Service Corporation International (SCI) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2012 Service Corporation International earnings conference call. (Operator Instructions). I'd now like to turn the all over to SCI Management. Please proceed.

Good morning, this is Debbie Young, Director of Investor Relations for SCI. Welcome to our call today as we discuss our first quarter results. Before we begin, let me walk you through our Safe Harbor language.

In our comments today we'll make statements that are not historical facts and are forward-looking. These statements are based on assumptions that we believer 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 see our filings with the SEC at that are available on our website.

Also on the call today we will use the terms normalize EPS and free cash flow, both of these are non-GAAP financial terms. For a reconciliation of normalized EPS to EPS calculated in accordance with GAAP, please see our press release in 8-K that are released yesterday.

For calculations of free cash flow and free cash flow per share, we would refer you to a presentation that is posted on our website under webcasts 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 welcome everyone to the call today. What I'm going to do is start off with an overview of the quarter, then kind of dive into funeral operations and cemetery operations, then hand it over to Eric.

To start it off, I'm very excited to report to you that earnings per share and cash flow performance exceeded our own internal expectations. This was accomplished despite a very challenging comparable funeral volume environment, and I would like to thank my fellow associates for their outstanding efforts in performance.

Normalized earnings per share increased $0.03 to $0.20 for the quarter versus $0.17 in the prior year quarter. While operating improvements generated about a $0.01 worth of growth, the impact of fewer shares outstanding and the foreign currency gain offset by a higher tax rate contributed on a net basis the remaining $0.02 of improvement, resulting overall in the $0.03 or an impressive 17.6% improvement in earnings per share.

This all despite a 4.6% reduction in comparable funeral volume. Free cash flow produced during the quarter was $74 million, this was down from the prior year about some $11 million, as it was impacted by higher cash tax payments and higher annual incentive payments, and long-term incentive compensation payments which were tied to total shareholders returns.

If you exclude these $17 million in payments, we have accounted for and are forecasting, we grew operating cash flow some $6 million, which was better than we had anticipated in our own forecast. With our free cash flow on hand, we continue to be active with our share purchase program during the first quarter, buying back approximately 6.8 million shares for $75 million.

Consolidated funeral revenues grew 3.9% which can be contributable to the contribution from Neptune, the SCI comparable revenues were down slightly. Still, we are able to grow funeral profits almost $1 million even with the challenging volume environment in increased selling compensation expense associated with our growing pre-need funeral production.

Our funeral gross margin percentage declined slightly as high margin comparable revenues were placed by lower margins Neptune and G&A revenues. Consolidated Cemetery revenue grew 4% over the prior year quarter. This growth was driven primarily through strong comparable pre-need cemetery sales growth of 14.1% over the prior year quarter, while at need revenue were slightly lower by some 1% quarter-over-quarter.

Our pre-need production growth was substantially muted when converted to GAAP revenues by two items. First, by an $8.5 million increase in property sales that were undeveloped as compared to the prior year, and therefore deferred into our backlog. Second, a $1.5 million referral of cemetery merchandise sales that were unable to be installed due to certain vendor delivery issues.

By the way, the issue is being fixed as we speak. The good news is that these revenues are simply deferred and will predominantly benefit the last three quarters of 2012. The 4% revenue growth was substantially offset by unusual increases in selling compensation and maintenance costs in our cemetery segment.

We believe that these costs trends should normalize in the coming quarters result in higher gross margin percentages. Now shifting to an overview of the comparable funeral operations, in keeping in mind that this now includes the Keystone property. For the quarter, comparable funeral revenues declined $2 million or a .5%, but was better than what we expected mainly due to higher G&A revenues on the backs of better than anticipated funeral pre-need production.

Funeral volumes continue to be soft, down 4.6%, similar to the levels we saw in the fourth quarter of last year. This was for the most part anticipated in our forecast. Largely offset this softness was a strong increase in the comparable average sale of 3.2% excluding the impact of trust fund income and currency.

We are beginning to see the benefit of the initiatives we have mentioned before that are enhancing the effect of our annual inflationary pricing. First, the refreshed Dignity packaging which is centered around customer choice and flexibility along with the associated training, was in place in over 500 locations during the first quarter of this year and is scheduled to be rolled out entirely during the second quarter and the third quarter of 2012.

The other item that is generating this growth is our receptions and event sales, which include catering. This generated about $2.2 millions in the first quarter and added 60 basis points, or said another way, $31 to our entire funeral average. This has the potential to continue to grow as half of our locations still have not sold a single catering package, and this, too, will improve as the year goes on.

