced this yet and we have to get through and continue to sync up. So we think in 'twenty. Two for example, it's somewhere about that percentage of the 120000 that is true there.

I'll tell you is we'll learn as we go I'll be very surprised if thats perfectly accurate.

But we will put our best foot forward and we'll learn as we go and we'll update you as we move forward.

Okay.

And then just kind of flipping that I have.

<unk> talked to you about this in a while but.

I would imagine finding commission based salespeople to sell a product with no recurring revenues.

In 2022, so just kind of talk about maybe your sales force turnover productivity metrics.

80 20 rule.

If you've had to do any different things to recruit people are maybe what the cost structure of the pay out anything there because they're obviously humming in a difficult backdrop, but if what if you had to change to keep that going.

Well, John I think first of all just to compare pre pandemic to post pandemic.

Actually probably down about 400 to 500 counselors because one of the things. We did is in the uncertainty we didn't know what kind of leads we're going to be able to generate because remember when we started traditionally we were getting a lot of leads through let's call. It the.

The.

The walk in model or the other activity follow up model. We didn't have a lot of marketing leads being generated so we really pared down and said, let's give our leads to the best people.

And at the same time launched this marketing sales lead programs, which became incredibly effective at the same time you recall we had.

Customer relationship management software, which we were encouraging people to use but werent existing that they use it and what happened and all of that when you shutdown travel when you didn't have the ability to go as we started leaning on these technological tools.

Manage.

And then have these these incredible leads so what we found is we were much more productive as a salesforce as the sales management team, we had more capacity to manage because we weren't on the road all the time we were using.

Data off of this customer relationship management. So we knew effectiveness. We can apply training. So what's really happened out of this as we have less people that are selling a lot more so much more effective so as we think about going forward I think our thoughts or this we can go deeper on effectiveness we.

Believe we're now launching tools that actually will allow us to be more productive more effective with what we have at the same time, we're generating more marketing leads that we talked about so I think it is going to be.

And interesting dance that allows us to be more productive, but at some point and our hope is that we're going to have so many leads that we have to begin to grow the head count again too.

Now I would tell you there is a lot less turnover a much more effective sales force.

And it's really being driven by productivity and putting the best leads and the <unk>.

In the hands of the most capable salespeople.

I mean, Tom do you think im looking back on it.

So youll say this might have been most enduring benefit of the Covid response.

For sure I mean, I think it's the biggest impact we've got some some efficiencies I think we've gained in staffing and learning how to manage that I think some back office efficiencies that we've learned by leveraging on technology, but the biggest issue and when you think about the excitement of what were orders.

We believe.

We've achieved a new plane of of sales production.

Production, we accelerated the growth we're seeing.

We don't.

This isn't going back clearly some of its COVID-19 .

<unk> Investor Day, we will try to talk a little more but we mentioned before.

We really accelerated we used to guide to cemetery sales at 4% to 6%.

This period compounded we think over the last three to four year periods, we may have grown at 9% to 10%.

And we don't think we're giving it back that's the real growth rate and then we had the excess growth related to COVID-19 .

So that's what's exciting and so I think we're at a new a new base camp for 2022.

To begin to grow off of.

Couldnt it probably wouldn't have achieved it if COVID-19 didn't happen.

Gotcha.

Last one for me is there any more wood to chop with Beacon and the cemetery side is that fully deployed at this point.

It's fully deploy John at this point, but what Youll see going forward as Tom just mentioned, there's a lot of technological increases.

Uses that we wanted to do and improvements that we want to do so it will be that type of ongoing thing but to answer your question, it's rolled out and deployed.

Okay. Thanks, guys I appreciate it thank you.

This concludes our question and answer session I would like to turn the conference back over to Keith.

The Sci management for any closing remarks.

Thank you everyone for being on the call today, we look forward to talking to you again at our first quarter earnings call.

Later late April early May thank you.

Eric.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.