Q1 2023 Service Corporation International Earnings Call
Good morning, and welcome to the Service Corporation International first quarter 2023 financial results Conference call.
All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
After todays presentation, there will be an opportunity to ask questions. Please note. This event is being recorded I would now like to turn the conference over to S. C. I management. Please go ahead.
Good morning, everyone and welcome. This is Debbie young director of Investor Relations and today, we're gonna be providing an overview of our business results for the first quarter.
Before we begin with prepared remarks, let me.
Quickly go over the Safe Harbor language.
Any comments made by our management team that states, our plans beliefs expectations or projections for the future are forward looking statements.
These forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statement.
These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the SEC that are available on our website.
Today, we'll 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 under the investors webcast and events section.
Now that that's out of the way, let me turn it over to Tom Ryan Chairman and CEO for opening remarks, Thank you Debbie.
Hello, everyone and thank you for joining us on the call today.
Before I begin I want to take a moment to honor, our founder and Chairman Emeritus Bob Walter here.
He passed away at the age of 92 on February 27th.
Without Bob's vision and tenacity, there would be no STI.
He was a tremendous mentor and the consummate funeral service professionals.
We will all be forever grateful for this company he created and we're all better for having known and learn from such a great man.
You'll be missed immensely.
This morning, I'm going to begin my remarks, with some high level color on our business performance for the quarter and then provide you with some greater detail around our solid funeral and cemetery results.
For the first quarter, we generated adjusted earnings per share of 93, which was in line with our expectations, but down from the prior year, which benefited from a significant pandemic impact.
We continue to see significant earnings per share growth over pre pandemic results.
Impaired to a first quarter of 2019 of 47 cents per share we have effectively doubled earnings per share from four years ago growing at a compounded annual rate of 19%.
Funeral metrics were strong and performed at or above our expectations. While cemetery preneed sales production fell short of our internal expectations as we experienced unusual weather events on the west coast, which temporarily affected cemetery sales activity at some of our largest properties.
Below the line the favorable impact of a lower share count and a slightly lower tax rate offset the impact of higher interest expense incurred on our variable rate debt.
Now, let's take a deeper look into the funeral results for the quarter.
Total comparable funeral revenues declined $46 million or about 7% over the prior year quarter, primarily due to a decline in comparable core funeral volume.
Although comparable core funeral volumes declined by 12% compared to the prior year quarter volumes were higher than we had anticipated and about 10% higher than comparable first quarter 2019 levels.
Our core average revenue per service grew over the prior year by an impressive two 5% even after absorbing the negative effects of cremation mix change currency translation and reduced Trust fund income.
From a profit perspective funeral gross profit decreased $48 million, while the gross profit percentage declined to about 25%.
The revenue decline due to lower volumes versus 2022 accounted for the preponderance of the profit decline.
We saw moderating growth in fixed costs year over year, and slightly higher selling costs correlating with the solid growth in preneed funeral sales production for the quarter.
Preneed funeral sales production grew an impressive $24 million or more than 8% over the first quarter of 2022.
Both the core and the Sci direct channels showed growth in both contract velocity and sales averages.
We continue to see consumers awareness and openness to preplanning elevated with continued strength in marketing leads in preneed funeral sales production.
Now shifting to cemetery.
After coming off a record setting prior year quarter, we saw comparable cemetery revenue declined almost 10% or $45 million when compared to the prior year first quarter.
Core revenue accounted for the preponderance of this decline as it decreased by $42 million compared to the prior year as recognized preneed revenue declined by $29 million or 9% and at need revenue accounted for the remaining $13 million decrease.
The preneed core revenue decline of 9% compares favorably to the 16% decline in Preneed cemetery sales production as.
We sold a higher percentage of developed property versus the prior year quarter.
We would expect that trend to continue over the next few quarters as more recently constructed property is available for our families to purchase versus 2022.
Preneed Cemetery sales production declined by $57 million or 16% in the first quarter, primarily due to a decrease in preneed property sales production.
While we anticipated a decline compared to the prior year quarter, which was heavily impacted by the COVID-19 pandemic. We also experienced unanticipated geographic impacts to property sales production.