Finally, coming from our digital strategy, our eCommerce floral sales, and these generated some $420,000 in additional revenue which will help grow that average as that matures.

Keep in mind that all this is done, this increase was accomplished, takes into account that our cremation mix grew 90 basis points to 45% in the first quarter. Although revenues declined, we were able to hold comparable funeral profits flat, managed our operating costs well in the soft funeral environment, and an increase in G&A revenue in $3.8 million on increased pre-need funeral production helped to offset associated selling related costs.

Now shifting to our cemetery operations. Comparable cemetery revenue increased about $8.6 million or 5% quarter-over-quarter. This is mainly attributable to the strong pre-need production numbers I mentioned earlier, as well as slightly higher trust fund income.

Although our production numbers exceeded expectations, our recognition rates were a bit lower, so some of the revenue is going to come in future periods, while we bore the selling cost in the current period. Turning to profits.

Our comparable cemetery profits grew $0.5 million or 2% from the quarter. Not a margin we would expect with the revenue growth of $8.6 millions that we reported. So let's break it down.

With $7.7 million in operating revenue growth this quarter, we would expect about a 60% gross margin, and with $900,000 of increasing trust related income growth, we expect about 100% margin on that revenue. Therefore in total, an $8.6 million revenue increase should have delivered about $5.5 million in cemetery profit growth.

So let's explain why $5.5 million is only $0.5 million in this quarter. First of all, as I mentioned previously, we deferred revenues on an incremental $10 million of cemetery production. Remember, I pointed to $8.5 million of property sales that were hung up and deferred, and $1.5 million of merchandise sales.

We had to incur an approximate 20% sales costs in margin now, and that's about $2 million that impacted margins this quarter. When the revenues will come later this year. In addition, we're bearing a higher cost percentage of sales this quarter as a larger portion of sales were property, our most valuable component, and sold by our Community Service teams which is our outside sales, which command a higher cost in our sales structure.

This combined with a transition to a new, more effective sales compensation plan with related roll out costs in the first quarter, resulted in the $2 million in selling compensation. Most of this cost we do not anticipate to reoccur.

Finally, cemetery maintenance expense increased by $1.6 millions in the quarter. This is due in part to the fact that we've experienced in most parts of the country a rather mild weather, which resulted in a seasonally increase in cemetery maintenance activity. This, too, is an issue that we would not expect to have in the coming quarters.

Therefore, as we assume that the $5 million in unusual variances should not reoccur, we would expect a more normalized results in cemetery margins going forward throughout 2012, and that the full year margins would fall somewhere between 19% and 21% range. As we look ahead, we're excited about 2012. As we expect solid growth in both earnings and cash flow per share.

We remain confident in our ability to deliver results that are pushing the upper range of guidance communicated in February. We believe the same trends and business fundamentals will continue, generating steady improvements in cash flow and maintaining significant liquidity, continuing to grow our funeral and cemetery pre-need business and building our backlog.

Well continue to utilize our free cash flow to capitalize on value-enhancing opportunities. All this as we move toward the inevitable favorable demographic impact on this industry and especially for your Company. This concludes my prepared remarks and I'll turn it over to Eric.

Good morning. This morning I'm going walk you through the details of our cash flow and our trust fund performance for the quarter, and I'm also going to briefly discuss how we deployed this free cash flow to enhance shareholder value during the quarter. Starting with cash, operating cash flow in the first quarter as you've seen was before $96 million.

To give you some insight, it was a little over 10% higher than our expectations and going back to Tom's remarks, it's primarily driven by better than expected cemetery production. Compared to the prior year the operating cash flow declined about $12 million, again as expected.

First thing I would say that there is about $10 million more of higher incentive comp payments and that's the same thing we mentioned before, payout's from our short-term plans, as well as payout on our long-term total shareholder return plan as well. We also had higher cash tax variance between cash taxes quarter-over-quarter of about $7.5 million.

Now, we really only paid about $2 million of cash taxes this quarter, and the prior year quarter, but to remind you as I disclosed last year, we had an $8 million tax refund in the prior year quarter related to tax accounting method changes and that's really what's creating that variance, the tax refund that we received last year that we had no such thing this year.

While we're on tax payments, on a forward-looking basis, I want to give you a quick update on the IRS audit. A portion of our 2003 to 2005 audit years was settled late in the first quarter and we're nearing completion on remaining issues under review for this 2003 to 2005 audit years.

