Q2 2022 Service Corporation International Earnings Call
More importantly, you have continued to stay relentlessly focused on what we do best.
<unk>, our client families and our communities gain closure and healing through the process of grieving remembrance and celebration.
Now to the business at hand, this morning, I'm going to begin my remarks with a high level overview of the quarter followed by some further color on our business performance for the quarter, including some detail around our solid funeral and cemetery results.
For the second quarter, we generated adjusted earnings per share of 84 cents and eight decrease over the prior year quarter of 92 cents, which experienced a more significant pandemic impact.
For a better perspective of this quarter's performance, we delivered earnings per share growth, 45% above 2020, and 79% above our pre pandemic 2019 second quarter.
Paired to the 2021 second quarter. The funeral results were relatively flat, but well ahead of our expectations as we continue to see elevated levels of funeral services with a strong funeral average.
On the cemetery side profitability was below prior year as Preneed cemetery sales production, while still historically very strong was down about 3% versus the 2021 second quarter.
Additionally Cemetery Trust fund income decline as it was impacted by steep declines in the equity and debt markets during the second quarter.
So for the quarter, we saw <unk> decline in earnings per share from operations, both comparable ops and acquisitions.
<unk> declined below the line as higher general and administrative costs, primarily impacted by the timing of incentive accruals and a higher tax rate were somewhat offset by the favorable impact of a lower share count.
Now, let's take a deeper look into the funeral results for the quarter.
Total comparable funeral revenues grew nearly $10 million or about 2% over the prior year quarter.
Exceeding our expectations as growth in core revenues and recognized preneed revenue were slightly offset by a reduction in general agency revenue.
Comparable core funeral revenues grew over $3 million.
Led by an impressive 3% increase in the comparable funeral sale there.
Our percentage of family selecting to have funerals and celebrations of live services has essentially returned to pre COVID-19 levels.
In conjunction with the rollout of our celebration of life initiative, we have seen families selecting upgraded facilities and a higher propensity to select catering and flowers.
This increase in average was achieved despite a 170 basis point increase in the core cremation rate.
Comparable core funeral volume declined about 2% compared to the prior year quarter slightly offsetting the positive impact of the funeral sales average.
Keep in mind, the 2022 second quarter volume is still over 6% higher than the pre Covid 2019 second quarter.
So we're continuing to serve elevated levels of client families above and beyond COVID-19 deaths, which is consistent with our commentary around this topic during our Investor day presentation are met.
Recognized preneed revenue increased over $9 million or 28% as increased digital leads in a more effective direct mail strategy successfully drove more contract velocity within our talented Sci direct team.
From a profit perspective funeral gross profit increased almost $4 million, while the gross profit percentage increased 30 basis points to 21, 6%.
Revenue growth of $10 million resulted in about $4 million of incremental profit.
Lower margin growth from flowers, and catering as well as higher merchandise costs slightly reduced our expected profitability.
Preneed funeral sales production grew over $7 million or nearly 3% over the second quarter of 2021.
Our Sci direct production was particularly strong posting an increase of almost 20% over the prior year quarter.
Increased contract velocity, driven by a new and more effective targeting strategy for our direct mail and seminar programs as well as increased digital leads were the primary drivers of our growth.
Now shifting to cemetery.
Comparable cemetery revenue decreased $8 million $18 million or about 4% in the second quarter.
In terms of the breakdown core revenue was down by $12 million compared to the prior year.
At <unk> revenues were flat so recognized preneed cemetery revenues accounted for the decline.
Other revenue decreased by about $6 million over the prior year quarter as Endowment care Trust fund income was negatively impacted by prior year capital gains distributions that did not reoccur.
Preneed cemetery sales production declined by $11 million or about 3% in the second quarter.
We must keep in mind, we're comparing against a 2021 second quarter it grew by 36%.
Said another way our second quarter 2022 sales production is 45% above our pre Covid second quarter 2019 sales protection.
As we referenced in our Investor day presentation. We believe we have enhanced our sales and marketing productivity and cemetery sales from learnings achieved during the pandemic.
