Service Corporation International (SCI) 2012 Q2 法說會逐字稿

Hello and welcome to the Q2 2012 Service Corporation International earnings conference call . My name is [Myesha], and I will be the operator for today's call . (Operator Instructions). I would like to turn the call over to the SCI senior management. You may begin.

Good morning, this is Debbie Young, Director of Investor Relations for SCI . Thank you for joining us today as we talk about our second quarter results .

Our comments today will make statements that are not historical fact and are forward-looking. These statements are based on assumptions that 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 see our filings with the SEC that are available on our website. Also, today on the call, we will use terms "normalized EPS", "adjusted operating cash flow", and "(Inaudible) cash flow", all of which are non-GAAP financial terms. For reconciliation of these terms to the appropriate measures calculated in accordance with GAAP, please see our press release (Inaudible) yesterday . We have also posted a presentation on our website containing each of these non-GAAP reconciliations, and you can find that presentation on our website under the subheading, "Webcasts and Presentations".

With that, we'll begin with remark from Tom Ryan, SCI's President and CEO .

Thanks, Debbie, and welcome everybody to the call. I'm very excited to report to you a sold quarter with significant increases in both funeral and cemetery profits, and an impressive 20% growth in normalized earning per share that exceeded both external, as well as our own internal expectations . Our team really performed, particularly our sales force, who delivered double-digit growth in our preneed cemetery sales production for the sixth time in the last seven quarters . Based on our performance through the first six months, we are increasing our full year 2012 outlook for normalized earnings per share, and free cash flow, which I will talk about more later in my remarks .

Now for an overview for the quarter . Our normalized earnings per share increased $.03 to $.18, versus $.15 in the prior year quarter. Most of this increase came from operating earnings growth from preneed cemetery sales production growth, combined with operating efficiency, as the impact of fewer shares helped offset the G&A expenses, as well as the $2 million foreign currency loss.

Free cash flow produced during the quarter was $42 million, which was up slightly from the last year. We continued to be active buyers of our stock during the second quarter, and we also completed two acquisitions, which added six funeral homes to our network in the San Diego market as well as the province of British Columbia.

Consolidated revenues grew $20.6 million. Increased revenues from our acquisition of Neptune, solid growth in the average revenue per funeral, and strong cemetery performance were partially offset by lower funeral case volumes. Consolidated profits grew $13.2 million on the higher revenues, and gross margin improved 160 basis points to 21.5%. We did an excellent job at managing costs in both segments, and I want to thank our teams in the field for their leadership, particularly in light of the challenging funeral volume environment.

Now for an overview of comparable funeral operations. For the quarter, comparable funeral revenues declined about $2 million, or around 0.5%. Funeral volumes continued to be soft, they were down 2.9% for the quarter. On a year-to-date basis, same store volumes are down 3.7%, which is generally in line with our forecast.

We have modeled our comps to get easier in the back half of the year, resulting in volume for the year down in the low single-digit percentage range -- probably somewhere between 2% and 3%. Partially offsetting this softness was a solid increase in comparable average sales, 3.1%, excluding the impact of trust fund income and currency. This was consistent with the growth we experienced in the first quarter. Keep in mind, this increase also takes into account that our cremation mix grew by 80 basis points to 45%.

We are continuing to see the positive impact from initiatives we have mentioned before that are enhancing the effect of our inflationary pricing. First and foremost, the Refresh Dignity packaging is centered around the consumer choice -- better consumer choice -- and flexibility, and the associated training that goes along with it, is now in place in approximately 900 locations, and is scheduled to be rolled out to all locations by the end of September.

In addition, our recessions and event sales, otherwise referred to as catering, added a little more than $3 million in the second quarter, or about $50 to total comparable funeral average. Not only is that affecting our atneed average, but we're seeing success from this initiative on the preneed front as well. During the second quarter, we sold $1.3 million of [processions] and event sales that will go into the backlog and benefit future quarters.

