Service Corporation International

Good morning and welcome to the SCI Second Quarter 2020 Earnings Conference Call.

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Good morning, everyone. This is Debbie Young, Director of Investor Relations for SCI. We welcome you to our call today to go over our business results for the second quarter. Before the prepared remarks, I'll remind you that we will be making some forward-looking statements. Any comments made by our management team today that state 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 statements. 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. During this call, we will also discuss certain non-GAAP financial measures, such as adjusted EPS, adjusted operating cash flow, and free cash flow. A reconciliation of these non-GAAP measures to the appropriate GAAP measures is provided on our website under the Investors section and in our earnings press release in 8K that were issued yesterday. And now, it's my pleasure to introduce our Chairman and CEO, Tom Ryan.

Thanks, Debbie. Hello, everyone, and thank you for joining us on the call this morning. On behalf of SCI and our entire team, I want to start by saying that I hope you and your families are continuing to stay safe and healthy. This morning, I'm going to start by trying to describe the operating environment we experienced, as well as our business performance during the quarter. At the end, I'll attempt to provide guidance as best I can for the rest of the year considering the continued level of uncertainty around the effects of the COVID-19 pandemic, the public orders from governments, and the evolving patterns of consumer behavior. A tall order, but here we go. When we last spoke in late April, while we were seeing a significant increase in funeral case volume, we were also experiencing a significant decline in pre-need cemetery sales production of some 40% and a decline in the funeral sales average of about 12%. Both of these key operating drivers were being impacted by government-mandated stay-at-home orders, which fueled consumers' fear of closely interacting with others and gathering in group settings. We implemented a number of temporary cost-saving initiatives and quickly introduced additional technology to support our operations, sales efforts and administrative functions. Early on, the preponderance of the funeral volume increases were being felt on the East Coast, Michigan, Illinois, and Louisiana. These markets, along with California, due to stay-at-home orders, experienced meaningful declines in funeral sales averages. On the cemetery side, we saw significant declines in a lot of places in pre-need cemetery sales and more pronounced in our larger markets on the West Coast. As we moved into May, we began to see averages improve across the country as states began to reopen, with the Northeast being the notable exception. Subsequently, the funeral average improved from around 12% to down about 8% when compared to the prior year. Cemetery pre-need sales really began to pick up mid-May as stay-at-home orders were relaxed. We finished the month strong with growth across all business units led by our California and Hispana businesses. A big thanks to our North American sales and marketing organizations whose focus and commitment helped to grow pre-need cemetery sales 19% for the month. By June, case volume was still strong, growing over 10% Higgins, and many others, while the funeral average continued to improve, particularly in the Northeast, albeit still negative compared to the prior year quarter. Funeral volume growth was most pronounced in California, Texas, and Arizona, and this time we did not see any material degradation of the funeral average in those specific markets versus the prior year. Momentum and pre-need cemetery sales continued into June, finishing the month with an impressive and many more. Thank you, team, for your efforts and for never losing sight of what we are here to do, help our families and communities through the grieving process in celebrating the life of their loved ones. Now for an overview of the results of the quarter. Adjusted earnings per share grew 11 cents to 58 cents per share in the second quarter, a 23% improvement over the prior year and significantly better than we expected. Core funeral profits were the primary driver as a 13% increase in funeral volume more than offset weaker funeral sales averages applied against a very lean cost structure. Pre-need cemetery sales grew over 10% in the quarter. However, the majority of these sales were deferred and will be recognized as revenue in future quarters once constructed and 10% is collected. Because of this deferral, Smith, and many others. Cemetery profits were relatively flat. A higher tax rate and general administrative costs were essentially offset by a lower interest expense and a lower share count. Now for an overview of funeral operations. Despite the higher funeral volumes, our total comparable funeral revenues declined approximately 1% during the quarter. A healthy $13 million increase in our core revenues was more than offset By an approximate $18 million decline, primarily from lower FCI direct and general agency