Multiple severe rain events on the West coast, particularly California adversely affected both foot traffic into our properties and our ability to showcase our premium and custom designed cemetery property inventory.
The last wave of storms had a direct impact on our ching Ming celebrations events and related selling activities.
We saw a similar impact on core sales velocity as our California businesses experienced a disproportionate decline versus the rest of our markets.
Over 80% of our Preneed cemetery sales production decline occurred in California, and other major West coast markets.
On the good news front these are sales deferred not lost.
We'll work diligently to get those customers back into our impressive parks over the coming months.
Still to put preneed sales production in its proper perspective, even with the negative effects from the weather our first quarter Preneed Cemetery sales production was about 41% higher than our 2019 first quarter, representing a 9% compounded annual growth rate over.
The four year period.
Cemetery gross profit in the quarter declined by about $41 million and the gross profit percentage dropped to 34% from 39% in the prior year quarter.
The revenue decline accounted for the preponderance of the profit decline.
We experienced higher cemetery maintenance expense, but for the most part we saw moderating growth in all of their fixed costs year over year.
Now, let's shift to a discussion about our outlook for the rest of 2023.
We believe the dramatic tough comparison quarters or over the first quarter of 2022 was the last one impacted meaningfully by COVID-19.
From an earnings per share perspective, we would expect to be able to deliver year over year growth in the coming quarters as the favorable impact of higher year over year Cemetery revenues and the impact of our share repurchase program will more than offset the negative effects of slight volume declines and higher interest.
<unk> from our variable rate debt.
Finally, I'd like to thank the entire SDI team for all that you do every day for our families our communities and each other.
You are what makes this company great.
With that operator, I'll now turn the call over to Eric.
Thanks, Tom and good morning, everybody I'm going to start kind of where Tom just left off because I want to thank all of our 25000 Sci associates for really their unwavering commitment to serving the client families and all the communities that they do so well with excellence, which is truly second to none in this industry.
So this morning, I'm also going to walk you through our first quarter cash flow results, our capital investment during the quarter talk a little bit about the remaining fiscal year outlook and finally, our financial position.
Recall that in the prior year quarter, we reported the highest cash flow from operations. We had seen in recent history as our cash flow continued to be positively impacted by strong COVID-19 activity at that time, so while we expected cash flow to be lower during this quarter, we still generated impressive operating cash.
<unk> flow of $220 million is about $110 million lower than the prior year quarter and there are three items that are really driving these cash flow results.
First the quarter over quarter decrease in cash flow was primarily due to lower operating income and when you exclude the impact from divestitures that equates to about $90 million as the prior year quarter continued to benefit from the impacts of Covid as I just mentioned.
Next interest payments also increased an expected amount of about $12 million due to the impacts of higher interest rates on our floating rate debt.
Finally, working capital during the quarter resulted in a net use of just under $10 million, primarily associated with incentive compensation cash payments made due to our strong 2022 results and paid in February of this year.
So now I want to shift our capital investment activity and during the quarter, we invested $310 million into our current business is new funeral and cemetery growth opportunities and accretive acquisitions.
We also continued to return capital to our shareholders.
So, let's break that down a little bit.
We deployed $70 million back into our current businesses, which is comprised of $23 million of maintenance capital for our first in class facilities.
$14 million of investments, primarily for the enhancements and support of <unk>.
Existing and future digital systems and initiatives.
And $33 million towards cemetery development, again, creating new and relevant cemetery inventory for our counselors to sell at our cemetery parks. So in total we continue to expect our total maintenance capital expenditures to be in our guidance range of 290 to 300.
$10 million for the full year of 2023.
In terms of growth capital, we invested $25 million towards the purchase of real estate, the construction of new facilities and expansion of existing funeral homes and cemetery specific to real estate, we invested $17 million. This quarter. This was primarily associated with the purchase.
Our real estate adjacent to one of our high producing cemeteries, which will allow for further expansion of that park.
On the acquisition front, we closed on three transactions for a total of $9 million in Connecticut, Louisiana, and Pennsylvania, and we'd like to welcome all of those tremendous businesses to the Sci family.
Based on the current transactions under LOI and other acquisition pipeline activity, we remain confident about our acquisition investment full year target of $75 million to $125 million.
