Service Corporation International (SCI) 2011 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2011 Service Corporation International earnings conference call. My name is Deanna, and I will be the operator for today. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session.

(Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, the SCI management, please proceed.

Good morning, this is Debbie Young, Director of Investor Relations for SCI. Thanks for joining us today. As usual, we'll start with prepared remarks from management, and then we'll take some of your questions. But first, let me go through the safe harbor language. In our comments today, we will make statements that are not historical facts and are forward looking. These statements are based on assumptions that's we believe are reasonable. However, there are many important factors that could cause our actual results in the future to differ materially from these forward looking statements.

For more information related to these statements and other risk factors, please review our filings with the SEC that are available on our web site. Also on the call today, we will use the terms normalized EPS and free cash flow. These are non-GAAP financial terms. For a reconciliation of normalized EPS to EPS calculated in accordance with GAAP, please see our press release and 8-K that were issued yesterday. For free cash flow and free cash flow per share, we would refer you to a presentation that we posted on our web site yesterday under webcast and presentations that will give you the supporting calculations and reconciliations to GAAP cash flow. With that we'll start with comments from Tom Ryan, SCI's President and CEO.

Thank you, Debbie, and thanks, everybody, for being on the call today. Before I go into a more detailed review of the quarter, I'd like to step back a moment and look at our results and accomplishments that we achieved during the year 2011. All in all we look back at 2011, we're very pleased with our operating performance. I'd like to first thank my 21,000 teammates at SCI for making this happen. Without their contributions, we wouldn't be able to print results like this. Earnings per share grew a little more than 10% year over year. We reported $0.65 in 2011 and $0.59 earnings per share in 2010. This was on the high end of our previous guidance of $0.62 to $0.65. As we've discussed previously in setting expectations for financial performance in the near to mid-term as you think about our segments, we've pointed out that it's our opinion that funeral's going to be challenging to grow. This is predominantly because our GAAP revenues are tied to the event of death, and it is our expectation that we'll continue to see a challenging number of deaths in the near term.

In addition to this, we're going to put further pressure in the fact that we believe we should grow the pre-need backlog, because the day is coming. And we continue to do that. And in doing so, we generate selling expenses. And those selling expenses, again, put pressure on our margins. Having said that, we think we're going to generate a lot of cash in our funeral business, and that is the case for 2011. If you look at our reported results for 2011, we've managed our expenses very well. We generated a significant amount of cash flow, and the incremental pre-need selling costs put a little pressure on our comparable margins. But again, this was part of the plan. We finished the year with a growth in comparable revenues of $21.7 million in the funeral segment, or 1.5%, and an increase in gross profits of $7.7 million, or 2.6%, and therefore were able to actually raise the gross margin percentage by about 20 basis points in the funeral segment. Having said that, when we set expectations for cemetery, we've always pointed out to you guys that this is the place that we can actually drive some growth.

We're able to recognize for GAAP purposes property sales, and to the extent we can grow those sales, we can grow the related margins. So again, as we look at 2011, cemetery is our growth engine. Comparable cemetery revenues in 2011 up more than $47 million, or about 7% for the year, and gross profits up close to $16 million, or about 12%, and that is a 90 basis point improvement in the margin. Perhaps most notable as it relates to generating cemetery growth, we achieved a 12.3% increase in pre-need cemetery sales production, and therefore a 7% increase in pre-need funeral sales, against a backdrop of a very negative consumer environment. We are very pleased with those results, and that's really what drove the earnings per share on the cemetery side. And then most importantly to us, we generated roughly $280 million of free cash flow, and with this free cash flow, we returned about $245 million to you, our shareholders, through a combination of share repurchases, which for 2011 amounted to about 20 million shares at about $200 million, and through $45 million worth of dividends. Additionally, we directed more than $100 million through strategic acquisitions and growth projects.

Now shifting to an overview of the quarter. We posted solid results in the fourth quarter, both earnings and cash flow were at the high end of our guidance ranges discussed back in October. Normalized earnings per share increased $0.01 to $0.19, versus $0.18 in the prior-year quarter. Free cash flow increased $7.5 million over the prior-year quarter to $66 million. Our funeral profits were flat on lower than expected funeral volumes, offset by better than expected average improvements and prudent cost management. But cemetery segment performance was very strong. The primary driver of the cemetery profits for the quarter was increased recognized pre-need property revenues associated with construction projects. Now to an overview of the funeral operations. Funeral volumes were down more than we had originally anticipated, and more than we've experienced in the last several quarters. But, we were able to manage our expenses well, which helped to keep the profits flat despite a decline in revenues.