We're experiencing a slight decline in sales velocity that is for the most part being offset by increases in the core sales average.
Large sales have remained robust, but down slightly by $2 million as compared to the prior year.
We have seen a slight decline in appointment Hell is this discretionary consumer diverted their attention to increased travel and societal engagements. This year. After post COVID-19 related Lockdowns and also felt the impact of general inflationary consumer pressures.
The good news is our close rates continue to improve year over year and with the strength of both our sales team and our customer relationship management system. These opportunities are not lost but rather deferred and should bode well for future sales production.
Cemetery gross profit in the quarter declined by about $14 million and the gross profit percentage dropped 170 basis points to 33, 7%.
Declines in high margin merchandise service in Eternal Care Trust fund income accounted for most of the gross profit decline.
As you saw our earnings release, we reaffirmed our 2022 adjusted earnings per share range of $3 30.
The $3 70.
We're a midpoint of $3 50.
We remain very confident in the range that we've provided.
Segment.
We're continuing to see volumes above our expectations with a continued strong average revenue per case.
Preneed funeral.
Are trending slightly below our expectations as the discretionary consumer seems to be slowing down a bit.
We're experiencing some inflationary pressure that we had anticipated and are for the most part recovering with inflationary pricing.
On the cemetery segment, our at need revenue is trending higher than expectations due to stronger volumes, while our preneed sales production is slightly behind our expectations due to a slight decline in velocity. We believe is attributable to diverted consumer attention and general inflationary pressures.
The good news is that we have quite a bit of completed construction projects scheduled to occur, particularly in the fourth quarter that have a very healthy backlog of sales that would be recognized as revenue upon completion.
We are also are experiencing some elevated labor maintenance costs in our cemeteries, both internally and with third party vendors.
However, these are not material to the company as a whole for the most part are being recovered with inflationary pricing.
Below the line, we saw and continue to expect variable interest rates to move up.
The tax rate expense incurred in the second quarter had a three cent incremental negative impact on earnings per share.
This was associated with the sharp decline in the financial markets. So we do not anticipate this reoccurring in the back half of the year.
With that operator, I'll now turn the call over to Eric transfer.
Thanks, Tom Good morning, everybody.
No I really want to start with the most important thing and that's really thinking our 24000 plus associates that have helped us to produce these impressive financial results. This quarter everybody in the field you continue to provide exceptional service to our customer families and all of our communities. During these exceptional circumstances.
<unk> stances, while also managing through the Covid era and taken us beyond that are.
So you hear me very loud and clear. Thank you for everything that you do for our company.
So with that being said I'd like to discuss the rest of the call our cash flow results capital investments for the quarter. Some of the market effects on our trust funds and then provide some comments on our cash flow outlook for the remainder of this year.
So we generated operating cash flow of $141 million in the second quarter. This was in line with our expectations. It was about $50 million lower than the second quarter of last year that again was impacted by Covid driven positive activity.
Similar to our adjusted earnings per share. These current cash flow results are significantly higher than pre COVID-19 activity levels, such as the $84 million of adjusted cash flow, we generated in the second quarter of 2019.
So for this quarter, though versus second quarter of last year.
Our cash flow was reflective of the $18 million decline in operating income, which excludes gains on divestitures.
$15 million of higher interest and cash taxes as well, it's about $17 million or so of an increased use of working capital.
Okay.
Payments were on target increase and an expected $10 million predominantly associated with debt restructuring transactions, which we did in the second quarter of last year as well as a smaller impact from increases in our floating rate debt.
Additionally, the cash tax is slightly increase on a quarter over the prior year, which was in line with our expectation and this increase was only about $5 million for a total of about $95 million.
Net use of working capital in the quarter was really related to timing of some payable outflows really between the first quarter of this year in the second quarter of this year. So think of that that's really just timing.
Now, let's shift gear and talk about the impacts of the trust funds. Obviously have you seen the volatility of financial markets has impacted the market value of our trust funds that support future revenues tied to contracts in our preneed backlog.
I like the most importantly remind everybody that this is a muted effect on our near term earnings and our near term cash flows.