Finally, we returned nearly $207 million of capital to our shareholders during the quarter through $41 million of dividends and 166 million of share repurchases.
So shifting gears I'd also like to briefly touch on corporate G&A of about $44 million in the quarter, which is about $2 $5 million higher than the prior year, and maybe about $4 million higher than our expectations. This increase was due to compensation related expenses primarily related.
<unk> to both our long term compensation plans, which remember are tied to total shareholder return as well as deferred compensation plans.
Going forward, we maintain our expected range for corporate G&A of approximately $38 million to $40 million per quarter.
However, the actual results within this quarterly range will depend on company performance during the year of which will affect the short and long term incentive compensation plans.
Just want to shift now to our financial position and we'll again, we'll talk a little bit about our outlook similar to Tom's comments. They just sat on our EPS outlook. We also remain confident in our existing 2023, adjusted operating cash flow guidance, which was a range of $740 to $800 million with a 700.
Third $70 million midpoint.
We continue to be financially positioned very well with a favorable debt maturity profile and liquidity of just over $1 $1 billion at the end of the quarter, which consists of approximately $160 million of cash on hand.
Approximately $975 million available on our long term bank credit facility.
Our leverage at the end of the quarter net debt to EBITDA as defined in the credit facility was about three five times and as anticipated after the past three years, our EBITDA has now normalized with Covid activity now waning.
<unk> and our leverage being consistent or at the low end of our target leverage range of three five to four times. However, we also believe we will have a near term bias towards managing our leverage towards the lower end of our target leverage range as a result of the <unk>.
<unk>, specifically the interest rate environment that we're currently in.
So in closing our strong cash flow our strong balance sheet continues to position us well to invest capital to the highest and best use to maximize shareholder value, which has been our track record, which we believe will continue to remainder of 2023.
So with that operator this concludes our prepared prepared remarks.
Again, we'd like to thank all of our Sci team for their contributions to these great results during the quarter, but with that operator, I would now like to 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.
If you are using a speaker phone please pick up your handset before pressing the keys 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.
Thanks, very much good morning, everyone.
Gentlemen, I guess I'll just start out with a with cemetery preneed sales production.
I understand the dynamic of weather on the West coast.
And then I guess I'm curious how should we anticipate the cadence over the balance of the year you maintained guidance. So I think guidance for Preneed cemetery for the year was was low single digits.
Should we think low end of that range now or are you still certainly comfortable what might we see in April or what have you seen in April .
<unk> tightened its handling festival.
Just a little bit more color on that because even with the weather dynamics. It seems like it was a bit soft in the first quarter, just wondering whats going to get that get.
Get that accelerated again thanks.
Sure Scott.
One I think it's good to step back and.
If you just take it large sales as an example in.
In 2019, our large sales were $36 million in 2020, there were 30% and 21, there were $30 million and 22, there were $66 million and in 2003, there are $37 million. So this is the second best first quarter of high end sales. We've had in the last five years. It just happens to compare back to.
Godzilla.
So I think thats, probably the first way to think about cemetery sales and what happens so as we think about our guidance clearly we didn't hit the targets that we wanted in the first quarter I think we generally think we can get back some of that miss in the quarters to come.
I don't know that we can get it all back so I think as we think about annual guidance Youre probably right.
We'd probably pointed towards the middle of the lower part of that annual range, but.
There are a lot of other levers there one is how much are you going to sell of developed property. That's one thing that I think I pointed out for our first quarter. We built all of this great inventory and now we're able to sell into it and recognize it versus last year, where we're selling it and it get deferred and recognized upon completion. So so there's a nice mix of what.
I'd call Beth.
Better recognized revenue streams that are coming in the coming quarters that will help us achieve that earnings per share guidance on Ching Ming.
It's again been a good year it wasn't as good as last year I think we see trends in April that are a little better than March but.
Again, we're going to be comparative back against a pretty solid Ching Ming when you think about those markets.
So overall feel very good I, just kind of step back and point to everybody. We're 41% higher than we were four years ago and I think if we would have said that to ourselves in 2019, we'd be super excited about these results and it just so happens we're comparing back to a really really difficult compare.