We also saw strong growth in comparable average sale, and an increase in general agency revenue on increased pre-need funeral sales production. For the quarter, comparable funeral revenues declined 2.3% to $350.6 million. Our same-store volumes were down 5.7% in the quarter, worse than we had originally anticipated. Now for the full year, our same-store volumes were down 2.5%, which was generally in line with our original expectations for 2011. In the fourth quarter, our funeral average grew by 2.6%, which takes into account higher trust fund income, and an unfavorable Canadian currency effect. Excluding the currency and trust fund income impacts, we experienced a growth rate of 2.1%. This is especially impressive, considering our cremation mix grew by 210 basis points to 44.7% for the fourth quarter. From a profitability standpoint, comparable funeral profits declined less than $1 million, and the reported margins were relatively flat. We managed our operating costs well in a very soft funeral environment, particularly in the month of December.

Lastly, as I touch upon funeral, I'll talk about pre-need funeral sales production. Again, this is a key element of our long-term strategy, and we continue to see impressive growth. Our comparable pre-need funeral sales production continued to impress by increasing 15% in the fourth quarter of 2011. Now shifting to cemetery operations. Our comparable cemetery revenue increased about $9 million, or 4.9% quarter over quarter. This was mainly attributable to higher recognized revenue associated with new construction property. Also, our trust fund income increased $1.9 million. Our comparable pre-need sales -- and remember pre-need we can drive a lot more than at-need, that's reliant upon the event of death -- that production grew about 1% quarter over quarter. And remember, we're comparing against a very strong fourth quarter of 2010. And so our performance for the quarter, I thought, was actually very good.

And when you compare the first 9 months of 2011, this made a very challenging quarter-over-quarter comparison. And I think, again, that the numbers we rang up, we're very impressed by. So for the year if you step back, our total cemetery pre-need sales production was up nearly $50 million, or 12.3%. I'm really proud of the outstanding efforts of our field management and our sales organization in generating double-digit growth in today's consumer environment. On the revenue growth, cemetery profits grew $4.5 million or 11.6% for the quarter, and our margins increased 130 basis points to 22.7%. Now for some thoughts about 2012. As indicated in our press release, we're affirming our guidance for normalized earnings per share that we provided to you last quarter in the range of $0.66 to $0.74 per share. At the mid-point of our 2012 earnings per share guidance, it represents about an 8% growth over 2011.

Keep in mind there were a few things in 2011 which, you know, aren't repeatable, if you will. And therefore, I think when you think of a more normalized comparison, are actually growing above 10% year over year. So a lot of favorable trends that we believe are going to happen. On some broad assumptions for 2012, we believe that funeral revenues will again be tough to grow. This is because funeral volumes, we believe, will still be challenging, and we're forecasting that to be down low single digits for the entire year. The most effective way to combat this in the future is with growing our backlog. And we expect to focus on that, and to grow pre-need funeral sales in the low to mid single digit range. We believe that our funeral average will continue to grow in the low single digit range, absent currency and trust fund impacts, and this will be in the face of increasing cremation mix, which makes it challenging to continue to grow this number when you combine that with a kind of negative consumer environment.

So how are we going to do it? We're going do it by -- it's going to be driven by refreshed dignity packaging. We've refreshed those packages, we've got new materials, new training. We allow a lot more flexibility in the products that people can select. It's our belief that we're going to be able to grow the number of packages, which will expand consumer spend. We've tested this in main street. It's been very successful, and we'll be rolling this out throughout the year in 2012, both in our metro markets, and in our major markets. In addition to this, we've launched a receptions and events category, if you will. And again, as we've launched this, we've seen consumer spend, putting things that are relevant in front of our consumers, and they're buying them. So we expect that to, again, help our average revenue per case in conjunction with our inflationary prices that we do each year.

