Service Corporation International (SCI) Q1 2018 Earnings Report, Transcript and Summary

Welcome to the First Quarter 2018 Service Corporation International Earnings Conference Call. My name is Mattie, and I will be your operator for today's call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. [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 will 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 measurement 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, and hello everyone and thank you for joining us on the call this morning. Today, I plan to give an overview of the quarter followed by a more detailed analysis of our funeral and cemetery operation 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’re off to a nice start to 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 three components. First and most importantly higher operating profit from our funeral and cemetery operation 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 standards requiring us to defer certain selling costs. This benefit was slightly reduced as processing fee revenue that was previously recognized as income on SCI’s direct contracts is deferred under the new standard, both of these items have a timing element that were normalized in 2019. Finally, a lower tax rate, a reduced share count and a slightly higher interest expense combine the benefit of 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 construction of new funeral home location. 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 discussion. 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 that the collective efforts of my 23,000 teammates. Thank you for to 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 in 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 and approximately 1% increase in the organic sales average was offset by 1% decrease caused by 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 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 recognized 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 three quarters of 2018 until we lack 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 last this change as well in the first quarter of 2019. So for comparable funeral operating profits we grew within $7 million and operating margins had a nice expansion of 80 basis points to 23.7%. Typically on $13 million increase in revenues, we would expect to see somewhere around $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 two 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 is 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're particularly pleased that we increased the preneed contract account by 3% within the core funeral segment. Now turning to cemetery operation. Total comparable cemetery revenue was relatively flat compared to the first quarter of 2017. Cemetery property revenues declined both on an atneed and a preneed basis. In total cemetery 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, which this can vary by quarter due to the timing of construction. Obviously, we were now 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, which 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 go. Also March and April is the key selling time for the – of the year for our Chinese client sale due to the festival of Ching Ming. We believe a higher percentage of Ching Ming sales activity grew 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 symmetry revenues for the quarter. As you will recall from our Investor Day presentation, we were excited about the growth potential of our cemetery merchandise and service revenue. Remember that merchandise and service revenues are recognized upon delivery or service performance, not upon sales. Therefore, they will function much like funeral revenues and the delivery activity will drive performance. We communicated our belief that preneed matured merchandise and services should grow in the 5% to 7% range and then atneed merchandise and services should grow the 1% to 2% range annually. The excess growth trend of the matured preneed was a function of more velocity over time as we 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% and again that's above the 5% to 7% range. The primary reason we performed above our annual guidance range with 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’d expect to lose about $2 million in operating profit assuming a 2% percent increase in fixed cost. So we had a $12 million upside performances. First remember that we benefited from the new accounting standards 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 two things. First, we effectively substituted $7 million of cemetery property revenue or $7 million of cemetery service revenue. This revenue mix change impacted margins positively as the incremental margin of service is higher as we have no property cost and encouraged smaller sales promotions. The final profit improvement items 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 and 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 lined a bit. It is our belief based upon preliminary April activity and feedback from our senior sales leadership that over the remaining nine 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 full year 2018. However consistent with our philosophy on guidance, we will plan to revisit this with you after the second quarter, but we have six months under our belt. In the meantime, we'll continue to pursue our three 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. And 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 in his remarks, we also had expected lower cash tax payments during the quarter as well as higher operating receipts, which were partially offsets by other working capital uses. So let me give you a little more color on these results. First, we’re comparing our cash flow results to our earnings per share. Remember that our earnings this year are affected by the non-cash impact from adopting the revenue recognition accounting standard we just discussed. Recall, we told you in February that we estimated the revenue recognition benefit 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 expense as incurred, under the new standard, selling cost 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 will be no impact on cash flows, we suspect to see a similar positive benefit to earnings in the second quarter as we saw in this quarter. So I would like to point out that 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 time 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 benefit as we begin making 2018 estimated tax payments, which start in the second quarter so for the last three quarters of the year. So for the full year, we still expect to benefit of approximately $20 million from lower taxes in 2018 due to the December 2017 tax reform in last three 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 payments 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’re generally comfortable with the amount of floating rate debt we carry and just remind you that 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. And our guidance for the full year, we did model a modest increase in rates, but we will 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 two 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're 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 just 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 results in a mid-teen after tax cash IRR. On that note, we proudly deployed approximate $34 million towards acquisition including several funeral homes and crematories and a cemetery in Hawaii. We're obviously proud of these purchases and welcome all new employees of these acquisitions on to 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 $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 flows. We had about a $120 million of unencumbered cash at the end of the quarter. When adding this unencumbered cash 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 would 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 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 about $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-creating opportunities, including share repurchases. We currently have about $330 million of remaining authorization of our share buyback program. And keep in mind that we will 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 3.7 times and remains well within our target range of 3.5 to 4 times. We reaffirm our outlook for the full year for 2018 in terms of the adjusted cash flow from operations of $540 million to $600 million. These strong cash flows, as well and well as ample liquidity and a favorable debt maturity profile, the two 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're 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.

Thank you. [Operator Instructions] And our first party with a question is Scott Schneeberger from Oppenheimer.

Good morning this is Daniel on for Scott. Congratulations on a good quarter. I want to talk some margin first. Can you guys discuss, give us an update on the expectations for funeral and cemetery margins for the full year? And help us think about the cadence on each of them and the puts and takes. Thank you.

Sure, I think, we obviously feel very good about, I think, of our annual guidance what we’ve always said is look for funeral margins to range between on an annualized basis 19% to 21%. We’ve experienced just north of 20% recently. And we'd expect over the last – 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 to 80 basis points to 150 basis points type range because of our ability to grow cemetery revenues different from funeral. Now from a seasonal perspective the thing to remember, the 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 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 third and fourth quarters. So as you think about margins on a quarterly basis, think of cemetery is 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.