Finally, within our digital strategy, we initiated the e-commerce floral sales, and again those continued to grow, and generated about $475,000 of profit in the second quarter. We expect all these initiatives to continue to gain traction the second half of the year. Despite the decline in revenues, we were able to generate an impressive growth in our profits. Profits grew $5.5 million, or 7.4%, and our gross margin percentage improved 160 basis points as we were able to enhance the efficiency of our labor, (Inaudible) process, as well as our energy costs.

Preneed funeral sales were down 3% for the quarter, coming off of a very strong first quarter number, and also compared against a very strong quarter last year. Preneed funeral sales production year-to-date is up 6.2%. Because the back half of 2011 was very strong, we're expecting more modest increases in the back half of 2012. This should result in a full-year performance in line with our original guidance of low- to mid-single digit increase.

Now switching over to cemetery operations. Comparable cemetery revenue increased $12 million, or 6.4%, quarter-over-quarter. Growth is mainly attributable to strong preneed production efforts, which grew by 14.5% over the prior year quarter. Our sales team has continued to deliver excellent results. Year-to-date, preneed cemetery production is up more than 14%, which is higher than we would have anticipated. For the back half of the year, expect cemetery preneed sales to grow in the mid-single digit percentage range, which will result in a mid-high single digit percentage increase for the year, as we have previously guided.

Comparable cemetery profits grew $7.3 million, or 18.5% for the quarter. This profit growth of $7.3 million approximates a 60% gross margin, which is what we would expect on the growth and operating revenue. Recall that in the first quarter, we experienced a number of unusual variances that reduced cemetery gross margin percentage. We told you that we would expect a more normalized margin going forward throughout 2012, and we are truly seeing that here in the second quarter. We believe that the full-year margins will land within the 20% to 21% range in cemetery.

While it was a very strong quarter for cemetery gross profit, it was an even better one operationally, as we grew production by $18.5 million and reported sales of just $12 million. This backlog build will benefit profits in future quarters.

In conclusion, we are pleased with our performance in the quarter and the first half of the year, and as a result, are increasing our outlook for fiscal 2012. Our previous range for normalized earnings per share was $0.66 to $0.74. We now believe we will finish in the range of $0.70 to $0.75, which increases the midpoint of the guidance by $0.025. We are also increasing the midpoint of our free cash flow outlook, which Eric will talk about a little bit later. As we look ahead to the back of 2012, we are generally very optimistic about finishing the year on a high note.

The cash flow characteristics of the business remain strong, and we plan to continue to grow our preneed business, building our backlog, which requires very little capital. That allows us to capitalize on value-enhancing opportunities, utilizing our current capital deployment priorities. First, reinvesting in our core strategies in high-return, low-risk projects. Secondly, investing in strategic acquisitions in new builds at the appropriate returns. Third, returning value to our shareholders through share repurchases and a strategy of increasing our dividend over time. And lastly, managing our debt and liquidity profile by managing cash levels, credit facility availability, and near-term debt maturities to minimize our risk.

This concludes my prepared comments. I'll now turn the call over to Eric.

Good morning, everyone. This morning, I'm going to walk you through our thoughts on the cash flow result that we had for the quarter, and also give you a little bit of insight into our opinion on the second half of the year. I'll also briefly talk about our trust fund performance and GA expenses, and I'll end with some comments about the free cash flow deployment that we had during the quarter.

The start-in with GAAP operating cash flow in the second quarter was down about $4.9 million from the prior year quarter. However, included in this amount in the current quarter was an expected cash tax payment of $6.6 million. This was related to the settlement of certain IRS matters from prior periods, and I talked about that on the last quarter's call. And keep in mind, we consider this tax payment as usual, unusual, and it is not included in our cash flow guidance.