So we believe that those things will have a positive effect and allow us, even with a lot of these headwinds to grow the average revenue per case, and be helpful to that funeral revenue line. On the cemetery side, revenues will continue to grow led by a pre-need production, and we believe that growth will be in the mid to high single digit range for 2012, even coming off that 12% growth from last year. So a challenge to our team, but I think we're up for it. Pre-need sales growth will be driven by continued training and development, use of technology, further utilization of our lead management systems, growth in the community service sales arena, as well as expansion of our seminars program on a national basis. The segment margins will be impacted by increased personnel costs, salaries, and health insurance costs. Having said that, these inflationary costs will be somewhat negated by our streamlining initiatives within our supply chain group, as well as leveraging technology in our cemetery administration back office.

As we look ahead, we're very excited about 2012. We expect a growth in earnings and cash flow. We believe that the positive trends in business fundamentals will continue. Look for us to generate steady cash flow to grow our pre-need backlog in a non-capital intensive way, and continue to deploy our free cash flow and capitalize on value-enhancing opportunities, such as strategic acquisitions of the appropriate returns, by returning cash to shareholders through share repurchase and dividends and, on occasion, reducing liquidity risk and managing our debt maturity profile. This concludes my prepared comments. I'll turn the call over to Eric Tanzberger, our Chief Financial Officer.

Good morning, everyone. I'm going to start and talk about 2011, specifically our very favorable results, in which we produced about $280 million in free cash flow, which again, landed at the high end of our guidance range that we discussed in our last call, which was at the end of October. This represents $1.18 of free cash flow per share, and most importantly, a 13.5% growth over 2010's free cash flow per share of $1.04. Again, these numbers are reconciled to the GAAP numbers in the presentation on our web site that Debbie mentioned at the beginning of the call. This robust cash flow continues to be our strength here at SCI, and as we've mentioned many times before, since 2005 -- and again, that's when we developed our current operating platform and embarked on our growth strategy. But since 2005 through the end of 2011, our free cash flow per share has grown at a compounded annual growth rate of about 10%. And we believe this is the compelling story from an investment standpoint, especially in today's tough economic environment.

So this morning, I'm going to walk you through the details of this cash flow, and also touch on the trust fund performance for the quarter and the year, and give you some color on our outlook for 2012. Then, I'm going to also briefly discuss how we deployed this free cash flow in 2011 to grow the company, and again, to enhance shareholder value. So from a cash flow, from a quarterly perspective in the fourth quarter, our cash flow from operations was just under $97 million, and this exceeded the previous guidance that we gave you in October of $75 million to $95 million. It was driven by higher EBITDA and higher cash receipts, and this was partially offset by higher cash interest payments. And the cash interest during the quarter was about $7 million higher than the fourth quarter of last year, and this is really related to timing differences, as a result of the new senior notes that we issued in November of 2010. Maintenance CapEx in our cemetery development CapEx -- and again, we sum those together as the two components that we consider our recurring CapEx. So those two components for the quarter came in a little higher than we expected at about $30 million.

A fair amount of this was related to the completion of some cemetery property projects, which benefited cemetery revenues and earnings in the quarter, as Tom mentioned earlier in the call. When we deduct this recurring capital spending from cash book in ops, we calculate our free cash flow for the fourth quarter to be about $66 million, which is a growth of nearly 13%, or $7.5 million over 2010. Shifting to the full year of 2011, cash flow from ops grew $33 million to about $388 million. The recurring CapEx that you saw in our press release is about $109 million. So the free cash flow, again for the full year of 2011, ended at about $279 million. This compares to $260 million in 2010 and, again, this represents a healthy growth of over 7%, primarily on higher EBITDA and earnings. We're very proud of this growth, and as Tom said, I want to give the credit to all of our associates out in our field operations who really helped to make this happen.

Shifting more to an outlook for 2012 in terms of cash flow, we expect to continue to generate this attractive operating cash flow, and will remain comfortable with the 2012 guidance we discussed in October, and that was $375 million to $425 million of cash flow from operations. The recurring CapEx guidance remains unchanged as well, $95 million to $105 million, which results in anticipated free cash flow in 2012 in a range of $270 million to $330 million. On a per-share basis, this equates to about $1.20 to $1.47 for 2012, and this calculation is used in a fully diluted, weighted average share count of 225 million shares. That's what we are modeling for 2012. At the midpoint of this guidance, which is $1.33 per share, this represents of growth of nearly 13% over our 2011 free cash flow per share. This guidance generally reflects higher anticipated EBITDA that will be somewhat offset by higher cash taxes, but also includes less recurring CapEx, as I just described to you. Speaking of cash taxes, in 2012, we're expecting those to be in a range of $20 million to $30 million. And this compares to cash taxes of approximately $13 million that was spent in 2011. Now when you look beyond 2012, as we continue to utilize our net operating losses, we believe our cash taxes will likely start climbing to a range of about $30 million to $40 million in 2013, and perhaps get to the point where we will become a full cash taxpayer in the 2014 time period.

