Service Corporation International (SCI) 2018 Q1 法說會逐字稿

Welcome to the First Quarter 2018 Service Corporation International Earnings Conference Call. My name is Maddie, and I will be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to SCI management. Please go ahead.

Good morning, everyone. This is Debbie Young, Director of Investor Relations at SCI. I'll start as usual with the customary safe harbor language before we begin with prepared remarks.

The comments made by our management team today will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website.

Today, we may also refer to certain non-GAAP measurements, such as adjusted EPS, adjusted operating cash flow and free cash flow. A reconciliation of these measurements to the appropriate measures, calculated in accordance with GAAP, is provided on our website and in our press release and 8-K that were filed yesterday.

I'll now turn the call over to Tom Ryan, SCI's Chairman and CEO.

Thank you, Debbie. Hello, everyone, and thank you for joining us on the call this morning.

Today, I plan to give you an overview of the quarter followed by a more detailed analysis of our funeral and cemetery operations, and finally, comment on our outlook for 2018.

So let's begin with an overview of the quarter. As you saw in our press release yesterday, we are off to a nice start in 2018 as adjusted earnings per share grew $0.09 or 24% to $0.47 per share. Within this $0.09 of growth quarter-over-quarter, I'll speak to 3 components: first, and most importantly, higher operating profits from our funeral and cemetery operations contributed $0.05 or 13% of growth, which was led by increased services performed in our Funeral and Cemetery segment bolstered by a strong flu season and favorable cost trends, particularly in our Cemetery segment.

Next, earnings per share benefited by a net $0.02, primarily from the impact of new revenue recognition standard, requiring us to defer certain selling costs. This benefit was slightly reduced as processing fee revenue that was previously recognized as income on SCI Direct contracts is deferred under the new standard. Both of these items have a timing element that will normalize in 2019.

Finally, a lower tax rate, a reduced share count and a slightly higher interest expense combined to benefit our earnings per share by an additional $0.02. We also reported strong adjusted operating cash flow of $206 million, which was an improvement of $18 million or almost 10% over the prior year quarter.

Finally, we continue our commitment to deploy our free cash flow to the highest and best use.

During the first quarter, we returned $150 million to our shareholders in the form of share repurchases and dividends paid. Additionally, during the quarter, we deployed $39 million of capital towards acquisitions and the construction of new funeral home locations.

The first quarter was a really successful one for acquiring great businesses, and we currently are very active with others, both under letters of intent and active discussions. The pipeline looks great, and 2018 could shape up to be a really special one. I know we measure ourselves by numbers as a public company, but I am most proud of the business foundation and culture that we have created together. None of this would be possible without the collective efforts of my 23,000 teammates. Thank you for what you do every day for our families, your team and your shareholders.

Now let's talk about how funeral operations performed for the quarter. We were very happy to report that comparable funeral revenue grew by $13.6 million or nearly 3% compared to the same period last year, primarily from increased funeral services performed as a result of a stronger flu season in the first quarter as compared to the prior year. Of the $13.6 million of funeral revenue increase, core revenue was higher by $14 million or 3.4% due to a 3.3% increase in core funeral services performed during the quarter. While this higher funeral volume had a meaningful impact on the quarter, remember that in our experience, many of these flu-related services are typically an acceleration of the end-of-life events that in many cases would likely have occurred in later quarters in 2018.

So for now, we're still modeling funeral volume for the full year to be relatively flat to slightly up, which is within the range of our original 2018 guidance.

The core funeral average was relatively flat compared with the prior year. An approximate 1% increase in the organic sales average was offset by a 1% decrease caused by a 120 basis point increase in the cremation mix.

Total non-funeral home revenue increased over 12%, with half of this increase coming from the rise in the number of services performed and the other half due to an increase in the average revenue per service. The increases in core funeral revenues and non-funeral home revenues were slightly offset by a $2.3 million decrease in other funeral revenues.

In previous years, SCI Direct preneed funeral contracts included a processing fee which was recognized immediately as revenue in other funeral revenue. The new accounting standard requires the deferral of this processing fee revenue.

So beginning in 2018, we recognize less revenue currently and defer the amount to be recognized when we perform the service. You should expect to see a similar variance in other funeral revenue over the next 3 quarters of 2018 until we lap this change in the first quarter of 2019.