We also paid some modest amounts in terms of system and process costs, which is related to the implementation of a new purchase order system at SCI, and also the transition to new outsourced providers for certain accounting functions that we have, all of which will not recur after 2012. So, isolating these items I just mentioned, our adjusted operating cash flow grew just under $2 million in the quarter. You can see this detailed reconciliation of this amount in our press release, and it's also on slides on our website as well.

The higher EBITDA was generally offset by timing differences in working capital, mostly related to the timing of cash receipts from our trust funds during the quarter, which is about a $10 million timing difference. We would expect better working capital inflows in the second half of the year, as we believe this is just timing of the trust cash receipts.

Cash interest for the quarter was $62.5 million, and our cash taxes were $6.5 million, when you exclude the $s6.6 million IRS audit payment I just mentioned. Both of these were consistent with our expectations. Speaking of cash taxes specifically, we originally discussed a range of $20 to $30 million in recurring cash taxes for the full year 2012. Now we believe this will be more like $15 to 20 million of recurring cash taxes in 2012.

Going back to the cash flow statement, our maintenance CapEx and cemetery development CapEx -- and again these are the two components that we consider our recurring CapEx -- these amounts in the quarter were $1 million lower than the prior year quarter, at $27.6 million, and this also was in line with our expectation. When you deduct these recurring capital spending items from the adjusting cash flow from ops, we calculated our free cash flow for the second quarter to be $42 million. This is a great result, it was an increase of nearly $3 million, or 7% over the prior year quarter.

When we look ahead for the full year 2012, we are revising upward our operating cash flow guidance range from $375 to $425 million, to now $390 to $425 million, so this increase -- increases the low end of the range by $15 million. It also raises the midpoint of the range by approximately $8 million. This is consistent with our expectations of the operating growth we're expecting for the rest of the year, and also consistent with the revised earnings guidance mentioned by Tom a few moments ago.

Our recurring CapEx guidance remains unchanged at $95 to $105 million, and this results in anticipated free cash flow range for 2012 of $285 to $330 million, or a midpoint now of $307.5 million. On a per-share basis, this range equates to $1.30 to $1.50 of free cash flow per share for 2012, and this is used in a fully-diluted weighted average share count of 220 million shares that we are currently modeling now for 2012. On these per-share amounts, the free cash flow per share yield is in the low double digit percentage range, using a current stock price of about $12.50.

G&A expenses were just under $30 million during the quarter. This is higher than our expectations, mainly due to higher incentive compensation costs, which relate to the performance units component of our long-term incentive compensation plan that is tied to total shareholder return relative to public company peer group. And as you know, our share prices increased during the quarter, which has resulted in an increase to accruals under this plan.

[Now] our combined trust fund assets decreased 1.1% during the quarter, but they're still up 5.4% for the first six months of 2012. Total trust fund income recognized in the income statement for the quarter declined $1.9 million, now at an amount that's $25.2 million for the quarter. But recall in the prior year quarter, we had a one-time distribution of $3 million from an alternative investment that was included in trust fund income in the prior year quarter.

Now let's turn to deployment of our free cash flow. During the quarter, we continued to buy back our shares. We repurchased 2.6 million shares, for a total investment of [$29.6 million], which brings our total year-to-date repurchases to just under [$103 million]. This nearly doubles the shares that we repurchased last year through the first six months, and as of today, we currently have [$117 million] of repurchase authorization and our current shares outstanding are just over [$215 million].

We had no debt repurchases during the quarter, but we did invest about $10 million, closed on two acquisitions, we drew $7 million on our credit facility during the quarter, so we ended the quarter with $72 million in total drawn on our revolver, with just under $400 million of availability on our credit facility when you take into account the roughly $33 million of letters of credit that the facility supports.

So in conclusion, we are pleased with our performance in the first half. We're very excited about the remainder of 2012 as well. Our healthy cash flow, coupled with the strong balance sheet with great liquidity, gives us significant financial flexibility for the remainder of 2012. We remain committed to deploy our strong free cash flow prudently and to pursue value-added investments that will grow earnings and cash flow, as well as continue to return value to our shareholders.