Listen.
Got it thanks, Tom I appreciate that I'm going to turn it over to Jay average funeral revenue per service that was quite strong in the quarter. It looks like pricing was was the meaningful contributor there.
Could you speak to the sustainability of these price increases that are that apparently occurred in the first quarter and.
Is it broad based is it in specific areas is there more to come.
Obviously, you're maintaining the guidance for the year again, but a little bit more color on this.
Sure Bonnie.
Sure Scott Yeah. It is broad based I think we're seeing it across the country. If you look at the kind of the organic growth year over year. It actually approach us about 5% and I mentioned there were three negative trends going on in our phase one is Canadian currency, probably the smallest and then you have trust income, which we all.
I understand what happened to that piece and then you have the cremation mix change, which was about 200 basis points.
We think the information mix changes, we get throughout the rest of the year is going to lessen.
So we would expect that to normalize as you think about the coming quarters there'll be less of a of a pushback on average and then same thing with trust income I think we generally would anticipate the year over year comparisons to get better I think the bad stock market moves in bond market moves occurred in the second and third quarters of last year, So you're going to begin.
To compare against.
<unk>.
Something that is going to be less of a drag out. So so we think the average is in good shape and should continue to be in good shape throughout the rest of the year.
Thanks, I'm going to sneak one last one quickly for Eric.
The commentary about now getting to that three five times leverage well end of the range and the bias to manage it there.
Yes.
Elevated share repurchases and everything should we anticipate that to slow or are we going to see that reduction just wanted to dig a little bit more Eric.
You were foreshadowing there. Thank you well, we're always going to be consistent Scott and we're going to do.
Deploy capital to the highest relative return opportunity you haven't seen us do a lot of debt reduction, although we've picked off some open market transactions over a long period of time of a of a note. That's due in 27, because it was seven 5% debt, but you know this year last time, we had 1% floating rate debt as we sit.
Here today.
You have 665%.
Floating rate debt. So when you think of.
What is the highest relative return we still have acquisitions are going to trump that and such but 665% of our return to take out debt on a pre tax basis is something I think that's a lot better over return than what we've had on the menu in the past so I think from that alone.
Soon it would be something that probably goes up the ladder a little bit in terms of your choices.
With that with that being said.
Obvious headwind of $55 million or 25, a share now as we've said before.
We were going to take on more debt as we grew in about 10 of that was expected in terms of balance.
It would be nice to to work that down to some degree.
And so we will look to do that we don't have a set plan exactly we always are looking day to day and week to week on the menu on what's the best thing to do with our free cash flow, we have a substantial amount of free cash flow to invest.
But I do think that you'll see us.
This bias as we move forward towards the low end of the range Im not trying to dramatically tell you anything or are say you should expect something dramatic and the way, we deploy capital, but I do think it's worthy to mention it.
Got it thanks, I appreciate I'll turn it over now.
The next question is from John Ransom with Raymond James. Please go ahead.
Hey, good morning.
Can you just update us on what's going on with the FTC.
Okay.
The FTC in the quarter in January we submitted our responses in early January to what was called the advanced notice of proposed rulemaking, which was the 40 questions.
Sent out.
We did that we were very consistent with our responses before our responses before had been anchored two facts with the data that we submitted to them.
That relates to pricing and that is that 91% of our customers for the last five years with the J D power surveys rank us nine out of 10 are higher and clarity of pricing and 75% of our customers believe our prices either met our lower than expected. So that's the data thats, what we submitted to the FTC.
I think our answers to those 40 questions and their A&P are are pretty consistent with that the next step after that John is going to be that that they will go through all the questions and answers that have been submitted by various people in the industry and very consistent.
And they will digest that and our guess is that they will then have to put out a proposed rule, which again gives us a seat at the table for another round.
Of of items as it relates to that.
We've been expecting this I mean, John you and I have talked about this in a lot of depth before independent of this FTC situation. We continue to do a great job in terms of initiating.
Our pricing initiatives through our dignity memorial websites for example, given visibility and testing them across all of our.
Just under 1500 location, so maybe I'll take a take a moment here and give you updated stats. So we can.