At this point, I would anticipate that we would make a payment sometime in the second quarter of approximately $5 million to $6 million, then we'll make an additional payment in the third or fourth quarter this year of approximately $20 million to $25 million related to the complete resolution of these audit years with the IRS.

Upon settlement of this audit, we also expect that it will produce a benefit or a credit to our non-recurring earnings in our tax expense line of approximately $25 million tax benefit or credit through the income statement, both which you saw about $3 million credit this quarter recognized in the tax line and the first quarter of 2012.

Keep in mind that these payments that I just mentioned are not in our cash flow guidance numbers for 2012, and we would expect to treat them as non-recurring items or one-time events which we believe they are. And going back to the cash flow, maintenance CapEx and cemetery development CapEx, which again are the two components that we consider reoccurring CapEx, so during the quarter it was about $1.7 million

lower than the prior year quarter, and $21.7 millions for this quarter which was inline with our expectations. When you deduct this capital spending cash flow from OP, we calculate our free cash flow for the quarter to be about $74 million. Again, although this is down some from last year due to the anticipated cash tax variance and insensitive compensation payments we just mentioned, it is ahead of where we thought we would be at this by about 15% or so.

With, that we remain comfortable with the full year 2012 operating cash flow guidance we discussed in February, which again was $375 million to $425 million on an annual basis. Our reoccurring CapEx guidance remains unclear, and again, that was $95 million to $105 million.

Doing the math, that would result in anticipated free cash flow in 2012 of a range of $270 million to $330 million, which again was our guidance that remains unchanged today. On a per share basis, this guidance equates to $1.22 to $1.49 for 2012 using our fully diluted average weight share count of about 221 million shares that we are currently modeling for 2012.

Also, the 2012 guidance for free cash flow per share represents an 11% to 14% free cash flow yield on our current share price of around $11, very exciting. Additionally on a pro forma basis that assumes we're a full cash taxpayer, which we believe is not until the 2014 to 2015 time frame, but with that our free cash flow per share would still yield low double digit percentages, 10% to 11% range as well.

Turning to trust funds now. Our combined trust fund assets increased by 6.6% during the quarter. The total trust fund income that we recognized on our income statement during the quarter grew about $1.6 million to $26.4 million.

Although our trust fund performance exceeded our expectations in the first quarter, our guidance for trust fund returns for the full year of 2012 remains unchanged, and we're called that we're assuming that our consolidated trust fund assets will realize an annual positive return in the low single digit percentage range. Now let's shift to the free cash flow deployment in the quarter.

We had no meaningful acquisitions or debt repurchases in the first quarter, but we continue to buy back our shares. During the quarter, we repurchased about 6.8 million shares for a total investment of about $75 million, that would average right around $11 per share. Subsequent to the end of the quarter, we bought another 760,000 shares for deployment of about $8.3 million, that's about $10.95, $10.95 per share on average.

As of today, we currently have about $138 million of share repurchase authorization and our current shares outstanding today as we speak are right around 216 million shares outstanding. So to conclude, we believe we continue to be financially strong with a very strong solid balance sheet.

We have substantial liquidity and a great debt maturity profile that positions us well to explore value enhancement opportunities, and again to remind you, we have no meaningful debt maturities until October 2014.

Excitingly, we anticipate a 15% growth approximately, and free cash flow per share over 2011 at the midpoint of our 2012 guidance, so we remain committed to deploy this free cash flow prudently and to pursue value-added investments that will grow our earnings and our cash flow, as well as return in value to our shareholders. So that concludes our prepared remarks for the quarter, and now at this time, Operator, we'll go ahead and open it up to questions.

Thank you. (Operator Instructions). Your first question comes from Robert Willoughby, Bank of America. Please proceed.

Tom or Eric, just the exciting Neptune investment here. Can you give us anacdotally growth metrics what attributed profitablity what synergies might be left to go after in the absence of much other excitement from a growth prospective? That seems to be our focus.

Yes, Bob. This is Tom and we, too, are excited about Neptune, and like we said before this is, we think, a great growth opportunity, albeit a small piece of the entire organization.

I would define Neptune as on track for what we anticipated, so the integration costs are beginning to flow through, but probably not as quickly as initially would have liked to. It's difficult, I think if you look at the reported numbers, Bob, for the first quarter, we probably had profits in the $600,000 to $700,000 range, and that's gross profits, not EBITDA, and that doesn't really tell the whole story.