However, I should point out that this decrease in revenue is effectively offset in operating margin as a positive impact from the new revenue recognition accounting standard that results in lower selling costs as compared to the prior year.

We will lap this change as well in the first quarter of 2019. So for comparable funeral operating profits, we grew them $7 million, and operating margins had a nice expansion of 80 basis points to 23.7%.

Typically, on a $13 million increase in revenues, we would expect to see somewhere around a $9 million or $10 million increase in operating profit. Remember, the processing fee revenue change effectively offsets the deferred selling costs change. So the remaining $2 million to $3 million difference can be attributed really to 2 things. First, with regards to labor costs, due to the growth in the call volume experienced during the quarter, we saw some additional over-time and part-time labor costs incurred.

Additionally, recall that we initiated some permanent wage increases for certain of our customer-facing employees during the first quarter. Second, we incurred higher marketing costs in SCI Direct due to the timing of direct-mail advertising versus the prior year. This should normalize on a comparable basis for the rest of 2018. Finally, for funeral, total preneed funeral production, which gets deferred into our backlog, grew just under 3% for the quarter, which is in line with our guidance of low to mid-single-digit growth for the year.

We were particularly pleased that we increased the preneed contract count by 3% within the core funeral segment. Now turning to cemetery operations. Total comparable cemetery revenue was relatively flat compared to the first quarter of 2017. Cemetery property revenues declined both on atneed and at preneed basis.

In total, cemetery -- the recognized cemetery property revenue declined by $6.5 million or 4.7%. This was more than offset by increases in both atneed and recognized preneed merchandise and service revenues, which when combined, grew by $7.3 million or 6.1%. Recall that property revenues are generally recognized when they're sold.

On an annualized basis, we expect to grow preneed cemetery sales production, which includes property, merchandise and services, in the mid-single-digit percentage range. And then as a function of that sales growth, we would grow cemetery property revenues in the mid-single-digit percentage range. This can vary by quarter due to the timing of construction. Obviously, we were not pleased with the first quarter comparison as preneed cemetery sales production was down 3% and cemetery property revenues recognized were down 4%. Not to make excuses, but you should recall that last year's first quarter saw a 13% increase in preneed cemetery sales production. So we had a pretty big hurdle to get over. Also, March and April is a key selling time for the -- of the year for our Chinese clientele due to the festival of Ching Ming. We believe a higher percentage of Ching Ming sales activity fell in March of last year as compared to 2018.

Bottom line, based on preliminary April activity and our internal assessment, we feel confident about the remainder of 2018 in our ability to achieve mid-single-digit growth.

Now for the good news, as it relates to cemetery revenues for the quarter. As you'll recall from our Investor Day presentation, we were excited about the growth potential of our cemetery merchandise and service revenues. Remember that merchandise and service revenues are recognized upon delivery or service performance, not upon sale.

Therefore, they will function much like funeral revenues, and their delivery activity will drive performance. We communicated our belief that preneed matured merchandise and services should grow in the 5% to 7% range and that atneed merchandise and services should grow in the 1% to 2% range annually.

The excess growth trend of the matured preneed was a function of more velocity over time as we've written preneed with more customers, more robust sales versus historical deliveries and finally, trust fund income. So for the quarter, we saw atneed merchandise sales grow at 5%, above the 1% to 2% guidance and preneed matured merchandise and services grow over 7%, again, that's above the 5% to 7% range.

The primary reason we performed above our annual guidance range was the increase in services from increased activity associated with the heavy flu season, just like funeral. So from a cemetery profit perspective, we were very pleased to report growth over -- of over $10 million for the quarter, and we expanded operating margins 370 basis points to nearly 27%. Expectation-wise, with flat revenues, you would expect to lose about $2 million in operating profit, assuming a 2% increase in fixed costs. So we had a $12 million upside performance to explain. First, remember that we benefited from the new accounting standard related to the deferral of preneed selling expense to the tune of about $5 million.

The remaining $7 million operating profit improvement is a function of 2 things. First, we effectively substituted $7 million of cemetery property revenue for $7 million of cemetery service revenue. This revenue mix change impacted margins positively as the incremental margin on service is higher, as we have no property cost and incur a smaller sales commission. The final profit improvement item relates to a modest reduction in both variable and fixed costs, primarily favorable impacts from selling costs and a reduction in allocated overhead.

So to wrap it up, 2018 is off to a solid start with double-digit growth in adjusted earnings per share and improvements in both our funeral and cemetery markets.