So given the 10 to 14 year average life of the customer contracts.
Only about 8% of those contracts and the trust backlog mature in any given year.
Therefore, the effect on the reduction in trust fund market value allocated to each individual contract is really reflected in our earnings and cash flows over a 12 year period or about 8% per year, hence the muted effect that I'm referencing.
More specifically at June 30th our trust funds had decreased about 15% year to date and ended this quarter with a $23 million net unrealized loss and the totality of the funds.
However, the trust funds have recovered significantly this month since June 30th after the quarter.
We are currently in a net unrealized gain position of just over $200 million.
We are currently modeling our trusts to end the year down.
In the mid single digit percentage range.
But I don't want to touch about our capital investment activity.
During the quarter, we invested $245 million into our existing businesses newbuild opportunities and accretive acquisitions as well as returning capital to our shareholders, let's talk about the breakdown.
We invested about $84 million into our businesses, consisting of 53 million of maintenance capital, which by the way it was higher than both our expectations and the prior year as we really accelerated the completion of several field technology and other field infrastructure projects into this court.
Additionally, we invested just over $30 million into cemetery development projects during the quarter.
This was higher than the prior year, primarily due to the COVID-19 related delays that were experienced last year.
We view these higher investment levels in both maintenance and cemetery development as timing related and we are reiterating today, our 270 million to $290 million maintenance in cemetery development annual investment guidance for the full year of 2022.
Yeah.
From a growth capital perspective, we deployed 15 million towards the purchase of real estate construction of new facilities and expansion of existing funeral homes and cemeteries across our footprint.
On the acquisition front, we had a small transaction closed in the mid Atlantic mid Atlantic region for only about $2 million. However, after June 30th we closed on another transaction on the West coast.
Currently, though we have several pending transactions and its various stages and we anticipate having what we would call a robust second half of acquisition activity. This year.
We remain very pleased with the acquisition pipeline and we believe we will end the year at the higher end of our range of $75 million to $125 million of investment and accretive acquisitions.
Finally, we continued returning capital to shareholders with nearly $144 million being returned this quarter alone through dividends and share repurchases.
Now I'd like to shift to a few comments about our financial position.
We continue to have strong balance sheet with a favorable debt maturity profile and great liquidity of just over $930 million at the end of the quarter that consisted of about just over $200 million of cash on hand, plus almost $730 million available on our long term bank credit.
Sylvia.
Additionally.
Our leverage at the end of the quarter was just under two seven times net debt to EBITDA.
We will continue in the second half to invest capital in high return opportunities such as the acquisitions I, just mentioned new builds and our share repurchase program.
We will also comp higher EBITDA quarters from the prior year that were positively impacted by Covid activity.
Salt is our expectation for our leverage ratio to increase from this level today.
In 2022, and the lower end of our targeted leverage range of three and a half to four times.
Now, let's talk about the outlook for the remainder of 2022.
We remain very comfortable and we reiterate our annual guidance for adjusted operating cash flow of $750 million to $800 million again for the full year of 2022.
We have already generated 473 million of adjusted cash flow towards this annual target in the first half of Wow.
Partially boosted by the Covid activity in the first quarter.
Our annual guidance incorporates an anticipated decrease in program related activities for the remainder of this year.
Resulting in lower cash flows when compared to both the first half momentum I just mentioned as well as the second half of the prior year.
Included in this confirmed guidance is a slight adjustment to our previous cash tax payment estimate of $180 million to now be in a range of $180 million to $190 million.
And while we're on the topic of taxes from an effective tax rate standpoint, we now expect a range of 25% to 26% for the full year.
The previous guidance of 24% to 25%.
Our rate expectations change, primarily due to non deductible losses incurred from the negative financial returns on cash surrender value of certain life insurance policies. We hold this caused our effective tax rate percentage to increase in the court.
Finally.
I would also like to make some comments on our corporate G&A during the first half of the year.
This corporate G&A has been trending higher than our normal quarterly run rate as a result of higher annual ICP accruals linked to current operating results as well as our long term compensation plans that are tied to increases in our total shareholder return that have been pretty hell.