So with that, Operator, that concludes our prepared remarks. Now we're ready to turn the call over to questions, please.

Thank you. (Operator instructions). Our first question is from A.J. Rice with UBS, please go ahead with your question.

Thanks. Hi everybody, maybe a couple of questions if I could ask. First of all, this is primarily detail, but I just want to make sure. So, you had to a $2.2 million pre-tax impact from this new purchase order system, and so forth, that you are putting in place. That is back out to get to the $0.18, right, I believe?

That is correct, A.J., that will not recur after 2012, but there is probably another $4 to $5 million of expense the back half of 2012 related to us, both the purchase order system that we are putting at the funeral homes and cemeteries, coupled with a change in our outsource provider of all our accounting functions as well.

Right, and then there is also reference to another $2.2 million related to a settlement -- liability settlement in the [FX] impact between Canada and US. Now, is that backed out as well, or how -- what is that and how should we (Inaudible)?

That is a recurring note that we have, an intercompany note that is put in for some tax planning purposes between Canada and the United States. [It's down in other income, and the [FX] component goes through other income currently. The reason why we mentioned that, is because last quarter it was about a $3 million positive, this quarter it was somewhat offset as a $2 million, $2.5 million negative. But, no, that is an ongoing notes that will exist over time, versus this specific purchase order and accounting process change that we're making during 2012.

I got it, okay. All right, and then just stepping back maybe a little bit. Obviously the numbers on cemetery preneed production are very good, it's -- I guess I'd just love your perspective on whether you believe that is some catch up on some weakness we had coming out of the down turn, or is this sort of a steady -- is this a rate of growth that we might be able to anticipate sustaining for a while?

A.J., this is Tom. I think on the cemetery side it's a combination of both, probably more the latter, in the sense that we believe we're selling more cemetery for a variety of reasons. First, I would say that the baby boomer population is the right age that they're in front of us today, so we got more people to basically make, you know, generate leads and make sales processes too. So, we are seeing a healthy amount of people that are in front of our sales force. That can [vary] when you think about a cemetery -- it's less a homogenous product than a funeral -- the differential in pricing is dramatic. The part of the increase too, I would attribute to the high end buyer coming back. You're comparing against some periods where you didn't get a [dearth] of high end sales, and now you are beginning to see a little -- more and more of that. So, those things are probably generating the most. The other thing about cemetery is because you don't see a lot of new competition entering markets, it's so hard to get permitted to open a new cemetery -- the capital permit's are so hard. You probably don't see as much pricing pressure as you would see, let's say, on the funeral side. So, all of those things kind of come together to allow us to grow that thing at a very healthy clip. I would tell you that on the preneed side, 14% is probably not a sustainable level. Our modeling, internally, was in the mid, high single digits, and I think that's sustainable.

Right, and so, when you reference in your press release completion of construction projects as one of the boosters to cemetery, is that the high end market that you are referring to there?

No, a lot of that is just when we're selling certain property whether it be a lawn crypt garden, or whether it be a mausoleum, (Inaudible) the completion of that construction, period. They have already pre-sold a lot of those, and the accounting doesn't allow you to recognize it until it's finished. That really is what that is. I think the important thing to understand though -- because -- I want to point out two things. We did complete more construction projects and generate revenues from that in this quarter than we did in the prior year quarter. At the same time, we sold a lot more than we recognize, so we're continuing to build that backlog, and so, future periods are going to benefit from a lot of the sales that are still yet to be constructed, or need 10% down payment. So, that is an important fact to understand, is that quarter-over-quarter there is more construction, at the same time, we actually deferred more into the backlog than we did in the prior year quarter.

Okay, I got that, and maybe one last question. On your acquisitions you referenced two deals for the quarter and just maybe comment on what you're seeing out there at this point.

