Service Corporation International

Good morning and welcome to the Service Corporation International fourth quarter 2020 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

Thank you, Andrew. Good morning. This is Debbie Young, Director of Investor Relations for SCI. Welcome today to our company's review of business results for the fourth quarter of 2020. Before the prepared remarks, let me remind you that we'll be making some forward-looking statements today. Any comments made by our management team 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. A reconciliation of these non-GAAP measures to the appropriate GAAP measures is provided on our website under the investor webcast event section and also in our earnings press release in 8K that were issued yesterday. With that out of the way, let me pass it on now to our chairman and CEO, Tom Ryan.

Thanks, Debbie. Hello, everyone. Thank you for joining us on the call today. We hope you and your families are staying safe and healthy. This morning, I'll provide a little color on our business performance during the first quarter. Then I'll offer some commentary on our 2021 outlook with the understanding that there remains substantial uncertainty surrounding the effects of the COVID-19 pandemic, which could change guidance significantly. However, before I begin, I would like to say a few words about this past year. 2020 has certainly been one of the most uncertain and challenging periods that any of us can remember. As I reflect back on the last 10 months, I can say with certainty that our results are a testament to our team's incredibly hard work and to the resilience of our underlying business. I'm extremely proud of our entire SCI team for going above and beyond the call of duty in 2020. In this difficult period, we stayed relentlessly focused on what we do best, helping our client families gain closure and healing through the process of grieving, remembrance, and celebration. The health, safety, and well-being of our SCI family was a top priority, and not only were we able to avoid any layoffs, mandatory furloughs, or reductions in pay as a result of the impact of COVID-19, we were able to recognize the incredible efforts of our frontline associates with hero bonuses and provide special bonuses for every associate that does not participate in our annual incentive plan. In 2020, our services were needed more than ever, and I am proud that we were able to perform a significantly increased number of services without any disruptions to our business. which highlights the power of our scale. One thing that became clear throughout 2020 is that our fundamental business has not changed. We did not see a wholesale shift in the consumer preferences, and our cremation remains stable. Although we were restricted in our ability to have large gatherings in 2020, we heard loud and clear from our consumers that they still have a desire to memorialize and to celebrate the lives of their loved ones. virtual arrangements, live streaming of services, outdoor services, drive-through visitations, radio transmitted graveside services, and many more unique memorialization and celebration of life ideas are now a normal part of what we do. The success and acceleration of these enhanced service offerings have highlighted the importance of innovation in our industry. We will continue to invest in technologies that enhance how we interact with consumers digitally, providing a better customer experience to the arrangement conference and beyond, while also enhancing efficiencies in our operations. As the year unfolded, actions we took in response to in-person meetings limitations yielded non-customer facing efficiencies. We more effectively utilized our labor force using virtual training, our customer relationship management system, and other technology tools instead of incurring travel-related costs. We drove down our lead cost per sale by accelerating the growth of digital leads and making significant improvements to our direct mail program to drive record growth. All of the many learnings from this year will make us a better company going forward. As a result, we're positioned to enter the post-pandemic world as a more agile and efficient company. Now let's shift and provide you with some color about the quarter. We last spoke in late October. Our projections did not forecast the tremendous surge in COVID mortality that the US experienced in late November and December. Just to give you a little color on the cadence of the quarter, our same store funeral volumes were up 7% in October, then grew to 13% in November, and an