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

Yes so I thing again and 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. So our belief is, it's going to be a very good year, we guided people to say we think we could spend between $50 million and $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 do not actually add to the value, but it's not going to be 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 much, you'll notice that we actually sell a certain number of businesses in the year. Again a lot of these are big businesses that may not fit our model anymore, some changes that occur in markets. So we’ve looked 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 that 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 are generally good businesses, so don't make a lot of money. And we're taking that free cash flow and redeploying it in places where we know we're going to get a return. So as you build your models I’d say look at your creative acquisitions and divestitures that are not to lose, but will put pressure let's say on your total revenues as you think about the entire year.

Got it, that's helpful. Thank you very much guys.

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

Good morning. Thank you for taking the question. 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 a tough comp. And then can you talk about, I guess some activities so far in April? So this – so half of the mid-single digit, so I'm sorry, I just want to clarify. So are you talking about the remaining of the year, or I guess for the full year? Or I guess it's going to average itself out in the first quarter and still is going to be met single digits? I just want to clarify that comment whether this was for the full year or the rest of the year in the single digit?

Yes Joanna. Hello how are you doing? And thank you for the question. I think what we're really saying is what we're trying to convey in 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're 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 get back there. Now what’s mid-single-digit guidance? It’s I guess I define that as 4% to 6%, right. Normally I’d love to say will be at the high end of that. So as I think about this and again I 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 the next nine months look pretty good, right. As I think about the next three quarters. The other thing I’d just point out is getting back to the kind of the quarterly comparisons we tend to focus on some of the companies, Q2 of last year was a pretty high step in 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. So when you think about the quarterly comparisons we’ll have another tough comparison in the second quarter. I feel good about our ability to compare against that but it probably [indiscernible] as you get to Q3 and Q4.

I agree with the comps, because you underscore right the comp was pretty tough. And I guess if I look at the Q4 comp, kind of the delta is similar to 700 basis points to 200 basis points on that growth rate. So I just want to clarify how you feel about that? Because also coming back to your comments about the quarter and outlook for the year, so would you characterize quarter sort of in line with internal expectations I guess what's beat first is the consensus 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're very, very pleased at having to achieve what we believe was about where thought we’ve landed or slightly better. And we feel very confident about the back half of the year. But as you know Joanna, I think, think a quarter is not a year make and we want to have another quarter under our belt before we look at where we are on cash flow, where we are on earnings per share to you 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 flagged. Is there's something there in terms of the shift accelerating because I guess the prior two 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 – 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 where it’s 140 basis points. It would take a long periods of time, it tend to get close to a 100 basis points. And that's why we can’t use that nice round number. We do not believe this total is anything other than it’s another slightly different than the average. So we still believe that the year and the coming years will probably change it around call it a 100 basis points year-over-year. So I think that we’re seeing that drastically believe it just changed more. The one thing I would say is this has to do with core because I think we define for you that 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. We expect a 100 basis point change annualized.

Great, thank you. If I may squeeze the last one, so at the Investor Day you talked about 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 mentioned that it will be like a $15 million sort of benefit to casual, I guess annually. So should we think about this benefit materializing this year?

I think the thing with DCF is there's a lot of moving parts in that number. I will say, 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. It even sounds a little bit high. But I do believe that we would expect to see millions of dollars of improvement on an annualized basis year-over-year because we have shifted those funds and equities. And unfortunately we still got few stages to go. And the big one, I thing, California doesn’t become effective until 2020.

2020, right.

So some of that on a 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, I think, there is a comparable number of last year that caused our ETF not to look good, possibly good. But we expect that to be a more favorable comparison as we move throughout the year.

Thank you. I'll go back to the queue. Thank you.

You’re welcome.

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

Hi everybody. A couple questions but my first just sort of cleanup a couple things that have been talked around make sure I fully understand them. So on the cemetery side, especially the pre need cemetery sales I know on an 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 that if you ask the 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 got a lot of things that I could paint them really sad circle excuses for you. But I think the truth is that’s what happens all time and we managed through it. There’s 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 mid west. 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 the weather, we’ll see in May. So I think that’s another reason why we feel like look it was a comparison. There were 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 feel really good about last nine months and your point is 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 with that bad weather and we got over it. This year we may a little more. But that’s the kind of the way we feel about that.

And just some of these Chinese festival impact I don’t remember hearing about before, and I’ve involved 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 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 in Chinese custom I believe the actual day 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 at Rose Hill, those are traditionally. What we're finding now is we're 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 of the markets. I will tell you though so goes Vancouver and Rosehill, 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 was a huge number, it was one of many things of why we didn’t achieve. I don't want to put it all in 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.

Okay.

So it's not a huge number, but it's a 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’s particularly driving a modest pickup in acquisition activity?

I think really two 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 first is where they were maybe a couple 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 sized businesses that are interested in talking with us. And again we're at different levels of discussion with different parties. And I'm just trying to give some feedback that we see a nice high point and we a nice high point with some good size 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 the last six months about price transparency what happened in the UK. 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? And I know there's some discussion around potentially update in the funeral, 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 strategy that we're deploying in certain markets and we're seeing some again the favorable result of those markets where we've done it. It’s predominately been either more competitive particulate 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. As 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 three, four, five-year period allows them to buy up and be more satisfied with what they do. It 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 that 120 basis point mix change, it’s going to impact that atneed walking atneed average more than it’s 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 its tough sledding to get inflationary pricing, but we'll continue to do it. And the upside is really going to be and what comes out of that backlog as time marches on and did in 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 the backlog is a very good business.

Alright, thanks a lot.

Welcome.

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 gentleman. This concludes today's conference. Thank you for participating, you may now disconnect.