On the preneed production front, preneed funeral sales were solid, and preneed cemetery sales lagged a bit.

It's our belief, based upon preliminary April activity and feedback from our senior sales leadership, that over the remaining 9 months of 2018, we will achieve mid-single-digit growth in preneed cemetery production as outlined in our guidance.

We continue to remain confident in our earnings per share and cash flow targets for the full year 2018. However, consistent with our philosophy on guidance, we will plan to revisit this with you, after the second quarter, when we have 6 months under our belt.

In the meantime, we'll continue to pursue our 3 core strategies of growing our revenues, leveraging our scale and deploying our capital in a disciplined manner towards the highest and best use for the long-term benefit of our company and our shareholders.

With that, I'll turn the call over to Eric.

Thanks, Tom, and good morning, everybody. Today, as usual, I'm going to begin by giving you some of my thoughts on our cash flow results and the capital deployment, both of which happened in the first quarter. And then I'll touch upon our full year cash flow guidance towards the end of my remarks.

So let's begin with this overview of the cash flow for the quarter. As you saw in the press release, we are very pleased to report adjusted operating cash flow of $206 million, which was almost $18 million or a 9% increase compared to the same period last year.

In addition to the impressive cash earnings that Tom just walked you through in his remarks, we also had expected lower cash tax payments during the quarter as well as higher operating receipts, which were partially offset by other working capital uses.

So let me give you a little more color on these results. First, when comparing our cash flow results to our earnings per share, remember that our earnings this year are affected by the noncash impact from adopting a revenue recognition accounting standard we just discussed. Recall, we told you in February, that we estimated the revenue recognition benefits to be a total of about $0.04 per share for the full year of 2018, which we continue, by the way, to believe is appropriate.

Unlike 2017, where cemetery selling costs were expensed as incurred, under the new standard, selling costs incurred earlier in the year on unrecognized cemetery property sales are deferred until the associated revenue is recognized, which generally, if you remember, occurs in the back half of the year as cemetery projects are generally completed.

As a result of this expense deferral cadence, the $0.04 annual benefit, therefore, is heavily weighted towards the first half of the year. While there'll be no impact on cash flows, we expect to see a similar positive benefit to earnings in the second quarter, as we saw in this quarter. But we'd like to point out there will be some downward pressure on earnings in the back half of this year, when these expenses are ultimately recognized.

Next, recurring cash tax payments in the quarter were lower by about $16 million compared to the same period last year. This reduction in cash taxes was primarily related to the timing of federal tax payments between 2017 and 2018 that will normalize later this year. And by the way this does not reflect any benefits, therefore, from tax reform.

We will realize our tax reform benefits as we begin making 2018 estimated tax payments, which start in the second quarter, so for the last 3 quarters of the year. So for the full year, we still expect a benefit of approximately $20 million from lower taxes in 2018, due to the December 2017 tax reform, in the last 3 quarters of 2018.

Accordingly, we are still guiding to a range of $110 million to $120 million in normalized cash taxes. Furthermore, as I mentioned on last quarter's call, we continue to challenge ourselves on cash tax planning and believe there may be an opportunity to ultimately pay less cash taxes in the current range that I just mentioned to you, but I'll update you on this as the year progresses.

Working capital for the quarter was relatively consistent with the prior year as cash receipts benefited from the increase in funeral and cemetery services, primarily as a result of the stronger flu season, but these were largely offset by working capital uses associated with the payment of a legal obligation which was actually settled in 2017 as well as higher incentive compensation payment in the first quarter of 2018 compared to the same period last year.

Finally, cash interest payments in the quarter were $25 million compared to $20 million in the prior year. This was due to a $5 million payment early in the quarter to complete the redemption of our 2018 notes that we really did in the fourth quarter of last year.

As you think about cash interest for the full year of 2018, it is worth mentioning that although we are generally comfortable with the amount of floating rate debt we carry, and just to remind you that's about 30% of our total debt is floating, but to the extent interest rates continue to rise, we may feel some downward pressure on earnings and operating cash flow.

In our guidance for the full year, we did model a modest increase in rates, but we'll be monitoring this closely throughout the year, and we'll update you as appropriate.