unprecedented 31% in December, which is the highest monthly growth rate we experienced all year. As a result of this surge late in the quarter, we finished the fourth quarter with adjusted earnings per share of $1.13, compared to 60 cents in the prior year, well above the range we provided to you in October. Both funeral and cemetery segments had margin improvement of over 600 basis points, driven by double digit top line percentage growth applied against a more efficient cost structure. We also benefited from a lower share count and a lower tax rate. Let's take a look at funeral operations in the quarter. Total comparable funeral revenues were approximately $49 million or 10% during the quarter. Both core and non-funeral home channels performed very well and were slightly offset by lower general agency revenues. caused by a decline in insurance-funded pre-need funeral sales production. Core revenues grew $53 million, driven by a 17% increase in the number of cases, partially offset by a 3.4% decline in the funeral sales average. The predominant reason for the increase in services performed was due to the direct impact of COVID-19, and to a lesser extent, to an increase in non-COVID-related deaths, such as heart disease, stroke, cancer, drug overdose, and suicide, perhaps the consequence of a lack of access to healthcare during 2020. Words cannot convey the level of my appreciation and respect I have for our frontline team. The tremendous care you provided record numbers of our client families during such a stressful time can only be described as heroic. Thank you. The decline in the funeral sales average of 3.4% was due to some local jurisdictions reimposing restrictions on gatherings, given the surge in deaths of November and December. This resulted in a decline in the number of cases with the service. The cremation mix shift was a moderate 120 basis points and had a minimal impact on the quarter over quarter funeral average decline. Pre-need funeral sales production for the quarter was down 1.6% versus the prior year, which is a significant improvement over results posted in earlier quarters this year. While we saw record growth in production from our digital and direct mail leads, we continued to be hampered by a decline in pre-planning seminars due to local restrictions and consumer reluctance on in-person gatherings in restaurants. From a profit perspective, funeral gross profit increased $45 million and the gross profit percentage increased 640 basis points to 27.5%, realizing a 92% incremental margin in our revenue growth. Growth in our high incremental margin core business more than offset slight declines in our lower margin revenue streams. We also continue to benefit by the efficient management of labor hours with fewer and smaller services, as well as reductions in non-customer facing costs and certain marketing and promotional expenses. Now shifting to cemetery. Comparable cemetery revenue increased $64 million, or 18% in the fourth quarter. At-need cemetery revenue accounted for $25 million of the growth, driven by more burials performed due to the effects of COVID-19. Recognized pre-need revenues accounted for $35 million of growth, mainly due to higher pre-need cemetery sales production during the quarter. Pre-need cemetery sales production grew $40 million, or 16%, in the fourth quarter, driven by increased lead sources associated with the higher at-need services and burials performed. The preponderance of the growth, $25 million, or about 60%, was from a 12% increase in velocity for the number of contracts sold. the remaining growth of about $15 million was primarily due to large sales activity. We continue to see a more productive and efficient Salesforce with better utilization of our customer relationship management system and improved conversion rates from our direct mail and digital lead campaigns. Consumer reception to having a pre-planning discussion remains very high. I want to take a moment to recognize the tremendous efforts of our sales team. For the full year 2020, they wrote more than $1 billion in cemetery pre-need sales production. This is a new company record, so hats off to the entire sales organization. Cemetery gross profits in the quarter grew by approximately $49 million, and the gross profit percentage increased 680 basis points to 39%. growth in revenues and strategic cost reductions combined to drive margins beyond normalized incremental levels. For the full year 2020, we reported an adjusted earnings per share of $2.91, a 53% increase over 2019 in a one of a kind year. As we look ahead, we acknowledge that