Yeah.
As we look to the back half of this year.
We do expect to revert to our normal quarterly G&A trajectory of $37 million to $38 million per quarter that I talked about and discussed with you on the February call earlier in this year.
So in closing through the first half of this year, we're very pleased with our financial results and are excited about our continued momentum as we look to the back half of this year.
Most importantly, I would also again like to thank all of our 24000, plus Sci associates for helping to achieve these great results and serving the client families that you do so well.
So with that operator, I'd allow that that ends our prepared remarks from Tom and I 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 you May Press Star then one on your Touchtone phone.
Using a speakerphone please pick up your handset before pressing the keys to withdraw from the question queue. Please press Star then two.
First question is from Joanna Gotcha.
Bank of America. Please go ahead.
Hi, good morning, Thanks, so much for taking the questions here.
So I guess you.
You mentioned.
Hum.
Sounds great decline year over year, but still running pretty healthy versus the parent.
<unk> levels.
Two questions. Please the first I guess when you talk about the 45% of boss.
Corona virus pandemic levels.
Is there a way to think about the breakdown for this number how much is due to higher velocity and how much is from higher average price.
Yeah, Julien I don't have the 19 compared broken down, but I think just from speaking from using approximations.
Whereas I think all three trends look very favorable our velocity is higher.
Quite a bit probably in the high single digits, we've seen some healthy increases in sales average as we've invested in cemetery property and upgraded.
Cemeteries in our large sales activity again, as you know more than double digit percentages higher so really firing on all cylinders and I think the one thing I was just pointing out is we knew that last year was probably the peak right. You had a lot of Covid activity you had a consumer that was.
For all intents and purposes kind of locked down and not anywhere to go.
And two you really haven't seen any.
Signs of inflation occurring in the economy, the perfect World and the only difference we're beginning to see in some of this is our speculation is we're seeing some of the consumers, particularly at the middle of the bottom of the socio economic.
Demographic CNN pull back a little bit and again, we're speculating that the gas prices that electricity is.
Is it a good time for me to start at three year payment on the cemetery property, probably now I would like to see things settle out the good news is and that's what we're trying to point out. These are these are leads that we've maintained relationships with.
So as things settle out we expect we'll go back and close those contracts, but that's really it in I think two you've got a consumer that I mean, you're seeing the airports and the wife luggage in Europe . I mean people are out doing stuff not just traveling but they're going to shows and doing different things. We've also seen some unique things like you know.
Resurface I know one region of our of.
Of our company and the sales region, we had I want to say, 40% of our sales counselors out either on vacation or with Covid.
You've got customers with Covid. So I think we just had a little bit of a of a of a difficulty.
That we expect to begin to work out of.
We still have a very high propensity for for customers to want once we get in front of him. Our close rates are the highest they've ever been in the company. So so we feel really strong. We just wanted to point out we are seeing a little bit of a consumer.
In a tenant and this compared to a very attentive last year's second quarter.
And I guess does that actually yeah.
That's my question so in terms, yes.
This dynamic.
We need cemetery so maybe.
Some impact there and I guess in the quarter was down year over year, obviously very tough comps got that last time.
Talking about expectations for the Preneed cemetery sales to increase low single digits for the year, Despite a tough comp.
So thank you for the full year.
Yeah, I think we can we believe we're going to get back to slightly positive for the year.
When you look at the cumulative effect.
Right around there I mean surely.
Still feel pretty good about getting back to levels for the whole year, because we had we had a really solid first quarter as you'll remember I think we're up over 10% we're.
We're gonna eat away at that I think if you think of the back half of the year will probably be slightly down.
But accumulative year that achieved the same level of 21 or thereabouts.
And I guess this also is linked to the AR recognized cemetery revenues that you mentioned last quarter.
The large projects that have been developed.
The country and that you.
Do you expect to recorded $35 million revenue right.
Alright.
For the year and maybe into early next year. So.
Are these all scheduled timing for when you might expect these revenues to come through.