revenue. Core revenue growth of $13 billion was driven by a 13.2% increase in cases, partially offset by an 8.7% decline in the average sale. The average decline was primarily driven by a reduction in the average, not as much by the cremation mix. General information cases with a service attached went from 63% in the prior year quarter to now 50% this quarter, reflecting the impact of restrictions on large gatherings. The reduction in professional service revenue combined with significant reductions in floor and catering sales drove the overall sales average decline. The good news is that the average sale was down over 12% in April, and is improved to being down 5% in June. Cases with services attached continued to improve and was 57% for the month of June. Recognized pre-need revenue and general agency revenues were below prior year, primarily as we saw pre-need funeral sales production decline over 27%. Social distancing, particularly around our educational events, Such as seminars and grassroots events had a more pronounced effect on our pre-need funeral sales versus our pre-need cemetery sales. From a profit perspective, funeral gross profit increased $21.4 million, and the gross profit percentage increased 480 basis points to 24%. Growth in our high incremental margin core business more than offset declines in our lower margin revenue streams. This combined with our strategic management of labor hours, reductions in non-customer facing costs, and certain marketing and promotional expenses led to the impressive funeral contribution margin. Now shifting to cemetery. Comparable cemetery revenue increased almost $6 million in the second quarter, driven by a $9 million or 11% increase in at-need revenue, offset by a $3 million decline and recognized pre-need revenue. This at-need increase correlates with higher funeral volume driven by the effects of COVID-19. While recognized pre-need revenues were down, pre-need cemetery sales production grew by over $25 million or over 10%. We were pleased to see large sales match last year's performance, but even more pleased to see non-large sales velocity or the number of contracts and many more. Our sales and marketing teams worked together to generate additional leads from direct mail and digital sources and we experienced exceptionally strong close rates with these valuable leads. Consumer and counselor initiatives combined with higher location traffic was timely as we saw many markets reopen in late May and June. These unrecognized sales will benefit future quarters as we collect the down payment threshold or as they are constructed. Cemetery gross profits grew by just over $2 million as strategic cost reductions were partially offset by higher selling costs. We enhanced sales incentives to drive cemetery sales production and we altered our sales compensation plan to continue paying our trusted counselors in late March and April When sales production was essentially shut down. As you saw in the press release, we provided guidance for the total year 2020 for earnings per share, cash flow, and capital expenditures. We recognize many companies are choosing not to do so, but we felt providing guidance with a wide range was the prudent thing to do. We're still experiencing increased funeral volume, and so far in the Sunbelt regions, we are not seeing A material pullback in the funeral sales average. Cemetery sales are continuing to look good in July. However, we can't predict whether we'll see further government mandated lockdowns. If this were to happen, we believe that the mandated social distancing and changes in consumer behavior would likely have a material effect on our cemetery sales and our funeral average, similar to the patterns we saw in March and April. We also could experience funeral average declines as local economies struggle with the effects of higher unemployment. Also, as we look ahead, we've considered that there may be a higher number of families we are serving now during the pandemic that may have called on us later in the year in 2020 or in 2021. This acceleration effect could cause pressure on funeral volumes and cemetery revenues later in the year. We also believe that there may still be some reluctance to gather, which will likely create an unfavorable lingering effect on our funeral sales average. Lastly, and to end on a positive note, one thing I know for sure is that we will continue to manage our expenses and invest your capital wisely. With eyes on the longer term, we're continuing to invest around our customer segmentation platform, enhancing our digital client experience, and leveraging technology to more efficiently and effectively serve our customers. In closing, I would like to reiterate how much I appreciate all of my teammates in both the field and our regional and corporate offices. Your dedication impresses me more than I can express. Remember, fellow shareholders, the heroes in our locations work 365 days a year around the clock and do not have the luxury of working remotely. Our first responders have risen to the challenge, putting others' needs above their own. And to them, I say thank you from the bottom of my heart. With that, I'll turn the call over to Eric.