there are many unknowns facing 2021. Obviously, The speed and efficacy of the vaccine rollout could have a significant impact on the spread of the virus, hospitalizations, and ultimately on the number of deaths. This combined with the willingness of the consumer to transact on a pre-need basis may have a material effect on our 2021 results. There is no doubt that in 2020, we service deaths that were pulled forward from a future year. While we know that the timing of the pull-forward is impossible to accurately predict, we have developed models based on data from the IHME and the CDC which incorporate historical trends in current COVID-related deaths by age group as well as by comorbidity factors in determining what future years are impacted by accelerated deaths and by how much. Based on all these assumptions, We believe adjusted earnings per share in 2021 will likely range between $2.50 and $2.90 per share. We have provided a wider than normal range based on the uncertainties surrounding the impact of COVID-19. Let's take a deeper dive into our assumptions for the 2021 earnings per share guidance. We are modeling funeral volume to be down versus 2020. but mid single digit percentages higher than the 2019 levels due to the expected impact on funeral volumes in the first few months of 2021 associated with COVID-19. We anticipate double digit year over year percentage increases through March. Then while we expect the continued impact from COVID-19 deaths, we predict comparable volumes to trend lower for the rest of the year, as compared to the very active final nine months of 2020. We expect the funeral average to be down low single digit percentages in January and February and begin to see favorable trends as we compare back to the early months of the COVID outbreak in 2020. While we anticipate growth year over year, we still believe we will struggle to get back to 2019 levels, as we believe many people will continue to be reluctant to gather in large groups. We expect pre-need penal sales production to begin to rebound in the back half of the year and for the full year to grow in the mid to high single-digit percentage range. Cemetery at-need revenues should see significant year-over-year growth in the first quarter, followed by a comparable decline in the last three quarters as we face a significant hurdle from the 2020 results. For the year, we expect cemetery at-need revenue to be down versus 2020 but still show significant growth over 2019 pre-COVID levels. Cemetery pre-need sales production grew at an unprecedented rate in the back half of 2020, and we believe that momentum will carry over into the first half of 2021. We expect double-digit percentage growth for the first four months of the year before confronting challenging year-over-year comparisons beginning in May. For the full year, we anticipate pre-need cemetery sales production to be down in the mid single digit percentage range versus 2020, but still be delivering solid growth as compared to our 2019 levels. So in closing, in spite of experiencing the most challenging environment, our team continued to deliver. We rose to meet challenges never faced by our company before, and you have been an extraordinary example of commitment, professionalism, and agility. It's an honor to work with such great people and my sincere heartfelt thanks to the entire SCI family. As we look ahead, I'm extremely optimistic about our future. While we do not anticipate the impact from COVID to completely go away, it is our belief that we should see a more muted effect on our results for 2022. Therefore, we expect a decline in case volume and at-need cemetery revenues and therefore on the associated earnings and cash flow from the pull forward effects of 2020 and 2021. However, the knowledge that we gained from this awful COVID experience is anticipated to produce a more competitive and profitable operating platform in the years to come. Therefore, we predict an impressive earnings per share growth for 2023, approaching $3 per share, resulting from a combination of enhanced market share, a leaner infrastructure leveraging technology, and a more efficient sales structure. As the pull-forward impact wanes and the baby boomers begin to enter their late 70s, we expect a further acceleration of earnings growth. With our eyes on the longer term, we are continuing to invest in technology and new service offerings that allow us to remain relevant with our consumers enhance our digital client experience, and more efficiently and effectively serve our customers. With that, operator, I'll now turn it over to Eric.