I think we're again continuing to see a level of activity of interest being generated probably, again, by some of the uncertainty surrounding tax policy. So, that's the good news. I think the other side is it's probably a little bit more competitive -- you know, we're seeing more buyers out there and, therefore, not all deals end up in our lap, but we're staying disciplined about our pricing dynamics, and still optimistic about the back half of the year, and being able to close a decent amount of deals.

All right .

And to the extent we don't, again, we still see our share repurchase program as a great alternative.

Alright, great. Thanks a lot.

Thank you . Our next question is from Robert Willy with Bank of America . Please go ahead with your question.

A related question, I guess, on the strength of the preneed cemetery sales, here. You have obviously have done exceptionally well, and it sounds like this maybe part of a new world order with the market -- the baby boomers working your way. I guess my question would be, you know, what are you assuming for trust fund returns for the back half of the year -- you're obviously outperforming my own personal portfolio, but would that preneed cemetery business be so strong as to offset any potential market disaster, do you think, in the back half of the year?

I would say we are modeling very, very conservative performance in the back half of the year.

For the trust, and you know, if you were 5% below that, do you think that preneed cemetery business -- is that strong enough to kind of maintain a growth rate -- that growth trajectory that you are on?

I think so, Bob, there's lots of variables, but -- (Multiple Speakers) Yes, we feel pretty good that we could withstand a tough back half of the year. A catastrophic one might be different, but I think, yes, a little market erosion isn't going to hurt our ability to generate that number.

Okay, and just --- you may have mentioned it, Tom, Eric, I didn't hear it --- just thoughts on the dividend (Inaudible) to share buy backs exceptional, or is it time to revisit the dividend?

Well, we --- as far as share buybacks go, again, we measure the value based up on the yield, the cash flow yield that the stock is generating. And as far as dividend policy goes, as long as our shares -- we believe -- are undervalued relative to what we think it is, we're going to continue to do share repurchase. At the same time, our strategy is to grow the dividend over time. So, since we just initiated a higher dividend that's going to paid in a couple of days, the $0.06 a quarter, we probably would revisit that for another year or so in looking out in the future.

That is fine. Thank you.

Our next question is from Clint Fendley with Davenport. Please go ahead with your question.

Thank you. Good morning Tom, Eric, and Debbie. Just wondering quickly on the $2.2 million in cost for the new purchase order system, I wanted to revisit that a second. So it sounds like the implementation will continue through the second half, and that the additional $4 million to $5 million in expenses would also be pro formaed like they were this quarter. I'm wondering, are there any efficiency gains that we should expect for 2013 from the new system?

Yes. We're not really -- we never really give guidance that specific, and certainly we don't give guidance ahead in 2013 that much, Clint. But I can tell you these are projects we're excited about. They bring a lot of efficiencies. We think of this as an investment that has a return to it. And the return well exceeds our cost of capital, and it's a good investment for us. But we wouldn't do it otherwise, as well. But you are correct in also saying that it will continue the rest half of the year to a tune of $4 million or $5 million. But we should get all of this done this year, and then start reaping the benefits of the returns in 2013.

And Clint, I think what's important to point out here is there's two separate projects. One we call Source to Pay, which is really a purchasing project. And then there's a finance and accounting transition project, which is really the outsourcing of a lot of F&A functions internally. The reason we separated these out -- is because it seems unusual somewhat -- is they are really kind of transformational projects as it relates to the way that we do things. And to Eric's point, they have a tremendous payoff potential as we think about internal rates return on spending this money. And so therefore, we separated them out for you guys to see. And to Eric's point, these have significant cash payback very quick once they're implemented in. That's really why we're highlighting them and showing them to you, in that they ought to generate significant returns.

Got it, okay, that's helpful. And one last question here. Just wondering, the increase in cremation rate seems to have slowed down a bit for you guys. And I know you continue to blow it out on the preneed cemetery, and we've talked a bit this morning about the boomers, and they've been a demographic that historically has always changed the way that products and services are bought. And I'm just wondering, are you beginning to see any type of evidence that, as a group, that they're choosing cremation? That, as they choose cremation, that they're increasingly interested in cemetery products as well? I mean any sort of takeaways just from the way that they're viewing your service offerings here?