Is it tracking.
We're expecting one.
When we last talked about it.
They argue and I think particularly in the fourth quarter, we anticipate having a lot of completed construction projects and like I was kind of referencing in my comments, we've really been selling hard into those so I think that impact on your <unk> to your point recognized preneed revenue is going to be.
Significant when you think about the fourth quarter so.
Probably going to recognize more than we sell in the fourth quarter by quite a bit.
Probably not the same dynamic in the third but but again, we will have some completed contracts in the third quarter too.
Okay, So and I guess there are no no delays in terms of you mentioned.
One of the things that.
It sounds like Youre right I think we feel good about the timing on all of those.
Okay, and if I may.
Very last question.
So you mentioned because I was also thinking in terms of their license.
Thanks, Ron.
The labor cost.
Oh I guess.
I cover the health care services provided today to talk about a lot.
And I guess, you also mentioned like salespeople out on vacation or actually download with the virus and whatnot.
Can you just talk about what you see on your labor.
In terms of either just.
People are not.
Does that create any issues and then I guess also wage increases what are you what are you seeing there.
Alright, thank you.
Sure So if a bifurcated by funeral.
Funeral front, we're probably seeing overall wage increases in the four to four 5% type of levels now what that is composed of two different things one is.
Because we have more I'll call robust funeral services this quarter versus last year's second quarter remember you still have a little bit of the lockdown effect and others.
Celebratory.
On general level. So we're probably have more hours of labor. When you think about over time and things like that servicing a similar level of cases, but.
But we're also seeing a little wage inflation, particularly in certain markets and our philosophy like I said before led by Jay wearing our chief operating officer is as we experienced those our local teams are sitting down and saying we've got issues, let's give these wage increases now let's find a way to put this on the price list because again.
We do a fantastic job and we want to be able to to charge appropriate rates for great people. So we're managing that away I would say, we're not seeing the same level as you're probably hearing about but it is a little higher than normal inflation is creeping into that on the cemetery side, it's a probably a little bit more.
Some of our cemetery maintenance is internal and some third party contracts.
Both fronts, we're definitely seeing some inflationary increases that we've absorbed and they're probably in the higher range, you know kind of a higher single digit.
We've had those in place now for a couple of quarters. So it isn't brand new and again, we're trying to manage as best we can and again pass along.
Those costs to the consumer as we go through our annualized pricing. So we feel good about being able to cover those two pricing.
We're seeing a little bit of that creep in and as you would anticipate but again nothing like I mentioned in my comments, it's not a material event for for what we do.
Thanks, Paul.
Thank you Joanna.
Again, if you have a question. Please press Star then one the next question is from John Ransom of Raymond James. Please go ahead.
Hey, good morning team hope all is well in Houston.
Alright, Yeah, Covid voice I guess.
So Eric or Tom do you think the.
There there is it possible there could be a structural pick up in M&A or do you think it's just one of those good years.
Obviously, it could be either John because I think you know.
Our window is probably a 12 to 18 month window that we can get excited about or not be excited about I think we've been telling you. We've been excited excited about 12 to 18 months out and I still would say that.
Sure.
I tend to believe your first part of the comment which is I do think we're in a new era.
If you remember at Investor Day, when John presented.
We upped our belief as to what we think.
We will be able to do on an annualized basis not by a significant amount, but I think it gives you an idea that that we think are particularly kind of post COVID-19.
And.
Regulatory things that are going on the aging of the baby boomers the family transitions. So so where are we believe it's out there and we're out there working hard and I'd say today, we feel very good about the pipeline.
Okay, and I, probably know the answer to this question, but have you heard anything at all from the FTC.
No we have not heard anything yet from the from the SEC.
Related to our response, which jeez I guess it was back in 2019.
Is that right.
Yes, we're still waiting to hear any type of response, but again I just want to reiterate we continue.
Their main issue to have different levels of pricing that are out there and testing it in different ways and we're probably going to be ahead of the curve and we don't necessarily think whatever happens is going to really havent material effect, John on a long term.
Health of this business.