But again, as we've said before, even when we are a full cash taxpayer, our cash tax rate will still be lower than our effective rate, and the cash tax rate will probably in the range of about 25%, due to temporary differences. Keep in mind, as well, when we're talking about taxes, that our IRS audits disclosed in our filings continue to progress. It is reasonably possible that we could reach some type of conclusion in the near term, which could result in additional non-recurring cash tax payments. But again, as we've said before, nothing that we would expect to affect our liquidity. Shifting to trust funds, we benefited from the favorable trends in the financial markets in the fourth quarter as it relates to our trust fund performance, as you saw in our press release. The total trust fund income that we recognized off of these funds in our income statement for the fourth quarter was just under $26 million, which compared to just over $22 million in the fourth quarter of 2010.

Our guidance for trust fund returns in 2012 remains unchanged, and recall that we're assuming that our consolidated trust fund assets will realize an annual positive return in the low single digit percentage range, and that's what we've built in to our models. As I described at the beginning, let's talk a little bit about the deployment this great free cash flow that we had during the quarter. First of all, we had no meaningful acquisitions, and we didn't do any really debt repurchases in the fourth quarter, but we continued to buy back our outstanding shares. During the fourth quarter, we repurchased just over 5 million shares, for a total investment of just over $50 million. For the full year of 2011, we bought just under 20 million shares for a total investment of $195 million, $196 million. Subsequent to the end of the year, we bought another approximately 1.7 million shares for an investment just over $18 million.

This activity resulted in about $80 million left on our authorization, with approximately 222 million shares outstanding as we speak. And as you probably saw, yesterday we did a press release which announced an increase in our share repurchase capacity by about $120 million, which gives our total current authorization today of $200 million in share repurchase capacity. So great year for us, in summary, for 2011. Again, we generated $280 million in free cash flow. With this cash flow, as well as the cash we have on hand, we directed close to $200 million toward share repurchases, more than $100 million to acquisitions, and growth capital spending, and $45 million to fund our quarterly dividend on an annual basis. Additionally, we refinanced about $45 million of our existing debt from high-yielding bonds to our revolver at lower interest rates. And again, this was while we were maintaining a 3.1 times net debt-to-EBITDA leverage ratio, which we've described before as generally our leverage target.

So when we entered 2012, we entered 2012 financially strong with a very solid balance sheet. We continue to have substantial liquidity, and a great debt maturity profile that positions us well to explore value-enhancing opportunities, as we really have no meaningful debt maturities until October, 2014. We anticipate a 13% growth in free cash flow per share over 2011, and that, again, is at the mid-point of our 2012 guidance. And also the 2012 mid-point represents an 11% to 13% free cash flow yield on our current share price. We remain committed to deploy this free cash flow prudently, and to pursue value-added investments that will grow earnings, and most importantly, cash flow, as well as return value to our shareholders. So operator, that concludes our prepared remarks this morning on the quarter. And now we'll be happy to open it up to investor questions, please.

(Operator Instructions)

The first question will come from the line of John Ransom, Raymond James.

Good morning. A couple things, Eric. If you look at your GAAP earnings and free cash flow, could you break down, just kind of refresh us on what the factors are between GAAP earnings and cash flow? I know you have cash taxes, cash interest, and cemetery and land amortization. But I want to make sure we get all the pieces there. Thanks. And this is for your 2012 guidance.

We really reconciled, John, as you know, from EBITDA. EBITDA was right around $555 million, $560 million for the year. There is two pieces of what you described, non-cash, that above and beyond that you really should add back, and you and I have talked about this, is non-cash stock compensation, which is somewhere around $9 million to $10 million, and also a provision for doubtful accounts, which is also $9 million or $10 million. That kind of gets you to, let's call it around $575 million of EBITDA.

We've told you the $130 million in cash interest. I just described to you the cash tax is about $13 million. And then the difference is working capital. And again, we have a use of working capital consistent with last year of about $45 million on our cash flow statement. Again, that gets to the use of cash as we drive pre-need sales, both on the cemetery side, and the pre-need funeral trust sales, as well. And if you do that math, that's going to get you right around $385 million, $390 million of cash flow from operations on the cash flow statement for the full year.