If you remember, Neptune, there's a couple of pieces here. One is the fact that they're generating business as we speak on their comp business, but remember that we're performing a lot of the outsourcing on their behalf, to the SCI locations are doing removals and have a margin in that business that doesn't get cap tured in the Neptune line item, and I don't have that exact number but that benefit is all ready throwing flew, but won't show up necessarily in the Neptune number.

We think Neptune's margins can expand and expand well for two reasons. One is that we'll continue in utilizing the integration and purchasing power to deliver margins through the expense line item.

And secondary, we continue to grow Neptune by opening new locations in different markets, and I believe we opened in three markets, and we're scheduled to do another three-five markets this year. We think it's going to grow the top line and expand the cash margins of the business as we fully integrate from an operational prospective.

And what is the same store growth rate for Neptune?

I think on a revenue top line, the same store growth rate is probably in the low single digits to mid single digits, and as we open more offices, again, we'd expect to grow that even more.

Okay. And just a question on the trust returns. Obviously, quite an impressive performance there in the latest period, but honeys, it's so strong it makes you wonder what shifts in the portfolio happened. Do we envision more risk in down markets that perhaps you're in some riskier type assets at this point?

Hey, Bob, it's Eric. No, not really. It just performed. We have the same asset allocation that we had before.

As I've said before, we probably have 35 to 40 professional institutional money managers that are managing the money. We don't manage any money at SCI. There is a good amount of equities as well because we've met the asset allocation, it's meant to match the life of the underlying contract which is on average about 10 years, but we just had good performance from our managers.

In most of the cases their did exceed their active benchmarks as well, but nothing unusual in terms of the risk portfolio or changing out managers, or anything along those lines, Bob, I think if you step back a minute and say the S&P returned 12% and bonds were relatively tepid and you take the average, we returned 6.6%. It's about what we would expect with a robust first quarter stock market. April is a little more choppy, but we'll see what the year brings.

All right, that's great. Thank you.

Thank you. Your next question comes from the line of John Ransom of Raymond James. Please proceed.

Hi. Just a couple things. Your mix of pre-need, has that changed materially between trusting and insurance?

Yes it has, John. If you think there's two things happening. From what's going into the pot today, 80% of it is insurance funded, this is just on the funeral side, right? 20% is trust.

You think of what's coming out of the pre-need going at new plots historically has been right around 50/50, starting to shift more towards insurance. As these things mature, we would expect more and more of the perspective to be funded by an ins contract as they go at need. What that will do, that's going to put a little bit of pressure on your trust income.

Remember, trust income is the cumulative effect of trust returns over the life of the contract, so as less contracts mature out of the trust portfolio we expect that to happen, not to be overly concerned because you think about the insurance portfolio, it's more recent business, it's been written at a higher average, so I would expect the average revenue per case to be just fine, but less funeral income to be allocated to the at need revenue. John, you there?

My apologies, John's line has disconnected.

Okay, we can go to the next question then.

Thank you. Your next question comes from the line of Clint Fendley of Davenport. Please proceed.

Thank you. Good morning, Tom, Eric, Debbie. First question, the average revenue per funeral was down for the quarter. I was wondering how we should think about this for the rest of the year as we consider the refreshed Dignity packaging, and also the receptions with the event sales that you mentioned, Tom?

Okay. First of all, Clint, I think the consolidated average was down, not the comparable average, and the reason why I would point you to that is the Neptune activity and the lower case volumes as we shift back to the average as it relates to the comparable business, we actually had good growth, about 3.2% quarter-over-quarter, and I'm not look at sequential.

As I think about the year going on, I think that that type of cliff can be sustained and I'll tell you why. There's a couple of things in place that ought to continue to benefit the average as we go forward. The first one I mentioned was the events in catering category, and there what we're doing is actually selling an additional product to client families, and it's relatively new.

Today we're generating that from probably on average 30% to 40% of our locations. We've got 50% that still hasn't sold it, and again, it's because it's in it's infancy. It will contribute more.

I think the biggest impact on the quarter is going to have do with the refreshed Dignity packages, and remind everybody what we did here is add consumer choice and flexibility. What we're able to do now is offer a variety of products that they can choose from to pick as part of the selection process, in addition we've got substitution as it relates to casket types of products where they can select a variety of caskets where as before they were limited in that choice and doing so, in the first 500 markets we rolled out into, should say 500 locations, we saw tremendous success.

We saw a pick up in Dignity go from 30% to 33%, which had a pretty big impact on the average revenue per says case now we're about to roll that into our metro markets and our major markets, and this would be an additional 1200 locations, that has all ready begun as of the first week of April, and we should be completed sometime towards the end of the third quarter.