I think the better way to say it is, yes, they're choosing cremation more, and you're seeing that in the numbers. And remember, when you talking about atneed on the funeral side, or even preneed on the funeral side, you're talking above age in the low 70s and above. The preneed cemetery customer is slightly different. The average age here is about 62 years old. And so here's my opinion, and again, just Tom's opinion about what's happening. They aren't necessarily -- they're continuing to choose cremation just like we would expect. At the same time, the pool of people is so much larger that as that large pool of people come through the pipeline, even though they're still likely to choose cremation in a growing percentage, the pool's so big, there's more people to sell cemetery property to. And that trend, based on demographics, it ought to continue for another 20, 25 years. As we look at the cemetery business, sure there will be more cremation, we're going to try to point more cremation customers into our cemeteries. And I think there's some evidence that we could do that. But we're not seeing that in any significant way, yet. At the same time, the customers ought to keep coming just because of the demographic that we're dealing with.

Got it. Okay, thank you, guys .

Our next question is from Chris Rigg with Susquehanna. Please go ahead with your question.

Good morning, thanks for taking my question. Can you help -- can you quantify how much of the cemetery increase was from -- the revenue increase was from completion of the construction projects?

Yes, I think -- and again I think what's important to understand here, Chris, because it's a little deceiving, and it's just hard to explain it -- I think the revenues associated, and I'm speaking a little bit from memory here, with completed construction projects approximated $9 million -- does that sound right, Eric? -- versus, let's say, a prior year of two or three. And what's deceiving about that is that those are the completed sales in those projects that received 10% down. So what's kind of weird about this, it's really when you completed it, how much you have sold -- obviously, there's more to be sold than a lot of these projects, too. So that's what makes that a bit unusual, but Eric's nodding his head that those numbers are about right.

What I was trying to say is, you still had, we had an increase of $18.5 million in sales production. And we recognized an increase of $12 million quarter-over-quarter in the GAAP statements. So again, even though we did have $9 million in the quarter and it's more than we had in the last quarter, that backlog get bigger, not smaller. So those will roll off and get constructed over the next three to 24 months, depending on where the project is and what happens. So I don't view the $9 million as something unusual or not achievable again in some form or fashion. Because again, it's the $9 million is only a symptom of when it gets constructed and what you (Inaudible).

Sure, but would you think the $9 million in this quarter is sort of the high-water mark, though, in terms in 2012 in terms of a (Inaudible) of revenue coming on in one particular quarter?

(Multiple Speakers). Yes, I think that's true. I think that's true that the $9 million construction all flowing in is a big number, it isn't one you'd expect to recur in any individual quarter, correct.

Okay, great, and then on the funeral margins, I mean obviously, they were very strong. Can you give us a better sense for some of the cost management initiatives, just better detail around how you're actually bringing on the expense there?

Yes, on the funeral side, I would categorize them a couple different ways. Probably the least impactful is energy costs. We've done some things internally with investment equipment to manage our energy costs better, predominately utilities. You've also seen natural gas prices come down, and therefore electricity prices come down, that's probably the least impactful. The other ones are we've really gotten better over time at managing staffing costs. And a lot of this is utilizing models and technology that allow us to utilize part-time and full-time employees more efficiently, more effectively. And that's allowed us to basically mute the cost quarter-over-quarter, and we haven't really seen any increases because of the way that we're managing our staffing costs.