And then look I know you've done a little bit of that but there is there a future where you do a higher number of no votes.
And then what you're doing now and what did they ever move the needle.
I mean, it's possible.
You know.
The de Novo's youre going to have as we all know just stating the obvious just a slightly lesser term because youre kind of building up EBITDA for the first two or three years as you're as you're building the brand new business. So you know its always nicer to be able to go in and not only have well established EBITDAR streams that well established businesses and most importantly.
Partnering with the management teams and the owners that are in place with some of the wonderful businesses that we just purchased for example in the lab.
Your Hello Ultra.
Alternately that Jason.
And advantageous effect and with us, having only 15, 16% market share and call the entire consolidation universe kind of in the 20% range I just think that there continues to be.
Opportunity out there subject to other marketing conditions, John that acquisitions are just going to continue to be a little bit more lucrative that being said you know we've continued to ramp up that de novo spend and we'll continue to do that as well.
Okay, and then just the.
Yeah.
Well never mind I forgot my question, it's a problem with getting old.
Okay I appreciate the time.
Thanks, John .
The next question is from Scott Schneeberger of Oppenheimer. Please go ahead.
Thanks, very much good morning all.
I I just following up on John's question on on an M&A, Eric you mentioned closing something after the end of second quarter, just curious on the West coast.
And then there's this illusion to guide due to being a strong year in M&A could you give us.
A sense of how large that acquisition is that you've already closed.
The acquisition that we closed was not a tremendously large acquisition it was less than $10 million of their spend but we're talking about in terms of the excitement is.
Things that are in the pipeline right now that we expect to close that we're very excited about so more to come on that Scott.
Hi, Thanks, I appreciate that I came on a little bit wait my apologies. If this has been covered but.
Funeral pricing growth remains pretty strong and you know I'm.
I'm just curious how inflation works into that and when I came on I think you said something about flowers and ancillary services being soft and that's the part I missed.
Which flights contrary to the strength in the numbers. So could you just elaborate on I guess the way to address it is going forward. How do you see funeral pricing growth is that going to step up to cover costs or is that something that.
That may just steady state from here or even go backwards.
Yes, Scott I think we do believe we can pass along inflationary costs and a standard thing and would you missed the earlier, we talked about a few things that are happening differently. If you recall with Covid, especially initially we saw a real decline in I'd say.
The.
Full service funeral and part of that was because of lockdown.
Access to vaccines all of those types of things. So people were doing smaller ceremonies, having smaller rooms are no rooms, not buying a lot of flowers or catering what we're seeing is a robust reawakening of all that and so as you think about what's going on now.
What are the strategies that we were already putting into place is upgrading a lot of our facilities to have some differential opportunities for let's say facility charges. So as you go into a place you could get the premium room in one price you can get the Middle River the lower room, we're seeing a lot of people buying up into that.
Premium room, we're seeing a lot of people buying more flowers more catering for their specific services. We've done an incredibly good job. Our teams are working on what I'll call.
Third party flower sales. So if you think about the website. So obviously, we saw a lot of flowers to the family, but the friends and family. They go to the obituary click on we're selling more and more flowers through our partnership there and that too is driving.
All of these pieces are working together to drive differential average and then at the same time, we believe we can pass along all the inflationary pricing, but the one thing that puts pressure on pricing every year that cremation mix change and we anticipate that to continue that's probably going to be a bit of a headwind.
One unique thing I noticed about this quarter.
So immaterial for us compared to others, but I thought about it as I looked at Colgate and Procter <unk> Gamble.
We're seeing believe it or not even through Canada because of the strong dollar the.
Canadian dollar conversions, probably a bigger impact on us than or as big an impact as cremation mix. When you think about average the nice thing as you convert the cost into dollars too. So it really doesn't hurt you me to drop to the bottom line. So we feel good about pricing.
And we will pass along inflationary and want to continue to drive.
You know more robust celebrations of why utilizing our great and improving facilities and combine that with catering flowers and other things that didn't make a celebration of life special.
Thanks, I appreciate that and just a quick answer if you already covered it but.