Now shifting to free cash flow. First, maintenance and cemetery development CapEx combined, which again are the 2 components that we define as CapEx in our free cash flow calculation, was approximately $41 million for the quarter, which is about $7 million higher than prior year but in line with our planned spending for the quarter. So therefore, we are very pleased to report adjusted free cash flow, in the quarter, was $165 million, which was higher by about $11 million or 7% over the prior year quarter.

Now let's shift and talk about cash deployment -- capital deployment for the quarter. So we invested an impressive $189 million towards acquisitions, new location builds, dividends and share repurchases. This investment represents a remarkable $42 million or 29% increase in capital that was deployed in the first quarter of 2018 versus last year. So in terms of the various components, keep in mind that acquisitions continue to be our best use of capital as they generally result in a mid-teen after-tax cash IRR. On that note, we proudly deployed approximately $34 million towards acquisitions, including several funeral homes and crematories and a cemetery in Hawaii.

We are obviously proud of these purchases and welcome all new employees of these acquisitions onto the SCI team and into the SCI family. We also invested almost $5 million on the new build and expansion of several funeral homes, which we expect will provide positive returns to us going forward.

Dividend payments in the first quarter totaled $31 million, an increase of about 29% over the prior year of $24 million, which again reflects the $0.02 per share dividend increase that we just announced in February of this year.

Finally, we returned an impressive $119 million of capital to investors in the form of share repurchases, by purchasing approximately 3.1 million shares at an average cost of $38.38 per share. This investment has reduced the number of shares outstanding to just over 184 million shares at the quarter end.

Now subsequent to the end of the quarter, we have continued our repurchase program, reducing our outstanding share count by an additional 600,000 shares for a total investment of about $24 million or an average cost of $38.12 per share.

As a foundation to our capital deployment strategy going forward, we finished the quarter with very robust liquidity. After taking into account about $100 million of our cash is encumbered, primarily due to balances residing in Canada and expected minimum operating cash floors, we had about $120 million of unencumbered cash at the end of the quarter. When adding this unencumbered cash to about $780 million of availability on our credit facility, we believe our unencumbered liquidity to be a strong $900 million at March 31. This liquidity positions us very well to strategically execute our capital deployment plans for the remainder of this year.

So in closing, I'd like to reiterate our capital deployment priorities as we just highlighted to you in February at our Investor Day. Our maintenance capital. We expect to deploy about $135 million for maintenance CapEx and capital lease payments. Growth capital. Additionally, we expect to invest about $180 million to grow the company. This consists of a spend around $100 million for acquisition and new funeral home construction opportunities as well as approximately $80 million for the development of cemetery property, all of which have very high returns for the company.

Now returning capital to shareholders. Based on our current share count and dividend rate, we expect to pay around $94 million more in dividends for the remainder of the year, which will total then around $120 million of dividends for 2018 as a whole. Any excess cash will be available for deployment to other value accretion opportunities, including share repurchases. We currently have about $330 million of remaining authorization in our share buyback program. And keep in mind that we'll likely have additional capital to deploy, perhaps as much as $50 million to $100 million range or even greater than that, to deploy in keeping with our philosophy that we will maintain our leverage as our company and our EBITDA grows. And our leverage, measured on a net debt-to-EBITDA basis at the end of the quarter, was about 3.7x and remains well within our targeted range of 3.5 to 4x. We reaffirm our outlook for the full year, for 2018, in terms of adjusted cash flow from operations of $540 million to $600 million. These strong cash flows as well as ample liquidity and a favorable debt maturity profile, the 2 areas that are fundamental to our capital deployment strategy, give us confidence that we can and will continue to deploy capital to grow the company.

We are growing to do this in a very measured, disciplined manner. For us, it's a focus on pursuing opportunities that yield the highest relative return.

So with that, operator, that concludes our prepared remarks. We're now ready to turn the call over to questions.

(Operator Instructions) And our first party with a question is Scott Schneeberger from Oppenheimer.

This is Daniel on for Scott. I want to touch on margins, first. Can you guys just discuss or give us an update on your expectations for funeral and cemetery margins for the full year and help us think about the cadence on each and the puts and takes?

Sure, I think we obviously feel very good about, I -- think in our annual guidance what we've always said is, look for our funeral margins to weigh in between, on an annualized basis, 19% to 21%. We've experienced just north of 20% recently, and we'd expect over the near term for those to be relatively flat because of the challenges of the revenue line item.