Thanks, Tom. And good morning, everybody. First, I think it's appropriate just to say that all of us at SCI hope that you, your loved ones, your family, your friends, et cetera, are remaining safe and healthy during this time. Secondly, I'd like to say how grateful and proud that I am as well of our 25,000 team members as they continue to provide vital support to those we care for in all the communities that we serve. I want to reiterate that we would not be here today discussing our positive quarterly results without the dedication and hard work of all of our team members. So to all of our team members here at SCI, I say thank you. So now let's shift to the business at hand today. I first plan to provide an update on the strength of our financial position, allowing us to weather this pandemic storm, and I'll then discuss our cash flow results for the quarter as well as give some color for the remainder of the year. So we entered this crisis from a position of strength, and we continue to be very well positioned. We continue to have a significant amount of liquidity and flexibility to meet all the needs of our businesses, as well as invest in growth opportunities. Our liquidity has remained robust, growing to just over $775 million, consisting of about $220 million of cash on hand, Leibniz, and many more. We have a total net debt of $3.5 million plus $555 million available today on our long-term bank credit facility. We reduced our leverage from 3.88 times at March 31st to 3.79 times at the end of June, which is well within our targeted range of net debt to EBITDA of 3.5 to 4 times. Additionally, Let me remind you that other than a small series of notes that are due in November of next year, which are about $150 million, we are also very well positioned with a clear debt maturity profile, having no significant debt maturities until May of 2024. So with respect to our $5 billion of trust funds, we experienced a 15% return for the quarter. At March 31st, we had a net unrealized loss in our combined portfolios of approximately $460 million. Now recall that this degradation has a muted effect on our EBITDA and our cash flows in the near term, as only those earnings on those contracts that mature will affect us in any given period. Since then, our trust funds have experienced a significant recovery. along with the overall market of course. At the end of June 30th, we had a net unrealized gain in these combined trust funds of approximately $63 million. So now let's shift to the quarter and specifically let's talk about cash flow. So despite being faced with significant challenges and complexities as a result of the pandemic, our business performed well during the quarter supporting the resiliency Walsh, and many more. With the deferral of certain cash taxes coupled with strong operating results, we experienced a $100 million increase in adjusted operating cash flow in the quarter to $184 million, meaningfully exceeding our own expectations. So let's talk about the details behind this $100 million and we really can split this into three main buckets. We benefited during the quarter by about $62 million due to the temporary deferral of certain tax payments. We deferred about $47 million of federal and state income tax payments as allowed by the IRS, and this gets moved into the third quarter of 2020. So this is just really timing within 2020. But additionally, we deferred $15 million of payroll taxes as allowed by the CARES Act. And by the end of this year, this payroll tax deferral is expected to grow to about $40 million for the full year, which will then be equally paid back in 2021 and 2022. Also, approximately $28 million of this cash flow growth is attributable to the increase of 11 cents of higher earnings per share over prior year based on the strength of our operations during the quarter. and the remaining 10 million of growth is related to working capital benefits, which are primarily related to improved cash collections on at-need sales during the quarter. So our maintenance and cemetery development capex spending totaled $44 million for the quarter, which is about $7 million lower than the prior year quarter. This decrease in maintenance of spending reflects our actions taken late in the first quarter which was at the onset of the pandemic. As a result of all of this, free cash flow for the quarter calculates to about $140 million. When normalized for the $62 million though of total deferred taxes that I just mentioned, free cash flow came in at about $78 million which is still $45 million higher than what we generated in the second quarter of last year. Now let's shift out of the quarter and kind of talk about the remainder of the year. Mid-year through 2020, adjusted cash flow from operations has grown by $95 million, from $269 million in the prior year to $364 million today. Again, adjusted for the $62 million in deferred taxes, we have grown $33 million, but a solid 12% over prior year. While we have seen operating improvements since the beginning of this pandemic, it still remains unclear whether we'll see any mandated lockdowns again in the communities we serve, which could obviously negatively impact our cash flows in the back half of this year. Therefore, there is still a high degree of economic uncertainty, and the pandemic remains, as we all know, a fluid situation. While our locations are generally open to serve in the communities we operate, our ability to offer a full suite of products and services could be limited in certain geographies where outbreaks do occur. With these comments, though, as a backdrop, let me provide you with a few thoughts on the cash flows for the back half of 2020 as compared to 2019. We will pay as I've mentioned a significant amount of cash taxes in the second half of 2020. Our second quarter this year benefited from the deferral of the 47 million of federal and state cash taxes I mentioned and that was associated with the pandemic relief from the IRS and that will be paid again in the third quarter. Benefiting the second half of 2020 will also be an estimated $25 million of additional payroll tax deferrals in the back half of this year. Finally, we expect cash interest to be around $10 million lower as we look to the back part of the year as compared to 2019, which is primarily associated with lower rates on our floating rate debt, as well as us benefited from debt refinancing and redemption activities that we've already completed over the past year. And as you saw in our press release, putting all of this together, we are providing normalized operating cash flow guidance of 600 to 660 million. That's for the full year of 2020. This updated guidance is reflected of the adjusted EPS guidance, which is in the press release, payroll tax referrals from the CARES Act, lower cash interest and lower cash taxes, along with other working capital sources. Furthermore, our expectations for maintenance and cemetery development capital spending for the year is now expected to range from 165 to 195 million with the same midpoint we've discussed before of $180 million. The underlying stability of our cash flows in the funeral and cemetery business as well as our strong financial position really gives us the confidence and the flexibility to also continue being opportunistic in deploying capital for the remainder of the year. We continue to seek value-enhancing acquisition opportunities. I believe for the year, we will end up in the $50 to $100 million spend range that we normally target for business acquisitions. However, we could be at the lower end of this range based on recent activity. We also expect to continue deploying capital towards new funeral homes, and other expansion opportunities to further grow our business in our target markets. So in closing, I'd like again to thank our nearly 25,000 team members for their dedication and perseverance through these challenging times. We will continue putting the needs of our associates and the needs of our businesses first to again safely navigate this pandemic. We believe this approach is in the best long-term interest of our company and all of our stakeholders. And as we reflect on all that has been accomplished by our teams in the first half, we are excited about the momentum we have going into the back half of this year. So with that, operator, that concludes our prepared remarks, and we'll now go ahead and open the call up for Q&A.