Okay. Secondly, what's -- maybe this is for Tom. But any update on Neptune?

Neptune's progressing as we had expected it to. I think from a revenue perspective, and from a new home opening perspective, from storefront, that's going really, really well. And as we anticipated, it's going to take a little bit of time to integrate them, put them on our systems, and some of the savings that are associated with that are going to be generated in 2012, and aren't there yet. So, we're very pleased with where we are today. Everything's on track. Excited to have them as part of our team.

Okay. Thirdly, have you noticed any change at all when you look at acquisitions? Are you still able to price those in a way that's accretive to your free cash flow per share?

Absolutely. I mean, I think even beyond that, because we're looking at the internal rate of return versus our weighted average cost of capital. In today's environment, everything's pretty incremental. But we're being selective about who, strategically, and getting the right return for our shareholders.

Yes, we still see the pipeline pretty active out there. I think a lot of anticipation about tax rate changes and capital gains has probably got people thinking a little harder about where they want to be in 2013 and beyond. So, we're out there getting in front of people and, you know, we believe that there will be a healthy pipeline of deals in 2012.

And as I look at the business, a couple things seem like they had changed, and trying to understand if this is a blip, or if this is a shift. First of all, the cremation mix seems to be accelerating higher. The mix shift seems to be happening quicker. Secondly, obviously you've shifted into a higher gear with your cemetery production.

Do you think those two things are kind of tied in to demographics, and the boomers hitting 65, and that's something they think about taking care of? Is there something behind that you would think kind of -- are those related, and do you think there's something kind of bigger behind those two trends that will continue?

I'll try to address -- and again, these are Tom's feelings, so take them for what they're worth. When you think about cremation, it's hard to not imagine that the economic -- we've always said if you look back historically, people don't choose cremation because of hard economic times. I kind of have to believe there's a little bit of that going on because of the creep we've seen in the mix. And particularly as it relates to seniors. You know, with a low interest rate environment, it's not necessarily the jobs environment, it's the fact that my CD pays me 0.2%.

It's really difficult, I think, for people to afford the same level of things that they used to. So, as you're dealing with that, I think that's playing a little bit into the cremation mix, would be my feeling. We're seeing it regionally more on the Atlantic seaboard. It's probably more acute than other parts of the country, just to give you some regional aspect.

Shifting back to cemetery, you say to yourself, with an increased cremation mix, wouldn't you expect less people to be buying cemetery property? I'd tell you that a couple things are happening. One is we've got a great team, and they're generating good leads. We've got great sales force. And I think the training and investment is paying off.

But having said that, when you think about the core customer, the average cemetery customer is in their early 60s. That's when people tend to reach out and transact in that category. And if you look at baby-boomers, the oldest baby-boomer now is in their mid to high 60s. So I think we're hitting the sweet spot in the fact that you have more people ready to hear your conversation, even though more of them are choosing cremation. And I think that's having a positive impact on our ability to sell, as well.

Great. And just my last one, have the funeral volume trends in the fourth quarter, have those kind of trends continued into this first quarter through the first 5 weeks? Are you still seeing down mid-single digits, or has it firmed up some more, what you saw for all of 2012, which would be down 2 to 3?

I think we still -- to answer in reverse, we feel pretty comfortable that 2012's going to be okay. I think there's one important thing to point out. Last year, call it December of 2010 and January of 2011, we saw a pretty big impact as it relates to the numbers of deaths that we tracked back to flu, and tracked back to severe weather. So, even in the first quarter, you'll recall, we had up volume, and that's predominantly because of January and early February.

So, reverse it this year, and we're seeing really almost negligible effect of any kind of flu season. In December alone, to give you an example, we were down about 12%. October and November weren't bad at all, and December fell off the map. I tell you that January, again, has a tough comparable. We're not seeing the crazy numbers we saw in December. But again, you're comparing against a very robust January of 2011. So I think the first quarter could be somewhat challenging, but it's our belief that everything normalizes in 2012, and we'd expect that kind of low single digit decline.

Now when you were a kid, did you ever think you'd be rooting for bad weather and flu as an adult?

Never.