On the cemetery side, we've guided people to say, and historically we've done, we've been able to grow those in the, call it, the 80 to 150 basis point-type range because of our ability to grow cemetery revenues different from funeral. Now from a seasonal perspective, the thing to remember, first quarter is generally the best quarter from a margin perspective on the funeral basis. And the reason for that is, again, the flu activity tends to fall within that first quarter.

Cemetery is very different. Cemetery margins, generally, get better as the year goes on for a couple of reasons: one is it's warmer outside in a lot of markets, and you can have a lot more sales activity; and two, remember, from a property perspective, construction tends to occur more rapidly in the third and fourth quarters. So as you think about margins on a quarterly basis, think of cemetery as getting better as the year goes on, and generally, funeral has a good first quarter and a good fourth quarter, and in the middle of the year, it's a little harder because of, again, volumes of activity.

On acquisitions, I mean, you had a pretty solid spend in the quarter. Can you give us an update how you think about the spend for the full year? And help us think about the model, how we should model this from a P&L perspective, and contribution from acquisitions in this quarter, and how it might look like for the full year as well.

Yes, so I think again, as we kind of said in my comments, we're very, very pleased with what we were able to close in the first quarter. We've got a lot of activity out there. It's our belief that it's going to be a very good year. We've guided people to say -- we think we can spend between $50 million and a $100 million in a given year, but that's always going to be based upon the fact what size deal is going to close, how many deals are going to close. I would just tell you, looking at the backlog today, we feel very good about achieving the high end or better when we think about our acquisition spend and the impact.

I think, as you think about the impact within a year, remember, SCI having the scale that we do, most of our performance is going to be driven by our operations. Acquisitions are nice. They add to the value, but it's not going to be a material piece of our operations.

The other thing that I would -- I think from a modeling perspective, I just want to get out there, because we tend to not talk about it as much, you'll notice that we actually sell a certain number of businesses in a year. Again, a lot of these would be businesses that may not fit our model anymore, some changes that occur in markets. So we look at the highest and best use for us and say, we believe selling this business or selling this real estate is a better deployment of capital than continue to operate in that market. So keep in mind, we are selling businesses that are going to reduce revenues in those buckets, but remember they're generally going to be businesses that they don't make a lot of money, and we're taking that free cash flow and redeploying it in places where we know you're going to get a return.

So as you build your models and say, you look at accretive acquisitions and divestitures that are not dilutive but will put pressure, let say, on your total revenues as you think about the entire year.

Our next question comes from Joanna Gajuk from Bank of America.

So can I just come back to the discussion around cemetery production? I guess you said that it did indeed was somewhat disappointing. There was tough comp, and then you talk about, I guess, some activities so far in April. So this -- so the outlook, the mid-single-digit, so I'm sorry, just wanted to clarify, so you talking about the remaining of the year? Or I guess for the full year? Or I guess, it's going to kind of average itself out with the first quarter and still is going to be mid-single-digit? Just wanted to clarify that comment, whether this was for the full year or the rest of the year, the mid-single-digit.

Yes, Joanna. I think what we're really saying is -- what we're trying to convey in the message is, we did have a tough quarter, we've got kind of this Ching Ming festival slipping from March to April type of thing. So I think what we were trying to convey back to you, one is, we feel very, very good about our preneed cemetery sales momentum, and we're seeing that return based upon preliminary April. It's always hard to figure, I think, again, because we gave mid-single-digit guidance for the year, that we can get back there. Now what's mid-single-digit guidance? It's, I guess, I'd define that as 4% to 6%, right? Normally, I'd love to say, we'd be at the high end of that. So as I think about this, and again, I'd never want to put a limit on what we can do because we've got such a talented sales team. But because of the first quarter, I think we'd be fighting to get back to the lower end of that guidance.

Now, what that would tell you is that the next 9 months look pretty good, right, as I think about the next 3 quarters. The other thing I'd just point out is, and again, back to the kind of the quarterly comparisons we tend to focus on as public companies, Q2 of last year was a pretty high-stepping quarter. Q3 and Q4 really weren't. We had a great first half of the year and not so fantastic second half of the year. When you think about your quarterly comparisons, we'll have another tough comparison in second quarter. I feel good about our ability to compare against that, but it probably gets a little easier as you get to Q3 and Q4.