Thank you. As a reminder, to ask a question, you may press star then one on your touch-tone phone. If you're using a speakerphone, we ask that you please pick up your handset before pressing the keys. To enjoy your question, please press star then two. Today's first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Good morning, guys. It's Daniel on for Scott. Congratulations on a good performance in the quarter. Could you elaborate a bit on the drivers of the cemetery pre-need sales and maybe help us get a sense of the magnitude of each and elaborate a little bit on what you're seeing into July thus far?

Sure, Daniel. This is Tom. Thanks for your question. So on cemetery sales, you I guess it's first important to point out if you look at our cemetery at need sales they're up more dramatically than we've we've ever seen them and that is being driven by the fact that unfortunately you know more people are more families are going through the experience of losing a loved one and as that is happening it's driving traffic in your cemetery so so that is continuing to happen we've seen it happen throughout the second quarter and so I want to point that out because that also If you think about it, if I lose dad, I may buy a space for mom too. So you're getting a pretty good lead source, what we call a companion sale, that's helping drive that. And that's just a small part of it. The second thing that we've done, and we talked about standing up technology, is we now are getting very good and very effective through training of going through virtual appointments. So we're able to interact with consumers if we can't get into their homes or They're not capable of coming to the cemeteries. We're able to transact with them, provide information, and the like. As part of our strategy also, because we knew these were going to be difficult times, we added additional incentives for our salespeople to sell cemeteries. We have lifted some restrictions as it relates to, I'll call them customer incentives. So we're utilizing some 0% financing terms. We're utilizing a little more discounting. And those are the types of things that I think are happening now that are allowing us to drive cemetery sales with a more attentive customer because there's more of them there. And that's leading to a lot of the success that we're experiencing in May and June. And we're continuing to see that success roll into July. So we feel very good about our team. I think our sales team's been heroic in being able to stand up this technology. They're utilizing a lot of the tools that they were using before, but now it's their lifeblood. They're not able to travel, so we're utilizing Salesforce to monitor appointments, which leads to, I'm sorry, monitor leads, which leads to appointments. And then after appointment setting, can we close that sale? And we're able to help our teammates at a senior level as they're managing the various businesses from their desks. but they're able to provide, I'd say, a more productive training and development in this COVID environment.