Thanks. Exactly. All right, thanks a lot. That concludes my questions. Thank you.

Okay.

The next question will come from the line of Clint Fendley from Davenport.

Thank you. Good morning, Tom and Eric. Eric, I just wanted to make sure I heard you correctly. Your EPS guidance here assumes a baseline share count of about 225 million shares. And I just was wondering, that seemed a little high, I guess, to me in light of the 1.7 million shares that you had already purchased in January, and I guess also your track record over the past two years. Any thoughts on that?

Yes. First of all, the two numbers I gave you, you're right. Right now, we're about 222 million of shares outstanding. The 225, Clint, is the weighted average diluted shares. So, when you take in options and other factors, that's what gets you to right around, right now, 225 million shares, which we're modeling.

And you're correct in saying we're -- certainly you've seen how we believe in share repurchases, but that's why I'm giving you that insight. The model itself isn't necessarily selecting which free cash flow deployment has the highest return for us in 2012, because what we really would like to do is, as we've been open, is continue our acquisition program. And our acquisition program, the types of acquisitions that we've been able to do, such as what we did in 2011, are very accretive to free cash flow per share, and have very good internal rates of return.

So that would be our first priority, to deploy our capital there. Absent the timing of those acquisitions or the ability to do that in terms of them being available to us at the proper return, then we will continue to take the balanced approach and deploy capital, certainly, at this free cash flow yield associated with buying back our shares itself.

Now realistically, we're big believers in the stock, as you know, as we've proven. And at this free cash flow yield, it's pretty attractive. But we didn't go out, and let's say half of the free cash flow goes to acquisitions or half goes to deployment. We just chose not to take that guess and have the crystal ball. You can certainly model it how you see fit, but that's why we gave you insight into saying the diluted amount on the model is 225 million shares.

Okay. Got it. That makes sense. And, you know, I heard you, Tom, loud and clear. A lot of great color on the revenue growth, just the way you're thinking about it for 2012. The low single digit on the funeral. I just wondered on the general agency line items, and I know that's a smaller part. But it's gone up a little bit over the last couple of quarters. I wondered if that was due to Neptune, and how should we think about that revenue run rate going forward?

A lot of the G&A revenue, Clint, is associated with two things. One, we're growing our pre-need backlog, and we're growing it predominantly through the insurance product. Today we probably write 80% insurance versus 20% trust. So, your mix change is driving G&A.

And secondarily, we're getting better at writing the appropriate style of insurance product. In other words, we're going to get a higher commission on certain types of products. We're trying to drive our sales performance around those characteristics that's going to generate the higher G&A revenue for us. So, the higher rate relative to quality of product, combined with increased throughput as we grow pre-need sales.

Okay. And then last question here, I guess kind of a big picture stepping back, and it's kind of a follow-up to John's question, as well. I mean, we've heard you making a big push in 2012 on pre-need. You feel you're sort of in the sweet spot, at least demographically, especially on the cemetery side. I mean, just any color, maybe specifically, for what these families and these customers are coming to you buying. I mean, are they increasingly interested in cremation niches? I mean, is that a part of the cemetery, at least, that you're having success in selling, or does it represent your success more just, you know, some of the traditional plots and traditional areas of your cemeteries?

Yes, really all of the above. There's no doubt, I think, we're seeing a growth in cremation consumer buying into our cemeteries year- over-year. You know, the sad part is we wish a lot bigger group of them would. I think if you look at the statistics, not a large percentage of people do that. However, year-over-year, the growth is there.

I think we've got the product. I think we do a good job of presenting that. But historically, people have not tended to buy in great numbers into our cemeteries and cremation products. We've had a lot of local successes, and so I think if you look at every category across the country, we're seeing a growth. And that's going to change by demographics, by ethnic tradition, by part of the country.

But I'd say in every category, we're very pleased about the growth, the number of people we're seeing, and again, I don't want to belittle the efforts of our folks. We've worked really hard. We've hired more salespeople. We've generated more leads. Got better lead management systems. We've invested a lot in training. And so I think that, too, has had a major impact on our ability to execute, and grow again at 12.3% on a comparable basis.

When you think about that in this economic and consumer environment, and with the cremation mix change, it truly is extraordinary. I can't say enough good things about it. You can tell I'm pretty excited. So, I think that's going to continue. And I think cremation's going to be a big part of the way we grow. Having said it, it's a small piece today. So, high growth rates on a low base. But we'll keep it coming.