I, it's out in the release that cremation rate ticked up a little bit in the quarter I'm, just just comments on that sustainability or if that was a blip.
Yeah, I think Scott if you remember we saw a bit of their cremation rate back up last year.
We even saw a little bit of it in the first quarter and we always thought the trend pre COVID-19 was a 100 to 150 basis points a year, we went to less than 100 basis points. I think it was for many quarters last year. So I think youre, just seeing a little bit of a reversion to the main it's a 170 this quarter I wouldn't get excited about that.
But I do think we anticipate getting back to that annual trend of 100 150.
And our excitement as we have so much more to offer the cremation customer today, and we think in the future.
That's a real opportunity for what is now 55% of our customers. So so we're just thinking about how can we do more how can we serve them better and get.
We are excited about it.
Understood. Thanks, and just one last one and it's kind of a I think a.
Good overview, we've provided of of.
From from Joanne as questions with regard to cemetery preneed, but if I could just summarize and you could add a little color on this.
We saw a slowdown in the second quarter.
Maybe a little bit more than you expect it sounds like it was a bit of the consumer and maybe just the way and maybe some unique items, but you still sound confident in achieving let's call. It flattish flattish to slightly positive for the full year and Preneed Cemetery.
Is it is it because you just you know how how are your leads booking what gives you that confidence and any commentary as to the cadence of second half this year next year.
Our preneed cemetery because.
I think youre trying to smooth it pretty well just wanted to understand how comfortable you feel on handling the reversion from from a.
Potential pull forward. Thanks.
Yeah, No I think we still feel very good and so to answer there's a lot of a lot of questions.
I'll try to summarize.
So let's break it down when you think about the consumer right now we're still seeing a very healthy I'll call high end consumer so large sales of hung in there even with the stock market being down in the first half of the year, we got a little bump back in July hopefully that there. So the confidence is there.
I think the real issue for us and by the way the average sale.
Even outside of that is hanging in there very good too. So we're really talking about is what's happening with velocity, but I'll tell you from a lead perspective, we're still doing great. We're still seeing a significant amount of leads and the problems we've had at least temporarily.
Is are those appointments holding people or we set an appointment and somebody cancels are because they're going on vacation or they've got something else to do or they've got their gas Bill and go Oh <expletive> I'm not going to do that so we believe theres a little bit of inflation, a little bit of a distraction because I have other things to do the other thing that I mentioned to you is.
We've seen an outbreak of COVID-19 amongst consumers and you'll probably is again it is not as deadly of COVID-19, but still people sick and youre not going to take an appointment or accounts or can't go back and follow up so our belief is as we fight through this our counselors would get back these appointment rates will hold better our close rates are really.
Good so absent inflationary problems cost that people may not want to pull the trigger we still feel very good because of the lead you. There. Our counselors are very effective we actually believe we're going to have more leads so so I continue to think things are good in the <unk>.
One thing I'd point out and this isn't news to you guys because you read the news like I do.
Inflation has crept in and if you're a monthly if you're gonna by over 36 months and you're sitting down with your budget.
You may be saying right now Wow I got to cover the gas Bill and so maybe I'll put this all in I think our belief is as that subsides.
People are going to get back in the game and there'll be an opportunity for us to to really.
Go back out the sales channel.
Got it thanks, Tom I appreciate that summary.
Yeah.
The next question is from a J rice of credit Suisse. Please go ahead.
Hi, everybody.
Just to make sure I know, where we're sort of approaching normalcy would you say oh good related.
This month, I'm sort of or this quarter or sort of where you think theyre going to settle out or you still feel like thats somewhat elevated relative to where.
I know you've talked about it being down $50 million year over year I think.
If I got that right.
Yeah, Yeah, I think that Covid cases on a national basis, I think narrow like 300, if I remember I 300 deaths a day.
I would expect that that's probably going to continue for some time, it's very low relative to the periods of COVID-19.
But it's just not material to our numbers. So like we tried to point out in Investor day, and I think we're experiencing.