Thank you. That was a very helpful caller. I recognize it's a little bit early to think about next year, but could you please give us some perspective on how you think about any pull-forward dynamics as we try to model out going forward?

Daniel, I'm assuming you're talking about both funeral and cemetery there?

Yes, please.

Okay, so on the funeral side of things, we believe we're now, so this is an updated number, not for the quarter, but to date already, we've probably provided services to about 12,000 COVID cases, which is not insignificant. And and so with that you know typically when we see a flu season you're going to see a pretty significant pull forward because a lot of times with the flu it's going to you know result in death with people that have it you know help other health issues or elderly a lot of times they're in retirement communities or homes so we're used to seeing you know probably a pull forward of you know 60 70 80 percent sometimes probably closer to that what's weird about COVID and I don't think we we don't know yet is truly the answer is COVID when you looked at it when it first started in the United States on the east coast we saw a significant number of cases coming out of retirement communities nursing homes and so when you think about those numbers Those probably were cases that were pulled forward. I mean, clearly all of these are pulled forward. The question is, did you pull it forward from later 2020 and 21 or from another date? So that may play out a little more like the typical flu. As you're seeing it spread across the country and particularly seeing it in some of the later states or call them the Sunbelt states, that percentage of what I'll call nursing home customers is going down. We're seeing a lot more people that you never would have expected to have a death that's occurring. So I think the percentages will change as time goes on. So I wish I could be a little more predictive for you, but I think that's the way to think about it. And on the cemetery side, like I said before, I think when you have an increased number of cases, it is going to generate some lead opportunities. Because again, on the cemetery side, if I have a death There's a lot of family members that want to be adjacent to their loved ones. And so it may inspire them to purchase property on a pre-need basis. Having said that, I think our sales force has adapted so powerfully to what's going on. They've embraced the tools, the technology. I think we've learned a lot through this crisis and how to sell better, how to, how to present better, how to develop better. So I'm really optimistic about our Salesforce's ability to continue to drive improvement in 2021. I just caution you with, if we were to experience, again, I hope, some cure for this virus, and we saw the number of cases in the funeral go down a bit, that's going to take away some leads that you're experiencing now that you won't have in 2021. but I think we feel really good about our ability to sell in 2021 and I think you know on the funeral side of things we're getting better all the time we're more efficient more effective if you look at you know the loyalty scores of our consumers as we're coming back I just think we're doing so many things to embrace ourselves with our potential customers in our communities so I think 2021 is going to be a good year I just think we have to understand that we probably some of this case volume is you know being pulled out of 2021 and that percentage I can't tell you Daniel.

Thank you. That's very helpful. I'll turn it over. Thank you very much.

And our next question today comes from AJ Rice at Credit Suisse. Please go ahead.

Hi everybody. A couple questions if I could. So obviously the cemetery production was stronger than expected. And it sounds like one of the, I mean, it sounds like you did a good job on the transitioning to virtual sales and so forth. But it sounds like one of the dynamics was also that people that had the spike in deaths, whether it was COVID related or whatever, when they went to buy the cemetery plot, they bought multiple plots. Is there any way to parse out where you stand relative to the traditional sort of pre-need selling activity, how much that is off versus this phenomenon of just an uptick in ad need that had some spillover effect into cemetery production?

Yeah, Jay, thanks for your question. I don't have the specific numbers in front of me, and I didn't want to I don't want to give an indication that that's some majority of it. It's not. It's one of many factors. So if I were to speculate, and again I'm speculating, we grew production some 10%, I would say that that's probably somewhere of the, call it 20 to 30% of the increase. I think a lot of it too goes back to We really hustled. The way this thing transitioned is we started out in April with a real decline in the number of leads. We rotated pretty quickly and generated new leads through digital technology and through some enhanced direct mail campaigns. With those new leads in May, you began to see us setting a lot more appointments. and so the appointment count began to to go up and again this is you know outside of the walk-in business and from that appointment count while we were doing really good our close rate wasn't quite as good again because they come with some of the virtual technology and by June we really had it humming we had the number of appointments were very very high and our close rates as it relates to those appointments uh you know jumped to levels you know we really haven't seen in recent years so I think a lot of this really has to do with that. I mentioned the incentives before. We enhanced the incentives for the sales counselors directed at Cemetery. The customer incentives were much better. If you saw, AJ, our production was up, but our gap revenues were slightly down. What that means is we had not an insignificant amount of people that didn't put 10% down or took the 0% financing.