Got it. Thank you guys.

The next question will come from the line of A.J. Rice, Susquehanna.

Hi, everybody. A couple of quick questions if I could ask. First of all, and I may have missed this. I had technical difficulties on the phone. But I wondered if you have the revenue per case trend for the cremation business versus the traditional at-need. Is there a difference in the year-to-year trend on pricing between those two?

Yes, A.J., I think generally this year in particular, if you go back 5 years, cremation has grown at a higher rate within our base group. This year, for the first time I've seen in 4 years, our actual burial average was up higher than cremation. Both of them grew, but we're seeing that average pop up in 2011 over 2010 a little more.

I don't think that's something that necessarily is going to continue. I think it was probably the cumulative effect of the last four years, and how we've done a good job in kind of raising the average spend on the cremation side. So, I would expect that to look good.

Obviously with Neptune coming into the mix, when you throw the Neptune business into our business, that's going to put downward pressure on the overall cremation spin. I think we'll present that for you in a different light, because that consumer, we believe, is a different consumer. So, we'll try to be transparent in what's happening within those two categories, because I do view them as different segments.

Okay. And now when you look at the cemetery business, and obviously pre-need coming back nicely there, as you talked about. If you look at the segments of the market, sort of the high end mausoleums, that type of thing, versus more traditional pre-need cemetery sales, are you seeing or have you seen that high end come back yet, or is that still fairly sluggish?

No, I think the high end has come back rather well. I don't think we're back to 2007 levels. You know, when you think about what the -- maybe the way that it's moved. Having said that, I think year-over-year we've continued to see those opportunities grow. I would say the real bread and butter of our success, though, is about writing more contracts. We're seeing more consumers at every level from a pricing segment perspective. So that's the true reason for our success.

Having said that, I do think the high end is back, and there's people out there willing to spend. I don't know that we ever get back to 2007. A crazy year for a lot of reasons. We're pleased about every segment, and again, I'd say the meat and potatoes of why we're successful is we're hitting every segment and growing the number of people that are selecting properties within our cemeteries.

Okay. And then just on the capital deployment, obviously, I appreciate the comments about the share repurchase. Any update in thinking -- obviously, you declared the regular dividend this quarter. But any update in thinking about the dividend?

Again, I think, A.J., we've got some ratios that we kind of manage within. It's our intent and belief, if things if as we expect them to go, that you can expect us to grow the dividend over time. So that's something we definitely will look at. I think when we look at the levels our stock is trading at today, we still think that's a more favorable deployment of capital, relative to increasing the dividend substantially. But we're committed to growing that year-over-year, and so that's something I'm sure we'll take a look at as the year goes on in 2012.

Okay. All right, thanks a lot.

Thank you.

And the next question will come from the line of Robert Willoughby, Bank of America.

Tom, just a quick question. You've kind of touched on it a bit. Is there an internal view how high that the rate of cremation can ultimately get? We're not talking 100%, obviously, but where's a realistic level for it to kind of level out?

I think when you look at other similar demographics -- and I think we're somewhat unique. But if you look at the UK, you look at Canada, for that matter, you look at Australia, what you tend to see is -- because a lot of these rates have plateaued. And if you believe that trend, what you'll see in the major cities approaching somewhere close to 70%, but when you take into account the more rural market, probably a blended 60%, as you look at those economies. And they've been trading that way for some period of time.

I would say the one difference that we've got is, you know, like somebody said, if you think the US is bad, we're not stopping anybody from leaving the country. But we stop them from coming in. There's still a migration to the United States, and a favorable migration when you look at ethnicity and religion.

So, I think those factors could have a dampening effect on our ability to get to those types of levels. But ultimately, I think, you've got to believe to get there, it's just a matter of how fast is that going to be accomplished. But that's probably our internal belief. And as we've discussed, Bob, as you know, we still view cremation as such a tremendous opportunity.

Right.

Because the gap and spend between cremation and burial in this country is unlike any other we've seen anywhere else. You do not see $4,000 spend differences in these other economies I just mentioned to you. So I think there's a real opportunity to put relevant products and services in front of these cremation consumers, and really drive the average spend in those categories as time goes on. It's not going to be burial spend. But if you can take 40% to 50% of your consumers, and grow that revenue per case at a higher clip, that's going to have a positive impact on what we can do financially.