As those roll into a larger portion of the markets and a larger case volume, we would expect some momentum as it relates to the average revenue per case because our anticipation is the take up rate will go up as well with the added flexibility with the additional training. So we feel pretty competent that, that trend should continue.

On the event side, when do you expect the remainder of the locations to have the capability to offer the event sales?

They have the capability now. If any of them are listening, I'm sure they're thinking about selling on the calls. What I'm trying to say is, it's new. Like everything, we've developed training and you've got the first people that are out there hitting the beach and they love it.

It's good, and the client's families love it that's why I know this thing is going to work and why it's going to expand throughout our network is the feedback we're getting from the families we serve is over the top. They really enjoy this type of event.

We have the facilities in a lot of places to put it on for them, or we can outsource the facility somewhere else to provide the catering, but this is something that helps provide closure, it's a good way to surround yourself with the families an friends at the end or the beginning of what is one of the toughest weeks of your life. We think this is going to be a big seller, more so than we're even seeing today and you'll see more locations, you'll see locations that are selling a few today that are going to sell more and more on a monthly base basis as they get comfortable with the cater and their performance, and things like that, that I think people are a little apprehensive at first to try.

I think this is the first time I can remember you guys singling out Neptune for its impact on margins and I know you guys have talked about the possibility of expansion, but could you reminded us. Have you expanded Neptune to any additional locations at this point?

Yes. We're actually in six more locations than we were than when we bought Neptune, and what Neptune is going to do and easy to do the math, Neptune is going to grow the margins so there's going to be more gross dollars, but what happens because it's lower margin business, it's going to pull that down slightly, and that's okay. That was part of our plan, right?

We're after dollars, not margins. That's why we're excited about Neptune. Again, I warn people.

This is a great business, we love it, it's going to expand, it's going to growth it's got a great natural growth to it, but at this point in time, it's not a significant portion of our profit, and so it's very important we expect it to grow, but I think quarter-to-quarter, we've got to achieve what we're doing with the Dignity Memorial Network today and we're seeing really good fruits of our labor to both the refreshed packages and also with the catering, and also with the eCommerce flowers. A lot of these things are starting to take root and grow and I think will enhance the margins of the business on the Dignity Memorial Network.

Got it last question here, Eric. If I heard you correctly on the free cash flow, the midpoint of your guidance here of $1.36 is unchanged that, would exclude about $30 million in non-recurring tax payments. I wondered, do the tax credits affect your EPS guidance at all or would these be reflected as a reconciling item going forward?

Good question, Clint. The answer is no. It would be a non-recurring one-time cash tax payment that would not be included in the guidance.

On the EPS side when it's finally done and about a $25 million credit, that would not be apart of the EPS guidance either. It would be considered a one-time reconciling item as well. Remember, these go all the way back to 2003 and 2005, really has nothing do with the ongoing 2012 operations.

Okay, got it. Thank you, guys, nice quarter.

Your next question comes from the line of John Ransom with Raymond James. Please go ahead, John.

I don't know what happened, but just to go back on the insurance versus trust. My point was back to the 20/80 is likely to remain constant in the future is that a steady state?

I think so, at least in the near-term for sure, that's probably the right area for us, John.

And they give you a CPI return, that's what you like about it?

It's not a CPI a fixed number that's associated with the G&A revenue, again, they're interchangeable. Today we're taking a low growth product with more cash up front, which is what we want to do.

Okay, thanks.

Thanks, John.

And your next question comes from the line of Chris Rake of Susquehanna. Please go ahead.

On the pre-need cemetery side, has there been any change in the mix of the properties you're selling? Has there been any sort of movement back towards the high end sort of properties at this point or is this sort of the average is the average?

I think two things. We're seeing increased utilization on the cremation side, the need grows at a higher clip and the part of that is more people are choosing cremation. As far as the components of cemetery, I would say, Chris, that it's really about production. It's about numbers.

We're having some high-end activity, not at levels of 2006 and 2007, so I think that's getting better, but what's generating this is not large sales. What's generating this year-over-year is the fact that we are writing that many more contracts, and that's exciting to me because that's showing these aren't one off. These are more an more people making arrangements and getting in front of our sales folks, and that's a very positive thing for us.

Okay, great. And then one last bigger picture question. On the acquisition environment. Where do you think short of the multiples are right now for the group, and how has that changed sort of over the last 12 months?