When we've looked at what we've been testing we've had some websites and some funeral homes have what are called kind of starting at prices on the websites and you can kind of go out and look at that in certain locations. We had other locations that we call <unk>.
More in depth exploring the products themselves and the services, so thats a totally different way of kind of delivering a richer.
Best in class type customer experience that allows the customer to evaluate the products and services through these websites and of course the objective of that is to give them more color on pricing on all of the individual components of the products and services in those kind of skewed to kind of the combination facilities and kind of the large.
Our funeral homes, but to kind of give you an update on the statistics.
Out of our <unk> hundred and 15, 14% to 500 funeral homes. We have just over 500 now that has some sort of starting at prices. We have about 400 that have this deeper richer explored in the products and services. So right. There you.
900, or so funeral homes out of 1500 that have something out there <unk>.
Additionally, which is probably new news for you is that we now have over 1100 of our funeral homes now have general price lists that are out there now some of that is newer in the past probably four to five months, but just about 75% in that ballpark.
Of our funeral homes have general price lists that are out there at this point in time on the website, what we have seen in the past four to six months and even longer when we've done that is consistent with what we've said before we say a little bit of activity around the preneed, which is positive but from an unnamed.
Respective we're just not seeing that being a lever that kind of moves the needle for consumer behavior, that's kind of what we expected and that's what we're seeing so far with these 75% of the locations that have <unk> out there on the web sites.
John This is probably the update for today as it relates to the FTC lot more to come this is going to take a while it's been a while and it's going to take longer period of time before this really does come to fruition with the new rule.
Eric you sound pretty fired up this morning did you try to like a stronger brand of coffee or something.
Actually I am.
I am I do have some caffeinated coffee normally have the decaf with you John but.
Thanks for adding this is red Bull and coffee Red Bull and coffee maybe something.
[laughter].
Yes, just going back to the topic does your preneed cemetery.
We know the comp peaked in <unk>, so you've got easier comps in the back half of the year, so that that looks optically get but just to be clear are you seeing that now that we're not having monsoons in California are you seeing any evidence that that's getting better this quarter.
Alright, Thank you hope to see in the back half of the year.
I think it's getting better John because clearly the weather has gotten better but keep in mind on some of these high end sales the process.
Is is pretty elaborate in the sense of.
Really wanting to get out to the parkman and understand.
From from having a punctuation master come out and decide what's the right property, what's the right feel.
Can you walk out there yet is it safe because theres still some spots in California, where it's not safe for people to walk around so at the high end there is still some issues.
I think one garden in particular is going to open in March is going to open until May now. So there is some specifics there, but I would say the general traffic to your point is coming back. So so we feel better about that and.
And really like I said weather was a big part and I think the weather part is going to take care of itself and then now you're just back to the tough comparisons you're back to a.
Generic.
Consumer discretionary world, where you've got inflation, you've got higher interest rates and you got.
Volatile at least historically volatile stock markets and those things always play into.
Consumer behavior.
And we'll manage through those things and as those things get better I would expect our customers to be able to ready to purchase more willingly.
And then just last one for me.
The perpetual care gains and losses are a little tough to model.
Can you just kind of level set at least the historical gains and losses that youre looking at for the rest of the year. So we can kind of think about the comparison.
Yes.
Think from an ECS standpoint, starting back in 2021, you're almost approach to $90 million to $100 million of income from that fund that obviously came down in 2022 to about 80 85, and I think we're probably in the ballpark of being consistent with that John and 2023, when you talk about <unk>.
Yes, youre talking about portfolio managers independent completely of us obviously in their own fruition are or may be realizing gains periodically on their portfolio and that causes in certain states to have some distributions and thats always created lumpiness ECF, that's very difficult.
To forecast, but generally I think you should model it kind of flat ECF specific in that kind of mid eighties.
<unk> range for the full year.
Okay. Thanks, a lot.
Yes.
Okay.
Our next question is from Joanna <unk> with <unk>.
Bank of America. Please go ahead.
Yes. Thank you. Thanks for taking my question. So I guess first a follow up.
So it sounds like you expect the cemetery preneed sales production to be slightly lower than your prior view and I guess that.
Hello.