No, I agree with the comps. Because in this quarter, right, the comp was pretty tough, and I guess if I look at the Q4 comp, kind of the delta is similar. It's 700 or 600 basis points on the growth rate. So I just want to clarify how you feel about that. Because also, coming back to your comments about the quarter and the outlook for the year, so would you characterize this quarter as sort of in line with internal expectations? I guess, it was [beat] versus the consistent number, so I just want to get a color there.

Yes, I guess, I would define the first quarter as in line with expectations or slightly better on an overall basis. As you think about the components of that, I would define it this way: From a funeral perspective, it was slightly better. From a cemetery property perspective, again, we're saying we weren't very pleased with the first quarter, so we feel like that can get better.

So I think we are very, very pleased at having achieved what we believe was about where we thought we'd land or slightly better. And we feel very confident about the back half of the year. But as you know, Joanna, we -- I think a quarter does not a year make, and we just want to have another quarter under our belt before we look at where we are in cash flow, where we are in earnings per share to give you guys a little better perspective. But I would say, we came out of the first quarter feeling very good about the rest of the year.

And if I may, on the quarter, in terms of the shift to cremation of 120 basis points that you're flat there, is there something there in terms of the shift accelerating, because, I guess the prior 2 quarters, it was below 100? But again, I guess, you mentioned this in the past that it could vary quarter-to-quarter. So what's kind of your view in terms of the -- for the outlook for the year for the cremation shift?

Yes, Joanna, I think you're exactly right, what you pointed out. We see years where it's 50 basis points, we see years when it's 140 basis points. If you take long periods of time, it tends to get close to 100 basis points, and that's why we kind of use that nice round number. We do not believe this tells us anything other than it's another -- slightly different than the average. So we still believe the year and the coming year, we'll probably change it around a -- call it, 100 basis points year-over-year.

So yes, nothing that we're seeing that drastically believes it should change more. The one thing I would say is, and this has nothing to do with core, because I think we defined for you the core mix change and then the overall mix change. I will say that I think we are doing a great job as it relates to SCI Direct in growing our share of that customer segment. So from that perspective, I expect it to go up because we think we're capturing more share versus our competition. From a core perspective, I think it's kind of same as it ever was, and we expect 100 basis point change annualized.

And if I may squeeze the last one. So at the Investor Day, you talk about a cemetery perpetual care trust fund structure change from fixed income to equity. So did you see any benefit of that? And I guess at this presentation, you've mentioned that it would be like a $15 million sort of benefit to cash flow, I guess, annually. So should we think about this benefit materializing this year?

I think the thing with ECF is there's a lot of moving parts in that number. I will tell you, I think we saw a little bit of impact from that. I think that $15 million number you're talking about is upon complete conversion of where we're going to go. And it even sounds a little bit high, but I do believe that we would expect to see millions of dollars of improvement on annualized basis, year-over-year, because we have shifted those funds into equities, and unfortunately, we still got a few states to go. And the big one, I think, California doesn't come effective until 2020.

'20, right.

So some of that is kind of pro forma, once it's fully effective, but we do believe there will be a few million dollars of impact as we think about 2018, and you'll begin to see it. And I think there's a comparable number in last year that caused our ECF not to look good as it possibly could, but we expect that to be a more favorable comparison as we move throughout the year.

Our next question comes from A.J. Rice from Crédit Suisse.

Couple of questions, if I might, and first, to just sort of clean up a couple of things that have been talked around, make sure I fully understand them. So on the cemetery side, especially the preneed cemetery sales, I know on annualized basis they tend to be what they are, but from a quarter-to-quarter they can be a little discretionary. Do you think weather had any impact, I know we had some quirky weather in different parts of the country, have you guys drilled down on that? Or that bubbled up as an issue in terms of your production numbers in the first quarter?

Yes, I think, A.J., if you ask a question, you can come up with about 15 different reasons why, and that would be one of them. We've had some regional leadership changes. We've had a lot of things that I can paint some really sad, sorrowful excuses for you. But I think the truth is, that stuff happens all the time, and we manage through it. There is weather, but I think you're right, there surely were pockets of the country, when you think about the northeast, when you think about the Midwest. We had some pretty severe weather even in California.