I think what we're seeing they're probably inching up a bit, but nothing too dramatic. I think again the multiples are different depending on the type of market. As you go into rural markets you're going get one multiple.

As you go into a competitive, major market with a big business, particularly combos, you're going to see higher. I would say on average, today from a historical based people are wanting to get somewhere in the 7 to 8 range on a historical. Again, for us pro forma pretty quickly, we can make that work really good for us as long as it's in that arena. Would you expect it to go up? Yes.

I think we're seeing more people active, but I also think there's more businesses out there for sales. So we're excited. We think that the pipeline is good. We think the price's so far is remaining reasonable. We'd expect to see some activity in 2012.

Okay, great. Thanks a lot.

And your next question comes from Duncan Brown of Wells Fargo. Please proceed.

Good morning, everybody. Wonder if we could talk about volumes. On the Q4 call, you highlighted that December was the worse month and kind of indicated that January would be a tough month as well. Wonder if that played out. You talk about monthly volumes, if January was bad, you saw pick up in February/March?

Yes, I think what we saw, again, this is comparable, January and February were the worse two months of the quarter. March came back, was much better. It's always hard to tell though because you're comparing against last year's quarters, so if I reverse it on you and say what happened in the first quarter of 2011, we had growth in January, growth in February, and March was bad. A lot of this, you know, plays off of each other, but generally we saw it improving as we got to the end of the quarter of March.

Okay. Appreciate that. I wonder if you could maybe go back to give some color around the unusual increases in selling comp on the cemetery side. I think I followed all of that, but wasn't sure why you didn't expect it to be reoccurring going forward?

Two things. One is, $2 million related to what I'll call deferred sales. We sold $8.5 million worth of property that has not been constructed and we sold $1.5 million worth of merchandise that could not be delivered or put in place, so there's $10 million of revenue that's from a way you look at your business, you say I told $10 million of revenue.

Accounting rules say, no, you can't recognize it yet, and we know we're going to get to recognize it in the coming months. Unfortunately, the accounting rules also say, when you sell it, you expense the selling costs, so we had $2 million of selling cost that hit our expense line where the revenue hasn't come through yet. Think about $2 million of that is just sitting there that the revenue is not there with, so I don't expect that to reoccur as quarters go on.

The second piece really relates to the fact we switched our sales compensation program. We changed the way that we do it. We believe it's going to be a more effective cost efficient way of selling. And I guess the simple way I would say this is, we're going from a salary plan to one that's more like a draw plan.

Again, would allow people to not be as productive and to maintaining those positions. By a draw plan, you're drawing against future commissions which inscent people to continue to sell. On that switch over from one plan to another, we incurred some costs and that occurred in the first quarter.

We know those costs aren't going to reoccur. The costs should be more cost efficient as you compare back against future quarters. There's $4 million I just identified that in my opinion, we shouldn't see again as the year goes on or in future years.

Okay, that's helpful. So the part two, the increase costs was actually due to switching it, not due to an expectation of higher sales comp going forward is that correct?

That's correct. There's some other little bit of costs that relates to where we sold it and what type it is. Understand that we compensate more for properties than we do for merchandise and services because we value the property more.

There's a legacy issue, if you will, an adjacent issue. I buy property, then my brother may want to buy next to me, so property is very, very important as it relates to the scarcity of it. We inscent more to sell property. If you look at the mix that we sold, we sold an inordinate amount of property as it relates to merchandise and services in the quarter. We have two sales organization.

One we call community service, which the people on the outside of the industry would be outside sales, so they're generating leads away from our properties. Then there's the family services which is more inside sales and they're getting most of their leads from our property, so we pay more on average for a community service sales that's generate add way from our property, so those two things that the growth came from community service and that it was property-related will result in a slightly higher percentage cost as you grow the cemetery business.

Appreciate all of that explanation. I guess one of the other takeaways or the other question is, so the property versus merchandise in your opinion was that, that mix was unusual in this quarter, not something to continue going forward?

Well, I would expect that we can sell property at a higher clip than merchandise, but probably not as action as you saw in this quarter. It's pretty severe as it relates to historical because we grew about 14% and almost all of that was driven by property.

Got it, that's helpful. One last one for me. Is it still $65 million now on the revolver.

Yes.

Thanks.

Thank you. I'd now like to turn the call back over to SCI Management.

We'd like to thank everybody for participating on the call today. We look forward to seeing you again sometime in late July to report our second quarter earnings. Have a great week.

Thank you for your participation in today's conference.