Thanks, Tom, and good morning, everybody. And like I've done many times over the past few quarters, I'm going to start by providing you with an update on the strength of our financial position that has supported us through these very volatile times. I will then move on to address our cash flow results during the fourth quarter, as well as the full year of 2020, followed by our capital deployment activities for the year. And then I'll end by providing some details of our outlook for 2021. But I think more importantly than any of that, before we begin with that, when we were reporting our 2019 earnings almost exactly a year ago today, I don't think any of us could have anticipated what we would be facing in 2020. During the year, our frontline associates helped our communities deal with this rapidly moving virus with unparalleled poise and dignity, particularly earlier on in the year when there was more speculation than there were facts available about coronavirus. But even to this day, our teams across our network are coming together and sacrificing their personal time, being away from home, all to support their colleagues and their broader communities as well who are managing in current COVID hotspots. So words cannot capture how thankful and proud I am of these 24,000 associates and how they have faced the adversity of this pandemic with resolve and will continue to help our communities through to the end of this terrible virus. So please hear me say something this morning very clearly to all of our SCI associates. Thank you. Now I'll shift to the financial update. So while we entered the pandemic anchored by a strong financial position and a favorable debt profile, we continue to be very well positioned with a significant amount of liquidity of roughly $670 million at the end of the year, consistent of approximately $230 million of cash on hand, plus $440 million available in our long-term bank credit facility. On the higher EBITDA resulting from these strong Q4 results we're talking about today, our leverage remains low at 3.19 times at the end of the year. And as we look beyond the impacts of this pandemic, we still intend to manage leverage in a range of 3.5 to 4 times net debt to EBITDA. So let's move on to cash flow, which has been resilient for us throughout 2020. Cash flow in the fourth quarter marked a much stronger than expected finish to the year, supported by the earnings outperformance that Tom just mentioned, associated with the surge of COVID-related deaths, particularly in late November and December. We generated operating cash flow of $245 million during the quarter, representing an increase of $88 million, or 56% over the prior year. This increase is primarily related to the growth in cash earnings in the quarter, as well as the decrease in cash interest payments of about $28 million, predominantly as a result of recent debt refinancing transactions. Also remember, we continue to benefit from the deferral of payroll tax payments as allowed under the CARES Act, which benefited the quarter by about $13 million and for the full year by about $41 million. These positive inflows were partially offset by $25 million of higher cash tax payments on the higher earnings, as well as a net use of pre-need working capital, which we have seen all year on the growth in cemetery pre-need property sales sold on an installment basis. And as we step back and look at the full year, we generated over $800 million in operating cash flow, represented an increase of $170 million over the prior year. So now let's talk about how we deployed this free cash flow. During the quarter, we had a very robust capital program deploying nearly $325 million of capital to reinvest in and grow our businesses. as well as return value to our shareholders. So regarding the breakdown, we invested $56 million in our businesses through maintenance and cemetery development capital spend, which was about $2 million more than the prior year quarter, but in line with our expectations. Full year spend was approximately $185 million, which represents a 9% decline from the prior year as we curtailed or deferred certain expenditures during the very early stages of the COVID-19 pandemic, which we expect to make up in 2021, as I'll address later in my remarks. During the quarter, we deployed about $35 million towards acquisitions, which was a nice pickup in activity at the end of the year. For the full year of 2020, we deployed just over $100 million in both acquisitions and growth capex for construction of new funeral homes. Then finally in the quarter, we returned nearly $225 million to shareholders in the form of dividends and share repurchases. With our strong liquidity and cash flow as a backdrop, along with our favorable leverage profile, We took the opportunity to deploy a healthy amount of capital to share repurchases in 2020. In the fourth quarter, we bought back about 2% of our outstanding shares, bringing the full-year reduction in outstanding shares to about 6%. So now let's shift to our outlook for 2021 and in terms of cash flow and capital deployment. Tom just gave you some color on the ever-involving pandemic, making it challenging to forecast with precision where our results will land in 2021. But based on the range of outcomes for adjusted EPS noted in our press release associated with the remaining duration and severity of COVID, we expect our adjusted cash flow from operations to range from 600 million to 700 million in 2021. There are a few items that I'd like to highlight when thinking about cash flow from ops in 2021. We will incur three full quarters of what I consider regular payroll taxes of about $40 million, which we're able to defer in 2020 as allowed under the CARES Act. Additionally, we will also be required to pay half or about $20 million of these deferred payroll taxes in the third quarter of 2021, and the remainder will be due in 2022. These two items then collectively create a $60 million impact to cash flow in 2021 when you compare it to 2020 associated with payroll taxes. Federal cash tax payments and state tax payments together are also anticipated to be about $25 million higher than 2020 at about $160 million in 21. This increase is mostly related to the timing of cash tax payments associated with our stronger than expected Q4 2020 financial results that will be paid in early 2021. From an effective tax rate standpoint, we continue to model in the range of 24 to 25% in 21. So moving on to some thoughts about capital deployment as we move forward. Our expectation for maintenance and cemetery development capital spending in 21 is 235 million to 255 million, which is about $40 million higher than our pre-COVID level spend as we proceed with certain projects deferred from last year. In addition to these recurring capital expenditures of 245 million at the midpoint, we expect to deploy 50 to 100 million towards acquisitions and roughly $50 to $60 million in new funeral home construction opportunities, which together drive low to mid-teen after-tax internal rates of return, well in excess of our cost of capital. So with those remarks in closing, 2020 was by far the most difficult backdrop we faced in a very long time. Fortunately, we went into it with a superior balance sheet, and have stayed strong for the duration. Despite everything that has occurred, 2020 has been an extremely successful year for us, while managing through many unforeseen and unexpected challenges. Again, none of this could be possible without the resolve, passion, and dedication of our associates during this trying year. And I'd like to again thank each of you. So with that operator, that concludes our prepared remarks. I'd now like to turn it back over to you and we'll open the call up for questions.