So sure, those tend to bounce back, right? So I think our belief is if you couldn't get out to the cemetery in March because of weather, we'll see in May. So I think that's another reason why we feel like, look, it was a tough comparison, there a lot of wind in our face, but nothing fundamentally is broken. We've got a great sales team. We've got better sales tools. We've got really tremendous properties and inventory that we're putting out there. So we feel really good about the last 9 months. And your point well taken, you're exactly right. I just -- it's hard because it's different in every market, right? Last year, there were some markets that had bad weather, and we got over it. This year, we may have a little more. But that's kind of the way we feel about it.

And just on this Chinese festival impact. I don't remember hearing about that before, and I've been following you guys for a long time. Did you -- do you have any way to quantify how much of a headwind that was in the first quarter? And does that then reverse because in the second quarter -- you get all that back pretty much in the second quarter?

Well, that's what's hard to tell because again, it depends on when you run your campaign, right? So Ching Ming is the sweeping of the tombs, and Chinese custom, I believe, is -- the actual date falls like, generally April 4 or 5, but it depends upon the weekend that you're having, let's say, these open houses. The biggest markets where we see this are going to be in Vancouver and then also in Rose Hill, those are traditionally. What we are finding now is we are expanding the Ching Ming celebration to other markets where our Chinese clientele haven't had exposure to this before, and so from a long-term perspective, we see this as a much better opportunity to expand Ching Ming into many other markets. I will tell you though, so goes Vancouver and Rose Hill, so goes our Ching Ming production because it is so big. And so we believe that we can capture -- we have captured some of that back in April, but it wasn't a huge number. It was one of many things of why we couldn't achieve. I don't want to put it all on Ching Ming. I picked that one because there was an unusual timing to this year. When a weekend falls, where you have the opportunity to really have the big sales activity. So it's not a huge number, but it's another reason.

Okay. On the acquisition page, you had a good year last year coming in toward the high end. It sounds like you'll be towards the high end again this year. Is that a function of more properties are available, less competition for properties? Is there anything that you can point to that is particularly driving a modest pickup in acquisition activity?

I think really 2 things. We definitely are seeing more activity, more discussions, but also it's really -- for us it's a function of the size of the deal. So I think what you're probably seeing are larger transaction opportunities in the most recent years, let's say, versus where they were maybe a couple of years ago. But that, generally, is going to be the big difference for us is, how big of an opportunity comes your way. And those kind of come when they come. So we feel good about seeing some relatively nice-size businesses that are interested in talking with us, and again, we are at different levels of discussion with different parties. And I'm just trying to give you some feedback that we see a nice pipeline, we see a nice pipeline with some good-sized businesses that we believe will be a great fit with SCI, and we'd be excited to bring those management teams and employees into the SCI family.

Okay, and then my last one is, we've had this ongoing discussion in the last 6 months about price transparency, what happened in the U.K, and I know you guys addressed this at the Investor Day and addressed it before, but I just want to ask, is there any update in your thinking there or anything you're seeing? Or -- and I know there's some discussion around potentially updating the funeral rule. Has there been any update on that?

Yes, no update on the funeral rule. I think we're seeing the same thing, A.J. When we think about pricing, we talked about a little bit of our strategies that we're deploying in certain markets, and we're seeing some -- again the favorable results of those markets where we've done it. It's predominantly being either more competitive, particularly as it relates to the cremation consumer, and we're seeing some great results from that. And again, I think our long-term strategy is really about capturing more share and capturing, what I'll call, backlog inflationary pricing. You'll notice in the numbers that the preneed average -- and we said this in our Investor Day, we believe the preneed average is going to grow at a higher rate than the atneed average. It's competitive on an atneed basis. And allowing people to pay over a 3-, 4-, 5-year period, allows them to buy up and be more satisfied with what they do and makes it more affordable. So we view that as the best way to continue to go.

The other thing that you see is -- from a mix change perspective, you see more of a mix change or a higher cremation mix in the atneed customer. So there's a little more pressure. When you think about the 120 basis point mix change, it's going to impact that atneed -- walk-in atneed average more than it is going to impact that preneed going atneed average. So those are just some of the things we deal with. But I think we view it as, it's tough sledding to get inflationary pricing, but we'll continue to do it. And the upside is really going to be in what comes out of that backlog as time marches on and then our ability to compete more effectively for more volume. And we feel, I'd say the signs are that we're doing a better job competing for that volume. And what's coming out of backlog is very good business.

We have no further questions at this time. I will now turn the call back over to SCI management

We want to thank everybody for participating on the call today. We look forward to speaking to you again with our second quarter results in late July. Have a great week.

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