It's a nice revenue on the cemetery side, but you kept your full year EPS guidance. The same so what is offsetting the cemetery being a little bit lower is it.
It sounds like that was stronger.
In the in this quarter.
Yes, Julian I think it's a combination of a few things women be funeral volumes appear to be strong a little stronger than we had anticipated.
To your point like I said before I think we'll give back some of these cemetery sales that we do.
It didn't have in the first quarter and then it's going to be a function two of which property or we sell it like I said, we we have projects that we completed we spent a lot of money and a lot of time last year developing new gardens and projects that are now available for sale. So a higher percentage of what we sell should get recognized.
When you compared to the prior year. So those those things probably are going to weigh towards the fact of our ability to push back in and gain back some of the earnings per share that.
You would have anticipated getting in the first quarter. So.
So those would be my drivers and then I think again, we're managing costs as effectively as we can I feel really good about our ability to manage those fixed costs as I look at the first quarter in.
Particularly as you look at other businesses and what Theyre incurring so we feel good about where we are.
Okay, Alright, and then on the funeral service just wait till this quarter clearly the volumes came in much better and what are your expectations for the rest of the year are you changing your view for the full year I guess last time you were talking about.
Services being down the number of services being down mid single digits for the year. So it's still and this ballpark right now that we're talking about a higher number.
I think it's in that ballpark I think again I would skew it it's kind of the opposite of cemetery I think we'll be at the higher end of our expectations.
Thank you I don't have the numbers in front of me, but as you think about the cadence and I said it in my comments, we would expect slightly down funeral volumes. The rest of the year is kind of the way it would probably play out and and then cemetery revenues and again Thats a function of what the.
The property that we're selling is ready for sale and sales we'd expect those revenues to be up on a quarterly cadence for as we go so that's going to allow us to to drive.
Slightly higher earnings per share quarter by quarter I think for the rest of the year and then you think about our share repurchases over the last year and this year, that's a very favorable impact. Unfortunately, as Eric pointed out we've got $50 million more in interest expense because of rates and would have occurred there. So the share should more than offset that but is that.
It's another thing to just kind of flies in the face of your your earnings year over year.
And if I may on the funeral so in style.
Good to hear and I guess you.
Effectively.
Talking about the price increasing to 5% range, but I guess that's been.
And she offset by the cremation shift higher.
And then I guess some trust fund income changes.
And and currency a little bit about how should we think about the rest of the year when it comes to.
The average sales for service in the funeral segment would you expect the commission to stay at that level kind of moderating and we should.
Kind of a higher flow through of this 5% increase.
Kind of offset by these other items.
I think so Jamie I think the organic growth should maintain that kind of level of call. It a four 5% and then you know you're subject to trust income and like I said I think from a year over year perspective, because we're always comparing to the prior year quarter, that's going to be a more favorable comparison as you get to the back half of the year because.
We had the we had the markets take a downturn last year.
And the other thing on cremation mix change, while I would expect it to continue to grow because we always do on a year over year comparison. Thank the comparison gets better I think we would expect instead of a 200 basis point change we'd go back to let's call. It 100 to 150 basis point, depending on the quarter.
That's the kind of thing so so to your point, we had 5% organic growth offset by two 5% of of negative trends than negative trends should trend downward and so maybe more of the organic growth just to the to the topline and then to the Bottomline.
Alright. Thank you that's helpful and if I may sorry, just to follow up also on the discussion around the cemetery preneed sales production ratio. This year, some slowdown because I can start there those things.
I guess the top rating is being delayed.
Okay.
Most of this year, but it also sounds like maybe into next next year I need to pass you talk about kind of.
Growth in the mid single digits after that in 'twenty four 'twenty five and so on so is that still your expectation and I guess what drives the confidence you can grow.
At that level in these out years.
Absolutely I think we feel very confident that we'll be able to do that.
And so yes, we're going to get back to those normalized levels and I think youll begin to see that in parts of this year and for sure in 'twenty four 'twenty five.
And if I may just so does that answer your question sorry.
As that gets out either in a comment but I guess, maybe there is nothing to comment in terms of the settlement that we talk about last quarter.
Any change there or any update to the estimated constellation right.
Or.