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Joanna Kajuk of Bank of America. Please go ahead.

Thank you very much for the good question here. So a couple of things. I guess first, I guess I appreciate the comment on the 2023 EPS, close to $3. So could you, I guess, in the context frame for us, how should we think about your views around your long-term growth targets? Because you kind of made it sound like maybe you think this target should be higher, because previously you talked about 8% to 10%. So kind of can you frame those kind of metrics to us? That would be great.

Sure, Joanna. I think historically, as you know, we've given an 8% to 12% range. I think more recently it's been a bit more challenging, and we've tended to be more on the 8% to 10%. And I think what COVID has taught us really are a couple of things, because I mentioned that I think we're a more powerful company coming out of this, and I believe that. First of all, I think we've had the ability to – gain share going forward. We can look today as an example. If you look at the at-need services we're providing versus the pre-need going at-need, which those numbers typically are pretty coordinated, we've seen a consistent increase in the number of true at-needs versus pre-needs going at-needs. So it tells us that we're servicing more people than we typically would. I think a lot of that has to do with our scale and our ability to deliver services, because unfortunately in many marketplaces, it's just so overwhelming that a lot of our competitors aren't able to take in people. And because of our ability to scale people, to acquire refrigeration and things of that nature, our ability to have cemeteries, we can perform outdoor services. And again, we're taking advantage of that opportunity to have deeper relationships with our consumers. The other thing that I think is pretty prevalent for us is our digital footprint. Our website, our digital leads program, which feed both pre-need and at-need funeral volume. So as we look forward, we think the goodwill that we've gained, the footprint that we have for outdoor services and cemeteries, the heritage that we capture by serving more customers during this time should afford us a better market share. And when you combine that with the technology advancement that I think the company has achieved over this period, we're utilizing technology more in how we service families. It's allowed us to be more nimble and better at sharing resources of people and things. And from a sales perspective, I believe we now, with our digital leads programs and effective direct mail programs, are finding a more effective and efficient way to produce sales. And as it goes on, I think it allows us to expand our span of control, the way that we think about it. The days of traveling like we did before, particularly if you had a region, that should be dramatically reduced as we look forward. Clearly, we need to get out and visit people but I think at the same time, we'll have a more efficient, effective, and increase our span of control going forward. So that would push us towards, in my opinion, probably closer to the upper end of our long-term range, Joanna.

Okay, that makes sense. And on the last point, so I guess the last quarter, you talked about 10 to 12 million cost savings versus, I guess, the pre-pandemic cost structure. So is it But it's still the same range when you talk about, you know, a leaner cost structure, or is there additional kind of efficiencies you see going forward? Because I guess at that point, you kind of indicated it could be even more than that number. So any color, I guess, on that number would be great, too.

Yeah, Joanne, I think those numbers are still very safe. They might be a little bigger than that now. But again, I think a lot of it's going to determine how this shakes out and what sticks as it relates to preferences of the consumer. And also, I think, you know, as we normalize whatever normalizes into that cost structure. But I think it's safe to say that 10 to 12 is what we've identified. I think there's still a little bit more to be had as we, you know, go about in the post-pandemic world.

Okay, that's, that's, that's helpful. I guess it's kind of in line with what you were saying. But what so I guess you leave it open for more, which is which is good. And I think that gives me the last question. So you did spend some money on acquisitions, it seems this fourth quarter. So kind of how do you expect this to play out going forward? You know, how has the smaller competitors done during the pandemic? It sounds like you know, some people might have been pretty much overwhelmed. So, and to your point about market share gains, are there also, you know, assets to be actually acquired because, you know, they might struggle or they might be feeling that, you know, they are too small. So kind of any color on the acquisition outlook would be great too. Thank you.

Sure, Joanna. We did have a nice fourth quarter of closings. And as we look at the pipeline, it looks pretty active today. as we look out into 2021 and 2022. So we feel very good about those opportunities. It's hard to say. I think a lot of things can impact the timing of people's decisions. I think going through something like this surely makes people think twice about, you know, what they want to do with their lives. So I think it could have an impact on people, but for the most part, what we're seeing right now, what we expect is a pretty robust process. you know, opportunity set as it relates to that. And then I think, as Eric mentioned, we probably will continue to increase the amount of spend on new constructed funeral homes. We've also recently purchased land to construct new cemeteries in certain markets. So I think it'll be a hybrid approach to growing through acquisition and increasing our investment in new builds and new cemeteries.