And lastly, (Inaudible) around the selling cost of what we do. We've invested money in tools again that allow us to manage leads more effectively. And therefore, when you think about lead generation cost, they're becoming more efficient as we're able to retain those leads, manage those leads better with a better trained sales force. And so we're seeing lead generation costs come down as a percentage of what we sell, and even in the raw dollars quarter-over-quarter. The other thing, Chris, just back to the cemetery to make sure (Inaudible) for everybody. Think about it this way, while the $9 million won't repeat, you completed a lot of projects that you used to sell in selling the backlog. The same projects still exist, and they're still going to be sold every day, and now they're going to get recognized. And so therefore, they won't show up as a flip of construction, but you have more constructed inventory to sell, and therefore, recognize it more quickly. So don't think of the $9 million as a complete comparison. Think of it now that you have more readily recognizable inventory to sell. And so I don't want to appear like there's a big hurdle to overcome, but that's not the way this thing works.

I appreciate the color, and then the last question I have is on the G&A. You said it came in a little bit higher because of some incentive compensation in the quarter. Can -- can -- how do those restricted stock units or -- I forget exactly how you described them -- how do those come into the expense line? Is it simply based on whether the stock moves X amount in a given quarter? Or is that amount in this quarter simply something that will also be spread across the latter two quarters of this year?

The way it works is this. The component that Eric was referring to is that we have three levels of currency. We have stock options, which are pretty predictable, restricted shares, they are pretty predictable, and then we have one called performance unit. And a performance unit is the cash payout that happens after a three year period. So what you're doing is you're comparing your total shareholder return to a peer group -- in our case, of about 90 companies -- and your relative rank within that peer group determines the cash payout at the end of the period. So what's happened is, because our stock price ran up relative to the market very well during particularly the month of June, and we'll continue to see that in July, we've had to catch up the accrual because the payment will go up. It's completely tied to total shareholder's return here through the peer group. And so because, as an example, the market tanked in the second quarter, SCI went up I think by some 10%. So the relative performance boosted us to the top (Inaudible), if you will, of stock performance over the last three years.

Okay, thanks a lot, guys.

Our next question is from Nick Jansen with Raymond James and Associates. Please go ahead with your question.

Good morning, guys. Just two quick ones, on the funeral performed obviously saw a little bit of improvement sequentially, and I know you have easier comps in the back have of the year. What are you seeing on the just the atneed trends right now?

You mean atneed trends as far as what the consumer is buying?

Both consumer buying and just the death rate in general. What gives you confidence that we'll not have, even with easier comps in the back half of the year, that we won't still have down 3% range?

Right, yes, I don't think we have --- I wish I could give you a lot of confidence, but I can't, because I can't predict the numbers of death that are going to occur. The reason why we feel a little bit better is exactly what you said in the beginning. If you go back to 2011, we had a very, very strong first half of the year. We actually in the first quarter had up-comparable volume. But we knew it was going to be a tough comp, when you think about the seasonality of the business. The second half of the year wasn't very strong in 2011, and therefore on a comparable basis, we feel better about being able to achieve that. So, that's really the philosophy behind, you know, when we talk about the back half of the year and easier comps, but we really don't know what's going to happen. Now, from a pricing or from a average revenue spend perspective, we feel pretty good. Because, again we've got these three initiatives that are out there. One we're rolling out the (Inaudible) Dignity packages, which are centered around consumer choice and flexibility, which again ties to being relevant to the consumer. We've also rolled out this reception and events, which is a catering type product, an additional new revenue strength. And that again is a profitable one for us. Client satisfaction is good, and we're seeing a real uptake in that. Lastly is selling flowers to friends and family through the internet. And so those three things are driving average spend, and we feel confident that they'll continue to grow over the back half of the year and afford us the opportunity to go beyond inflationary pricing as it relates to average revenue per-spend.

That's helpful, and I apologies if I missed the first part of the call, but obviously there's been a lot of noise on kind of the wiggle front in certain locations. I just wasn't sure if you guys are wanting to comment on any of those developments? Thanks.