Any indication of the timing of announcements from some of the states are thank you.
And the Florida.
On early March the court issued a final approval of that settlement that we described to you last quarter Thats really the only material.
Update we continue to work through everything else that we've described to you. So really don't have an update on the on the charge, we still feel good about that number and those estimates at this point in time.
Great. Thank you so much.
Yes.
The next question comes from Tobey Sommer with Truest. Please go ahead.
Okay.
Okay.
Sure.
Okay.
Yeah.
Tobey you're on the podium.
Amid inflation, perhaps starting to normalize let's hope how would you characterize the interplay between inflation in your cost of sales, including merchandise or whatever components, you think most relevant and the company's ability to raise prices in the market.
Again October I would say that.
Compared to other businesses I feel really really good about that and the reason I say it is a lot of our big number one labors.
As a big cost I think we're seeing that subsiding a bit compared to prior year periods, we're starting to see some normalization as it relates to that when you think about our supplier agreements the big things that we purchase.
We're the largest purchaser of things that go into the cemetery when you think about <unk>.
Granted or do you think about bronze or you think about caskets and we have long term agreements that have.
Inflationary caps, so as you think about our ability to manage that cost.
Relative to other industries, we feel really really good about it.
A lot of our pricing when you think about our cemetery and particularly it's such a unique.
Business in the sense of the variety of things that we have out there so.
We're able to pass along cost pretty effectively relative to others and I think we are able to contain those costs and therefore, you don't see us having to put a price increases that youre seeing that consumer product companies and things are alive, we're able to manage those for our consumers better.
Because of the long term agreements we have in place.
Thank you and we've heard from.
Other companies reporting this earning season.
Internal corporate employee retention.
Improved pretty markedly year to date is that occurred in your business and could you contextualize it with retention rates.
In recent periods.
I think definitely so tobey I mean compared to the last couple of years Youre seeing a lot more of that at the corporate level.
And some of Thats regarding working away from home and in some of the Optionality that you have now on some of these corporate jobs and I think we've been flexible in that regard, which has allowed us to retain a higher level than youre seeing others, but but definitely youre seeing the warm turn a little bit as it relates to <unk>.
Corporate staffing is still challenging parts are out in the field and I think when you look at cemetery maintenance and some of the like those are still challenging positions to fill in and maintain and we want to make sure. We've got the highest quality employees that are interfacing with our customers and families.
Thanks, if I could sneak one more in what's your feel for the high end consumer now post SBB.
Now Republic.
And maybe focusing in on outside of the discrete experience that you have in the California market, where things have been sort of more normal over the period has there been a change since that time in March that you've been able to see and perceive in your sales activity.
I think theres, a feeling it's hard to really pinpoint.
But I would put it this way and we've been doing this a long now you've seen a variety of recessions and things that occur.
And I always look at the high end sales and correlated to what's going on with interest rates are up inflations out there probably most importantly, the stock market was down in 2020 to some 20% housing prices are finally, starting to crest and trend down the other way when you see those things you tend to see.
Hi, and purchases stall. The good news is they tend to come back very quickly once people feel confident again, but at the very very high end, if you're asking somebody to spend half million dollars a $1 million.
With the macro environment does have an impact and so we would expect it to be a little bit of a drawback, but again.
Operating at very high levels, I think I said, we sold $37 million of Av.
Of large sales, which was the second highest in our company history from the first quarter. It just so happened 66 of it was last year.
So, we're still being able to put out and prints in big numbers.
And so I think the consumers out there and they're willing and the good news is we've got the inventory to sell and it's just a matter of when we're going to close that sale is it going to be second quarter third quarter 'twenty four but.
We feel confident we have the right inventory the right people.
Plenty of consumers that.
One what we what we have.
Thank you.
The next question is from a J rice with credit Suisse. Please go ahead.
Hey, everybody.
Couple of things.
Maybe to that last question looking at in different ways.
Potential tightening of credit from regional banks, having any impact on.
The sellers of properties do you sense that.
That may add incrementally to.
Some of the people that are on the fence thinking about whether it's time to sell their property are you seeing any activity. There I know you reiterated your 75 to 125 million target for the year.