Great. Thank you. I'll go back to Vicki. Thanks.

Thank you. The next question comes from AJ Rice of Credit Suisse. Please go ahead.

Thanks. Hi, everybody. Maybe just to try to come at the comment about cost savings and so forth from a different perspective. When we return to normal post-COVID environment, I guess, you know, pre-COVID, we'd always talk to – sort of talk about funeral gross margins being in the 19 to 21% range and cemetery margins being in the 29 to 30% range. I wonder, is that sort of where we land or is because of the cost adjustments and so forth, is it possible it might be higher than that?

Yeah, I think, again, it probably depends on working through all this pull forward noise, right? It's going to be hard to predict because we don't know exactly uh which years this pull forward occurred or how long the pandemic will continue to be an impact on on the numbers of deaths i think as you get to a normalized stage it's our belief that we probably have the ability to to raise those margins you talk about another 100 to 200 basis points um from from the ranges that you talked about so yeah we feel confident that that both margins in funeral and margins in cemetery, as we look out, let's say, to 2023, 2024, ought to be, you know, 200 basis points or so better than the ones you quoted. Okay.

And you mentioned a little step back in pricing in the fourth quarter. I know a lot of the challenges on the pricing returning had been targeted California and Canada. Did... the increase in COVID activity across other parts of the country impact pricing there, or was it pretty much still constrained to those two markets?

It really, AJ, had an effect in a lot of different markets, but California and Canada had a more pronounced effect because of the government regulated restrictions. And in certain other markets like Seattle, I think, again, we're pretty limited. But even, you know, anytime you have an outbreak in a market, I think people have a reluctance to gather. People have a reluctance to have a big, you know, event. So we did see it kind of consistently when you see these big surges in COVID outbreaks. So it really was getting a lot better all the way through October and then November, December is when, you know, we saw that impact occur. So, yeah. So right now we're still very, very busy as you can imagine, um, and expect to continue to be, uh, you know, in this first quarter. And then I think you would see that average as, as the, you know, infections go down, the hospitalizations go down, you'll begin to see people, uh, you know, spend a little bit more money, a little bigger, uh, receptions and the like.

And I guess last question in the background, we've, uh, sort of been tracking what's happening with the FTC and the funeral rule. Is there any update from your perspective into what's going on there with the new administration and all?

I'll take that, AJ. Good morning. There's really no update at this point in time. We know that with the changeover in the administration, there's going to be changeover in commissioners. Some of the commissioners have moved on to other positions. There's some resignations as well. So the framework itself in terms of the commissioner makeup will be different moving forward than what it was before. Too early to tell what that means or where that's going. Certainly there's a lot of things going on, as we all know, in our country that may lend itself to more important issues than the funeral. But we don't want to anticipate that the momentum is going to change one way or another at this point in time. You know, the good news is, as we've been very, very consistent, is, you know, we continue to move forward with our strategy, regardless of an outcome from a Federal Trade Commission, to put our best foot forward using our digital sites, to put starting at prices and premium type enhanced products and service pricing out there, and in some cases even testing some GPLs out there as well. That's not a change in our plan. That's something that I think we've been very, very consistent with you over probably more than a year, that that's what we're going to continue to do for no other reason than that's what we think is in the best interest of our consumers. And we're going to continue to meet those needs as we move forward.

Okay, great. Thanks a lot. Yep. The next question comes from Scott Schneeberger of Oppenheimer.

Please go ahead.