Our servicing elevated numbers of consumers and you say, okay. What is that Tom well, we mentioned a little bit. We think there is still excess deaths. We think we can correlated with lack of health care people, probably drinking too much smoking too much driving too fast depression access to mental health.
The other thing that we see and this is kind of a.
It's tough because it isn't perfect data, but we're seeing what we believe our market share gains and and really kind of across the board, but probably more acutely in the west as we look at states like Arizona, Nevada, Colorado, California.
We appear to be gaining.
A decent amount of share in those markets. So I think those are the reasons why we sit here and say, yes, COVID-19 is not gonna have you been in fact, but we think we've probably got deeper market share penetration combined with.
What we believe are excess desk that will continue to occur in the near term over the next few years.
I hope the country gets healthier I hope access health care gets better but the.
The trends don't support that thesis.
Now for some time, there's been discussion about your emphasis on.
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Is that book matures and you started really ramping that up post the credit crisis did that would drive some market share gains is that what youre seeing or is it something else that you think is driving those market share gains.
I think that contributes to it a J because one of the things. If you think about the markets that I just mentioned, they're high combination facility markets. So as you think about Colorado, Arizona, So more again, more specifically, probably Phoenix Denver L. A really all up and down California.
And you look at those those places Las Vegas, Nevada.
Those are places, where we're really not going to.
All art, where we've got Great Cemetery has got great sales forces I do believe that they've penetrated those markets. So surely a contributing factor not all of it but.
That's why strategically we set out to do those things.
Okay.
Any updated thoughts on are you guys had been good throughout this trying to get.
Have a sense of how much pull forward was sort of near term and how much is more long term maybe you.
Revisited that as time is passing in any way and any updated thoughts on.
You know what that pull forward of Covid deaths.
Blas for the next number of years.
Eric's got a medical degree and he's a professional demographer I'm going to pass it.
He has been studying this.
Yeah, Hey, Jay it's really no data.
The short answer is that we talked about at Investor day, we put some numbers out there that.
We thought there is somewhere in the range of 15000 ish cases that were pulled forward.
22, probably the same in 'twenty, three and that really drops off.
So as we've gone in and tried to look at it a little bit and decide.
How far off are we are.
The answer is probably we're pretty close to those estimates at least for the visibility that we have now so no change no material change to really report it to answer.
Okay, and obviously you commented on the acquisition pipeline and Oh your optimism about that is there anything that you're seeing I know it ebbs and flows but is there anything that seems to be driving.
Bit of an uptick in activity.
And any comments you can make on whether pricing or potential deals as relatively stable or moving around or a competition for deals. If there is any.
Yeah. So I think first of all we do think.
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You know more people are out there trying to sell I think it's a combination of the aging of the owners without a succession plan.
Because most of these are owned by baby Boomers right. So every year, they get a little bit more.
I'd like to have more free time and.
Have a liquidity event. So I think that's just a natural backdrop that we're working against combine that with Covid, which has been kind of a you know a.
Two and a half three year.
Frenzy and people having to work really hard people, having to deal with staffing issues. So I think that puts a lot of pressure.
Auto on a reason to to sell as far as pricing goes I think we've held pretty good I'd say, it's it's probably.
People come in with an expectation that you can imagine here's my 2021 numbers I'd like to be paid for that.
Our opinion is those aren't sustainable numbers and so we try to you know.
Realistically say, what's the pace of this business.
But that's obviously going to start a conversation at a higher expectation. So I would say, it's not materially different but.
I do think you know that's that's part of the process and at the end I think we get to a good answer so so as far as the competitors go.
Really the same groups of people that we see out there I don't see a lot of new entrants.
But if you roll back the clock.
Five years, there's probably a little more activity a little more.
You know competitive pressures you think about the acquisition pipeline John did you screen where Jonathan.
So yes John's agrees with me that's rare so.
I sat down.
Okay. Thanks, a lot.
Okay.
This concludes our question and answer session I would like to turn the conference back over to Sci management for closing remarks.
Thank you everybody for being on the call today. We appreciate you and we look forward to speaking to you again I believe in late October .
Early November talk to you soon.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.