Okay. With that in mind, is there any change, as you anniversary the Neptune investment, would that ultimately find its way to some funeral comp from a volume perspective, or will it just continue to be in the G&A side of things from a revenue standpoint?

No, you're going to have -- because Neptune really has two components of the revenue. They've got an at-need revenue, which is really the service, the removal upon death and the cremation, which is a smaller piece. And a lot of what they're driving today is on the pre-need side, and that's selling and delivery of product and services ahead of time.

So I think the growth that you're seeing today on the profit side is really going to be driven by that sales activity. Having said that from a volume perspective, they've got a huge backlog. And we'd expect the numbers of deaths that come out of Neptune to grow pretty rapidly over the next few years, because again, the way that they've grown their backlog is very quickly. And a lot of it just hasn't begun to roll out yet.

But that will show up then --

Yes, that will show up in our numbers. Again, we'll talk more about that as that becomes more relevant.

Okay. But a funeral at-need revenue would reflect increasingly some dilution from Neptune flowing through, or will that continue to be separated? I'm thinking more from a disclosure standpoint, Tom.

I from a disclosure standpoint -- again, I can't speak to 10-K, because I'm not versed in it. I think as we communicate with you guys, we're going to talk more about that. Because at the end of the day, those funerals, if you will, once we actually perform them, are going to be, you know, $600 to $700 revenue events.

We're not going to make a bunch of margin on it. Most of the margin is made on the selling side. Having said that, they'll be profitable, and we'll make money. But I think it's important to probably segregate those for you, and let you know what's happening in that arena as it relates to our traditional Core business.

Perfect, perfect. Just a last question. I guess to A.J.'s point on the dividend, you know, if you meet my share repurchase targets, which you appear well en route to, the dividend payout itself as it currently stands stays about flat year-over-year. I guess to your point, it is reasonable to expect that dividend payout to continue to move higher year-over- year?

Yes. I think we do, Bob. You know, again, it depends on what happens, I'd say, in 2012. But it's something we'll address later on in the year at the Board level. Again, we think it's important to pay a reasonable dividend, particularly in today's environment. So, we'll do that.

Again, from a perspective of enhancing the value of the Company, that's probably not something that is first on our list, but we also recognize in today's lower interest rate environment, yield is important, and we think it's a good idea to return some cash to shareholders. We'll consider that later in the year.

Okay, thank you.

Thanks, Robert.

Our next question will come from the line of Duncan Brown with Wells Fargo Securities.

Hey, good morning.

Good morning, Duncan.

On the funeral side you talked about doing a good job of managing operating costs in a difficult volume environment. Anything that you can highlight in particular?

As it relates to the expense side?

That's right.

Yes, I think the number-one category that we can manage -- I forget the percentage, I think 28% of our costs are people costs. And what we've done over time, Duncan, is tried to convert more and more of our high fixed cost nature of the way we operate our business into a variable cost environment. And it's an ongoing effort, and a continuous process improvement for us, because we've given tools to our field management to better utilize these resources.

So I would just tell you, over time we've gotten better and better at it, and we're better at anticipating, when we know the funeral volume's not there, we're utilizing our staffing more effectively. We utilize a lot of part time folks that don't have to come to work if there's not enough work to be done. When you go further and think about the fleet, and you think about central preparations, some of the other things that go on within our business, we can manage those costs down.

In addition, I'd say we've done a really good job on the supply chain side in driving down costs, bidding out a wider variety of things that go into our businesses. And that's having an effect. So, I just think we've gotten better at doing it, and you're seeing a success in the fourth quarter.

That's helpful, thanks. On Neptune, I was wondering if you could quantify the revenue impact on the quarter. I think you said last quarter it was around $14 million.

Yes, I think it's pretty consistent. Maybe slightly higher, was what Neptune generated for us.

So in that general range. And then just last one from me. Is the revolver still drawn?

The revolver has $65 million drawn on it right now, and it's a $500 million facility due in March of 2016.

Got it. Thank you.

Yep.

This concludes the question-and-answer session for today's conference. I would now like to turn the call back to the SCI management team for closing remarks.

Want to thank everybody for participating today. We look forward to talking to you gain in late April with our first-quarter results. Have a great day.

And ladies and gentlemen, this does conclude today's conference. Thank you once again for participating. You may now disconnect, and have a great day.