Now, we've

taking into account what we think is potentially may cancel because probably some of this business has a higher likelihood to cancel. But so far so good. Our collections have been great. And so we believe that that production is going to turn into gap revenues in the third quarter and the fourth quarter. So I would tell you I don't have specifics, but that is not the majority reason. It's just one of a few reasons why we're doing so well in the cemetery.

Okay, another question is obviously you got the good margin leverage or gain in the general business. I know last quarter when we were dealing with the big spike in cases in New York, there was some discussion about, well, at some level, we don't get the operating leverage off the incremental case. It ends up, you know, almost hurting margins because we're sort of overwhelmed. and that sort of indicated maybe there wouldn't be as much margin leverage on these incremental cases but it looks like that you did see that. Now I know there was a lot of company specific initiatives as well that were designed to pull costs out. Can you sort of parse out in your mind how much was, well the leverage on the incremental case was actually pretty good or is this really mostly just company initiatives and how sustainable is some of that going forward?

I think most of it is, you know, I'll bifurcate the two. First to say our field management did a spectacular job and the incremental volume did produce the level of profits that you would expect. And we had kind of warned you guys, I think, ahead of time, we were concerned that may not be the case. And some of that may have been my experience that I saw in Europe. If you remember the summer in Paris where we experienced an extraordinary number of deaths and because of what we had to do at the company, we experienced, you know, we didn't get the throughput that you would expect in the business. And I'll just tell you that that did not happen. Our teams did a fantastic job of managing their costs, their staffing. And so the field really drove a lot of the salary and wage and many more. Thank you. So that is real, and that is something that I think if it happened again, we'd continue to do, and that was led by our field management. At a higher level, we really took on some things like non-customer-facing costs, which were easy to do. I mean, we cut a lot of travel, a lot of things that we spent money on, trips, incentives, things like that that just kind of faded out. Our lawn and grounds on the cemetery side, we managed better than expected and that was very purposeful. We kind of went in and said, what's our cycle on mowing, special projects, and we found some better ways to maintain the grounds and save some money there. And again, that I think continues to happen. And then I think media spend. We spend money, local advertising, national media, different forms of media. and you know because of what's going on it just made sense to tone that down and we have and save a lot of money and I and we're going to tone it back up at some point but I think it's going to be different and probably spend less money because we learned a lot through this crisis so so a lot of levers a lot of good things and I think you know learnings across each of those things that I talked about that's going to allow us to make some of those savings very permanently and some of them will come back as things normalize. Okay.

All right. And maybe just one last question. I know the discussion about what was happening with average revenues for a funeral, you know, there was an expectation coming out of the first quarter that it would be down low double digits, low 10 to 12 percent or something. and you came in better than that.

Where was the variance?

What was better than you were expecting? And do you think any of those declines are permanent or do you think you still think we'll see it return to normal at some point in the future?

Okay, so, AJ, if you take the month, it's probably easier to see this. You know, we were down in April about 12%. 11% of that was people not spending. It's kind of what I referred to on the call. It's people not buying catering or flowers or maybe not having a service. So 11 of the 12% decline was that, and then the other 1% is just our typical mix change. As you got into May, remember that 11% number because that's just a ticket, somebody walking in and spending. In May, that 11 went down to 6.7%. and in June it's down to 3.1%. So it gives you an idea of the quarter has many turns and twists. As we sit here in June and July, that gap is very different than where we started. Now to your point, as I think about going forward, I believe, and again this is Tom's opinion so maybe not worth as much, It's going to be a little bit of an issue because I think there are people that for at least the next 12 months, if we understand this virus right, there's going to be some reluctance to gather in larger groups for a while. I do think there's a hangover effect. I just don't think it's that big. I think we're now seeing, like I said, a 3% to 4% year-over-year decline. That may be tough to fill that gap for a little while. I think one day it does because if we've learned one thing, we know that our families really, really want to go through this grieving process, celebrate a life lived. So I don't see that culturally going away. I just think there's a concern around the spread of COVID that it's probably going to be a hangover for the next 12 months or so.