Maybe just broadly comment on the pipeline as well.
Sure. So ajay good to hear from you.
The pipeline is healthy.
We have a number of deals in various stages and feel really good about our ability to execute this year.
Generally I would tell you it's too early I haven't noticed anything noticeably different related to what's going on with regional banks I think.
You raise a great point, though if you go back and look at the history of this company and when you had your most productive years. It generally happen when rates went up.
I'm thinking, particularly in 1994.
The company has some really big acquisitions, one of which we bought Mike Webb.
In that transaction and Thats pre me, but I think as you look at these as you look at these periods when rates rise a lot of these particularly consolidators that are financing are looking for exit so we're aware of that.
We're ready to pounce and.
That kind of plays into a little bit of what Eric is talking about with the uncertainty that is out there with interest rates with inflation, we kind of want to see how this thing plays out we want to maintain flexibility if a number of deals come along we're going to do them and we're also going to be buying back our stock and but we're going to manage that balance sheet.
Through this kind of uncertain period.
This is when you opportunity knocks will be there.
Right.
You did about $33 billion I think it was a cemetery.
Development purchases this quarter I know there's cemetery development.
Looking 15, 20 years out and then Theres Cemetery development that Opportunistically happens because our property becomes available near a current cemetery and I would assume the returns on those are more immediate because you are.
We're adding onto a established property can you just comment on where the spending is going for this cemetery development that we saw you do with this quarter and if you see more opportunities.
Yes, a lot of that it's all cash driven AJ. So what youre really seeing is kind of an acceleration in the first quarter, where we spent a lot of money on some of the bigger parks in <unk> and.
And some of those are in some places that.
Where we will sell a lot of high end property and that's one of the reasons as I pointed out as we sell things throughout the year.
It is more likely to be recognized into earnings because these projects are ready and waiting and developed and therefore, if we get 10% down at the sale and what you saw last year, which was on the heels of I'd say, the COVID-19 impact and when Covid happened a lot of things shut down a lot of projects got delayed.
And so a lot of things got put in place in 'twenty, two and a lot of the cash is being spent in the first half of this year. So I would expect that spend level to level off.
And allow us to.
To sell more recognize property in coming quarters.
And I think in there.
In the release or maybe in your prepared comments you highlighted in the cemetery business seeing some maintenance expense.
Uptick.
Can you just comment a little more on what that was all about.
Yes, I think.
That's really driven a lot of that by labor. So so one we have internal labor costs too, we outsource maintenance and a lot of our cemeteries to lawn care companies and they're seeing a lot of inflation in their business probably the number one is just maintaining labor pools right.
They're making sure they are taking care of their employees at a level that allows them to have retention and those parks. So we're just seeing a little pressure as it relates to land care.
Cost pass through both internally and through third party vendors then when you think about water and you think about energy all of those things kind of kind of roll into that and then bad weather. If you have bad weather like you do on the West coast and a lot of mud and things going on youre going to spend extra money.
Get those parks back up and running so we can get the salesforce out there. So a lot of contributing factors, but number one is really tied to labor as it relates to cemetery maintenance and your competition for instance, with the construction industry historically.
These are really the the options cemetery maintenance workers have.
To go elsewhere.
Right and then just finally.
We talked around maintaining flexibility and so forth.
Capital firepower.
You were active in the buyback in the first.
Quarter.
Any commentary about pacing for the rest of the year I know, it's probably somewhat dependent upon market conditions, but any early commentary would you thinking relative to the updated guidance et cetera for the guidance.
No I think it's exactly what we told you we're just.
We will see how it all plays out we will be active in the market.
Our shares are a great return on investment so.
Really no difference like Eric said, I, just think because of the more of the uncertainty around the general economic conditions, we're going to be a little cautious in let's say stepping up and hidden four times EBITDA.
We'd rather stay flexible and see how this year plays out and then as we get into a more robust recovery you have a lot more confidence.
To use that balance sheet.
More.
Okay, alright, thanks, a lot.
This concludes our question and answer session I would like to turn the conference back over to Sci management for any closing remarks.
I want to thank everybody for being on the call today, we look forward to speaking to you again in.
In early August thanks.
Thanks, so much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.