Thanks very much. Good morning, everyone. And Eric and Tom, I'd like to echo your thanks to your workforce. Certainly doing a lot of hard, important work in duress conditions. The first question I'd like to ask is on the cadence of the quarterly cadence in 2021. it sounds from your prepared remarks like you're anticipating um you know probably a lot of business activity in first quarter but could you just give us a feel um for how we should think about each of the quarters uh uh maybe as an annual contribution or something similar thanks sure scott i think in in my remarks i tried to give it a bit of a monthly uh you know impact for you but

Clearly, it's really about comparing back to 2020 is the hard thing. I think we're seeing a surge that's continued from the last couple months of 2020 and the early part of 2021. So like we said, we'd expect double-digit percentage growth in funeral and cemetery really occurring throughout the first quarter and even into April. As you get into the So if you remember last year, the second quarter really was a tale of two things happening. While we saw a big increase in case volume in late March and early April, the average went down pretty dramatically. And sales dried up in April. We had a really difficult pre-need cemetery sales going on there. But we really began to rebound as you got out of the quarter. So the second quarter is not as big of a hump. because of the challenges in the first part of it. And then as you get to the back half of the year, it's really, I think, a tough comparison because you're going to see, you know, case volumes being a tough comp at need cemetery and pre-need cemetery as well. So a big piece of this is going to be in the first quarter. I'd expect kind of, you know, a comparison to the second quarter that will be pretty normal. And then as you get in the back half of the year, I hope that this virus is more contained and, again, than we would expect, you know, a tough comp as you get to the back half of the year. But overall, it's going to be a very solid financial performance for the company.

Thanks. In cemetery pre-need, I'm just curious, and thank you for – know it's difficult with consideration to pull forward and and just 2021 alone forget about 22 23 and 24 but thank you for your your thoughts on those but just curious specifically on cemetery pre-need sales um it's been quite elevated how are you thinking about that um multi-year run rate what we should expect um kind of a cadence for that as well you've touched upon it but Curious to hear maybe a little bit more commentary on that. Thanks.

Sure, Scott. I think like we said, for 2021, you know, we'd expect it to be slightly below the levels that we performed in 2020, but again, a healthy clip over 2019. And I think as we come out of that, we feel very good about it because a couple of things happen. You're developing heritage as you sell into those cemeteries. And again, thinking of family trees, you're connecting to more families, more opportunities to kind of spread out within that influence that you have. The other thing I think is we're doing a lot more outdoor services in our cemetery. So we're bringing a lot more people into the cemetery grounds, gaining familiarity, seeing what we see. So I see a lot of positive things as it relates to that, as it relates to digital leads and our ability to convert those. And so the only thing that can be a bit of a drag is the fact that in this pull-forward, you'll have less people coming through the funeral homes, which, again, would limit the number of new contacts that you have. But I think with technology and with a more efficient Salesforce, better leads system, and then just the awareness and the goodwill that we've gained. We expect cemeteries to return to levels where we can grow them again in the high single digits percentages going forward in a more normalized environment.

Thanks, Tom. I'm going to sneak one more in. It's going to be two separate parts. The first is if you could just provide a project update on Beacon and serving cemetery. Just curious on where that stands. And then also, I heard you say that you're going to be buying or have been buying some cemetery land, which I don't think is something you've been too active doing in the past. I'm curious, might we see, I'm sure that's in areas of high activity, might we see you do something like sell land as well in areas where, you know, kind of as an offset moved? and consideration of contribution if that were to happen. Thanks. I'll pass it on after that.

I'll take Beacon first, Tom. Beacon is going well, believe it or not, during the pandemic. We've been able to continue to work diligently through all of our processes and get it rolled out, particularly just so everybody remembers to our cemetery segment. It was previously rolled out to most of our funeral segment. Still have some issues around the pandemic or rolling out like in Canada and places like that. Cemetery, we're probably about 90% there. And we're really pleased with the progress that we've seen with that. I think our expectations were to see a little bit of a favorable decrease in our discount rate as we did that, as well as some favorable movement in average sale. You know, I caution the way I would say this because I think we're seeing positive results. But at the same time, I don't know the good analogy, but it's kind of like trying to measure the afternoon breeze during a hurricane. It's very difficult with the type of activity that we've had. Just the incredible growth that we had in our cemetery sales to kind of isolate everything and attributed just very specifically to Beacon. So I say that with that caveat. But hear me say very clearly, it continues to be finalized and rolled out. It continues to be working well. And it's continuing to meet our long-term expectations and our opinion in terms of help and grow average sale in the cemeteries, as well as continuing to reduce discounts as well. The next step for the funeral segment is probably moving on to our STI direct brands, and we'll continue to work on that during 21, and we're very excited about that as well. Tom, you wanted to comment on the purchase of cemetery property then?