Okay, great. Thanks a lot.

And ladies and gentlemen, as a reminder, if you would like to ask a question, please press star then one. Our next question today comes from John Ransom with Raymond James. Please go ahead.

Hey, everybody. No holes in one this quarter either. So I had to give you a little update. Still no hole in one 58 years in. Thanks for that polite laugh, Eric. As we think about modeling funeral ASP for the rest of the year, is that down three that you mentioned in June, is that, you think that's, assuming that the world kind of stays in this holding pattern of rolling shutdowns but nothing, you know, not going back to pre-phase one, do you think that's a good way to think about it?

Yeah, John, I think that is. You know, could we get a little bit better? Yes. And at some point you're going to laugh yourself, right? So when you talk about month over month or, you know, So as you get into March of next year, you ought to have a pretty good tailwind helping you out. But until we get to that point, I think that's probably the best way to think about it, John.

And this is mostly the at-needs. So the pre-need going at-needs, is that still hanging in? People may defer, but they're not asking for their money back?

Yeah, for the most part, yes. We've seen a little bit of that. So the gap in pre-need going at-needs is a lot better. You are going to have the few that come in and say, hey, I'm not gathering or I'm going to do 10 people. I want a little money back. Not 3% gaps, maybe 1% gaps on that.

Okay. Second question is I know that cemetery has grown faster than funeral pre-need for a while, but I've never seen a gap quite like this. What is it about the way those two products are sold that explained such a disparity. I mean, we modeled down correctly in funeral, but I'll be honest, we didn't see such a disparity that you'd do so well in cemetery but struggle so much on the funeral side. So just help us understand how those things are sold differently. Would that explain such a big gap?

Sure, John. So on the cemetery side, we're experiencing a little, number one, recall that we're incenting our sales force to sell a little bit more cemetery. and we're not doing that on funeral today. I don't think that's the biggest reason but I think it's just important to understand. The second thing is like I said there's an immediate need if you think about it as I have a death and I'm burying my loved one if I'm burying my wife I want to buy the space next to her and if I don't do it now then somebody else could buy the space next to her so I guess there's a There's a locked in, you know, you need to make a decision and do something, whereas let's say a companion funeral sale, I got time, right? It doesn't really matter. So I think there's an urgency for that cemetery sale. The other thing that's very impactful is we get a lot of our leads on funeral from two sources that kind of, you know, dried up for now. One is seminars. We mentioned it a little bit. So we have these grassroots events or educational seminars which generate a lot of interest and leads for us. Those have shut down to effectively zero because they were in restaurants. Those were 75, 80% of the conversions off that were funeral, and that's kind of gone away. Now, we've done some additional lead work to help funeral, and I think it's getting better, but that was kind of a shock to the system. And the other thing is just referrals. you know we generate a lot of leads off of having a service then following up with friends and family afterwards you know bringing flowers over or a phone call well people aren't as receptive to follow-up visits right now so so because funeral was so vested in those two lead sources I think it's been impacted more dramatically the good news is again it's kind of like what you're seeing in the funeral average We're creeping up better and better in funeral because we're taking these new leads that are coming from digital or coming from direct mail, and we're getting better and more effective at how we use them. So I think you're going to see improvement, you know, as the back half of the year comes in on funeral, but it is a little bit harder just because of that lead source issue.

Right. And no more Golden Corral meals, you know, if you're a best friend. Exactly.

We're going to have one called Hole-in-One in Florida, but named after you, but then I realized you didn't ever have one.

Just to remind us, cemeteries are certainly more heterogeneous. It could be a $100,000 monument or a $300 bronze marker, but just at a high level, what's the median versus average sale, if you will, and how much of that are you generally booking for? In the quarter you sell it versus how much are you deferring? Just to level set that for folks.