On legal description in the back of our (Inaudible), talk about? We had lawsuits from time to time, as you know. I categorized two that are out there that we talked about. We got the wage and hour stuff, which again I think is unfortunate that we've got to deal with this again. We believe we've been compliant in all those areas. Those lawsuits are described in the back, and we feel confident about our ability to defend ourselves. And then we've had the situation out in LA, California, with a specific law firm that's filed a lawsuit there, they've also filed a lawsuit in Florida. And again, we'll defend ourselves. We believe again, we've done everything right. You know, if you go to the California case, I think it's described there. This wouldn't even be a case if we didn't come forward. This was a situation where we uncovered, through inquires, some potential burial issues on three or four folks. We brought those forward, we contacted families, did all the right things, and again this trial attorney wouldn't have a case if we weren't doing the right thing. So we feel confident about our ability to defend that. We don't believe that the allegations in the suit are valid. And we're going to defend them (Inaudible).

That's very helpful. Then lastly, you know obviously, you're predicting a pretty good cash-flow in the back half of the year -- I know there were some timing issues in the second quarter -- but if [M&A] isn't available, I know you guys are hopeful that you'll be a little bit more active on that front in the back half of the year. Is buy backs the most likely use of that cash, or how should we think about that, just letting is on the balance sheet, so any thoughts on that would be helpful.

(Inaudible) on the balance sheet, yes, we believe the shares are -- will be the primary use of the free cash-flow deployment, second to the acquisition pipeline that we hope we continue to build momentum in.

And the velocity of that is dependent upon the private share price. I mean, again we've got an opinion about what's cheap and what's really cheap, and that's the way we buy back shares.

Thanks, great quarter, guys.

Our next question is from Duncan Brown with Wells Fargo. Please go ahead with your question.

Hey, good morning. Wondering if you could, on the reception and events and the catering, I think you said it was a $3 million contribution in the quarter. Is that -- has that -- have those services been rolled out to all of your sites yet, or are there still more to go, there?

I'm glad you brought that up. The -- it is available to just about anybody that wants it. We actually have some state laws that prevent us in certain jurisdictions, but it's available. What I would tell you is like anything else, people that embrace it, embrace it fully, and some people are still learning to embrace it. And so, in our case, last time I looked and talked to Steve Tidwell on this, there's -- I would say that of our locations, about 36%, 37% still haven't sold a catering, and another 13% have sold one. So, there's room for improvement, and we believe we're going to get there and -- because, again what's nice about this, is the feedback from our internal customer as well as our external customers is very, very high. And the satisfaction scores go up, so we know this is a great thing that we ought to be doing for our client families, and we'll do more of it in more places.

Okay, that's helpful. And then just lastly, maybe if you give us an update on Neptune, how -- what the current revenue topline run-rate is there, and how that asset is progressing?

I would say that your Neptune's currently running slightly behind what we expected it to be on the revenue line, and therefore also on the profit line. I think we're very encouraged about the potential still. You know, at the same time, we've done a lot of, not a lot, but we've been focused on opening new locations. And in doing so, and learning from those locations, and so, we still feel very strongly about Neptune and our ability to capture value there. But I would tell you on a pro forma basis, we're slightly behind.

Can you give some color around why you think that is?

Well you know, a lot of it, because this is a sales and marketing model, predominantly, a lot of it has to do with lead generation, and so when you look at -- as an example, I know we spent a bunch of money on lead generation in June. And just the sheer nature of dropping that mail and how much time it takes to generate the lead, follow-up, and consummate the sale. So, we still feel pretty good about our ability to grow the sales in the back half of the year, so a lot of this just gets back to marketing dollars, and when you spend them, and the time it takes to generate sales off those marketing dollars.

Got it. Thanks.

We have no further questions at this time. I would like to turn it back to the SCI management team for any final remarks.

Thank you, everyone, for being on the call today. We look for forward to talking to you our next event for third quarter earnings. Have a great day.

Thank you ladies and gentlemen, this concludes today's conference. Thank you all for participating, you may now disconnect.