Sure, Scott. The cemetery property we're talking about is generally in very high velocity markets for us so it's places where we've got a big presence of sales and marketing and places where we felt like it was in the best long-term strategic interest for us to expand into different parts of larger cities so so pretty isolated and and there's really no land to sell i'd say to fund it we just uh in all these cases it's cemeteries that we're going to immediately begin to develop and expect to begin selling. But, but some of these as an example, uh, I'll give you one is, you know, we did not have a big presence in Southwest Houston and a lot of the growth of Houston, if you're familiar with it is going out West and it's out South. And so we just felt it was prudent to position ourselves in that area where all this growth was. Now, not all of it, you know, is the ideal age for us, but we've gotta, gotta have that ready. And I think it affords us an opportunity to manage, the west side of Houston in a different way. But that's just an example, and I don't think you see a lot of it, but it's important for us to do.

Thanks for the call, guys.

Thanks a lot.

The next questioner comes from, next question comes from John Ransom of Raymond James. Please go ahead.

Hey, good morning, everybody. Just a couple cleanups. What was the, Eric, what was the year-end share count?

Year-end share count was right around $170 million.

Okay. And as I think about your kind of first half versus second half, maybe an earnings and EPS percentage first half versus second half in your guide would be helpful. And also, what are you assuming of that cap in terms of at-need funeral volume declined? And how do we think about the detrimental margin from that tough comparison?

Yeah, I think, you know, the way I think about it is when you looked at 2020, kind of played out, John, from a first half, second half, you know, basis, you know, a lot of the first quarter obviously was pre-COVID. But when you really look at the $2.92, you know, you're looking, I think of it as more as a general statement as one-third in the first half and two-thirds, in the back half of the year. So, you know, the logic would tell you it would probably flip on us in a normal type year. And so you're probably looking at, you know, somewhere in the ballpark of, if you think of the center of the guidance, you know, being $2.70, you're looking at, you know, something like two, you know, two-thirds in the first half of the year and one-third, in the back half of the year. So, you know, the real question is, that's pretty logical what I just said, doesn't give you too much insight, but it's very difficult to know, you know, when's the COVID pandemic gonna ease and when is the volume gonna ease? We certainly are seeing that as we speak into January, as you know, and it's starting to trickle a little bit down in February. When you think of the components in the back half, you know, related to funeral volume, you know, all in, you can easily see something, you know, in the mid-teens, high-teens, you know, maybe even down into the very low 20%, you know, type range. Again, It all depends on efficacy of vaccines, speed of vaccines, where it's going. But that is kind of what we are modeling, you know, right now as we speak.

And if you had to guess, I know you've talked about this before, but I mean, it's interesting, I guess, in a morbid way that if you look at the excess deaths in 2020 versus the COVID deaths, they're about the same. But as we know, COVID wasn't 100% of the excess deaths. So if you had to guess, you know, in the excess death stats, what percent do you think truly are COVID versus, you know, other things that we talked about, depression, suicide, you know, lack of cancer screenings and whatnot?

Yeah, I don't know how to venture a guess. Tom, you go ahead if you wanted to grab that.

Yeah, I've looked at this. I'm just going off the CDC data. And I would say, John, that about two-thirds of it are COVID deaths, you know, somewhere around that number, which leaves a third of what we'll call excess deaths, not directly related to the coronavirus causing death, but maybe the impact of, you know, what's happening with the lack of healthcare access, the lack of, you know, to drugs and things of that nature. So, So, yeah, I think it's probably that. And that was a little harder to model because you'd say, what's the long-term impact on our mental health and our physical health of going, you know, years without screenings or access to doctors or appropriate drug regimens? So you've got to kind of treat them a little bit differently. Sure. Thank you. That's it for me.

Okay. Thanks, John.

It appears there are no more questions. Therefore, this concludes our question and answer session. I would like to turn the conference back over to SCI management for any closing remarks.

We want to thank everybody for being on the call today. Please stay safe. We look forward to speaking to you again at the end of the first quarter, which will be in late April. So be careful. Talk to you soon.

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