So when you think about, you know, the non-large sale, you think of the blended sale as being, and I'm making this up, John, so it's not going to be perfect. But think of it as a, you know, $4,000 sale. And more likely than not, you know, that's going to be, maybe five is a better use. So when you think of five, We'll say $3,000 of that could be the property and the other $2,000 would be a service and merchandise that you may buy. So in that case, typically if we sell it and we get 10% down and it's constructed, we're going to take the $3,000 of income and $2,000 is going to get deferred and put into the trust fund over time.

You're paying the commission day one on the $5,000, right? Exactly. You're paying the commission, you're recognizing $3,000, but you're probably only collecting a fraction of that. So the cash is you're just collecting a fraction of that, especially if it's like a four-year or five-year contract or something.

Yeah, but on average, our typical down payment probably is about 40%. So So on the fringe, you're going to have some of that, and definitely our average down payment is down this quarter versus most because of the incentives. But generally, it's pretty good cash in hand. And again, when you think about selling something, your ability to repossess is pretty easy in a cemetery. So it's a pretty good collateral.

Interesting. And then if we think about... The more interesting question, I think, so a year from now, things hopefully are back to normal. What permanent and structural changes will have been made at SCI, either cost or how you go to market or business or philosophical? What do you think sticks and then what do you think is just this is a temporal reaction to an extraordinary pandemic?

I think the biggest Learning for us, first of all, I think it's leveraging technology. A lot of companies have said this. We have advanced our use of technology three or four years over the last three or four months. And it's really great timing because we had a lot of initiatives that were driven off introducing more technology both to the support side of what we do, so think of the back office mechanisms that happen, and the customer facing. So We're in the midst of developing a product that was going to make us more effective and efficient anyway and make us better at interacting with consumers. And through this, we've accelerated it. We did not cut back on that because we view this as a huge opportunity to advance the ball. I think as a company, we're all more tech savvy. We're less afraid to jump into that. We learned a lot of things around, I think, media spend. at a local level, a national level. So I think there's quite a few things that are changed, John. And the other one I think that we've learned is travel. You know, we were, you know, a lot of companies like this, I'd call it heroic travelers where we'd get out quite a bit and beat the bushes and see people. And that's an effective way to manage sometimes. But I think what we're learning is with these technology tools, you're probably a better manager being driven off of, you know, data. And I think on the Salesforce side, for sure, the feedback from our senior sales leadership across the board has been saying, Tom, we're so much more effective because we're utilizing these tools to understand what's happening and can take corrective actions and be helpful. I think you'll see less travel and entertainment and things like that across a lot of countries. Now, that doesn't bode well for the restaurant business or the hotel business. but I think that's a collective learning corporate America has.

Now, is Beacon in our future on cemetery or is that still kind of a manana thing?

No, it's in our future but Eric, go ahead and switch on that.

John, Beacon's been doing pretty well. I mean, one thing we have been doing is executing and continue to execute on the plan that I laid out to you in previous quarters and so I think we have upwards of, you know, let's call it probably two-thirds of the I think there's about 500 cemeteries or so that have kind of been implemented in some stage as of right now. It's difficult to measure based on the volatility that we're obviously seeing. It's difficult to isolate it, but I think when we do get to it and we show pre and post implementation, I do think we're starting to see some decent movement in both the cemetery average sale, kind of what Tom just mentioned, as well as, you know, some better control and visibility into the discounts of the cemetery property. So yeah, behind the scenes there's been some improvements specifically related to that in our cemetery business that I think will benefit the future when we get back to more, you know, kind of normal times.

Right. Okay. Thanks so much. Good job. Thank you.

And ladies and gentlemen, this concludes the question and answer session. I'd like to turn the conference back over to management for any final remarks.

I want to thank everybody for participating on the call today and I want to also make sure that you guys stay safe and healthy and be careful with all this. We miss getting to see everybody, but that day will come too. So please stay safe until the next time and we'll speak to you, I believe, in late October. Thanks again for being on the call.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.