Service Corp International (SCI) Q2 2020 Earnings Call Transcript

Good morning, and welcome to the SCI Second Quarter 2020 Earnings Conference Call. I would now like to turn the conference over to SCI management. Please go ahead.

Good morning, everyone. This is Debbie Young, Director of Investor Relations for SCI. We welcome you to our call today to go over our business results for the second quarter. Before the prepared remarks, I'll remind you that we will be making some forward-looking statements. Any comments made by our management team today that state our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. During this call, we will also discuss certain non-GAAP financial measures such as adjusted EPS, adjusted operating cash flow, and free cash flow. A reconciliation of these non-GAAP measures to the appropriate GAAP measures is provided on our website under the Investors section and in our earnings press release and 8-K that were issued yesterday. And now it's my pleasure to introduce our Chairman and CEO, Tom Ryan.

Thanks, Debbie. Hello, everyone, and thank you for joining us on the call this morning. On behalf of SCI and our entire team, I want to start by saying that I hope you and your families are continuing to stay safe and healthy. This morning, I'm going to start by trying to describe the operating environment we experienced as well as our business performance during the quarter. At the end, I'll attempt to provide guidance as best I can for the rest of the year, considering the continued level of uncertainty around the effects of the COVID-19 pandemic, the public orders from governments, and the evolving patterns of consumer behavior, a tall order, but here we go. When we last spoke in late April, while we were seeing a significant increase in funeral case volume, we were also experiencing a significant decline in preneed cemetery sales production of some 40% and a decline in the funeral sales average of about 12%. Both of these key operating drivers were being impacted by government-mandated stay-at-home orders, which fueled consumers' fear of closely interacting with others in gathering and group settings. We implemented a number of temporary cost-saving initiatives and quickly introduced additional technology to support our operations, sales efforts, and administrative functions. Early on, the preponderance of the funeral volume increases were being felt on the East Coast, Michigan, Illinois, and Louisiana. These markets, along with California, due to stay-at-home orders, experienced meaningful declines in funeral sales averages. As we moved into May, we began to see averages improve across the country as states began to reopen, with the Northeast being the notable exception. Subsequently, the funeral average improved from around 12% to down about 8% when compared to the prior year. Cemetery preneed sales really began to pick up mid-May as stay-at-home orders were relaxed. We finished the month strong with growth across all business units led by our California and Hispanic businesses. A big thanks to our North American sales and marketing organization, whose focus and commitment helped to grow preneed cemetery sales 19% for the month. By June, case volume was still strong, growing over 10%, while the funeral average continued to improve, particularly in the Northeast, albeit still negative compared to the prior year quarter. Funeral volume growth was most pronounced in California, Texas, and Arizona. And this time, we did not see any material degradation of the funeral average in those specific markets versus the prior year. Momentum in preneed cemetery sales continued into June, finishing the month with an impressive 40% growth over the prior year and bringing the quarter's preneed cemetery sales production growth to over 10%. All of our successes would not be possible if not for our tremendously talented and brave team that pulled together while focusing on the safety of our people and on our client families and selflessly putting the needs of others above their own. Thank you, team, so much for your efforts and for never losing sight of what we are here to do: help our families and communities with the grieving process and celebrating the life of their loved ones. Now for an overview of the results of the quarter. Adjusted earnings per share grew $0.11 to $0.58 per share in the second quarter, a 23% improvement over the prior year and significantly better than we expected. Core funeral profits were the primary driver as a 13% increase in funeral volume more than offset weaker funeral sales averages applied against a very lean cost structure. Preneed cemetery sales grew over 10% in the quarter. However, the majority of these sales were deferred and will be recognized as revenue in future quarters once constructed and 10% is collected. Because of this deferral, cemetery profits were relatively flat. A higher tax rate and general and administrative costs were essentially offset by a lower interest expense and a lower share count. Now for an overview of funeral operations. Despite the higher funeral volumes, our total comparable funeral revenues declined approximately 1% during the quarter. A healthy $13 million increase in our core revenue was more than offset by an approximate $18 million decline, primarily from lower SCI Direct and General Agency revenue. Core revenue growth of $13 million was driven by a 13.2% increase in cases, partially offset by an 8.7% decline in the average sales. The average decline was primarily driven by a reduction in average, not as much by the cremation mix. Funeral and cremation cases with a service attached went from 63% in the prior year quarter to now 50% this quarter, reflecting the impact of restrictions on large gatherings. The reduction in professional service revenue combined with significant reductions in floral and catering sales drove the overall sales average decline. The good news is that the average sale was down over 12% in April and has improved to being down 5% in June. Cases with services attached continued to improve and were 57% for the month of June. Recognized preneed revenue and General Agency revenues were below prior year, primarily as we saw preneed funeral sales production decline over 27%. Social distancing, particularly around our educational events such as seminars and grassroots events, had a more pronounced effect on our preneed funeral sales versus our preneed cemetery sales. From a profit perspective, funeral gross profit increased $21.4 million, and the gross profit percentage increased 480 basis points to 24%. Growth in our high incremental margin core business more than offset declines in our lower-margin revenue streams. This, combined with our strategic management of labor hours, reductions in noncustomer-facing costs, and certain marketing and promotional expenses, led to the impressive funeral contribution margin. Now shifting to cemetery. Comparable cemetery revenue increased almost $6 million in the second quarter, driven by a $9 million or 11% increase in atneed revenue, offset by a $3 million decline in recognized preneed revenue. This atneed increase correlates with higher funeral volume driven by the effects of COVID-19. While recognized preneed revenues were down, preneed cemetery sales production grew by over $25 million or over 10%. We were pleased to see large sales match last year's performance, but even more pleased to see non-large sales velocity or the number of contracts increase by over 17%. Our sales and marketing teams worked together to generate additional leads from direct mail and digital sources, and we experienced exceptionally strong close rates with these valuable leads. Consumer and counselor initiatives, combined with higher location traffic, were timely as we saw many markets reopen in late May and June. These unrecognized sales will benefit future quarters as we collect the down payment thresholds or as they are constructed. Cemetery gross profits grew by just over $2 million as strategic cost reductions were partially offset by higher selling costs. We enhanced sales incentives to drive cemetery sales production, and we altered our sales compensation plan to continue paying our trusted counselors in late March and April when sales production was essentially shut down. As you saw in the press release, we provided guidance for the total year 2020 for earnings per share, cash flow, and capital expenditures. We recognized that many companies are choosing not to do so, but we felt providing guidance with a wide range is the prudent thing to do. We're still experiencing increased funeral volume, and so far in the Sun Belt regions, we're not seeing a material pullback in the funeral sales average. Cemetery sales are continuing to look good in July. However, we can't predict whether we'll see further government-mandated lockdowns. If this were to happen, we believe that the mandated social distancing and changes in consumer behavior would likely have a material effect on our cemetery sales and our funeral average, similar to the patterns we saw in March and April. We also could experience funeral average declines as local economies struggle with the effects of higher unemployment. Also, as we look ahead, we've considered that there may be a higher number of families we're serving now during the pandemic that may have called on us later in the year in 2020 or in 2021. This acceleration effect could cause pressure on funeral volumes and cemetery revenues later in the year. We also believe that there may still be some reluctance to gather, which will likely create an unfavorable lingering effect on our funeral sales average. Lastly, and to end on a positive note, one thing I know for sure is that we will continue to manage our expenses and invest your capital wisely. With eyes on the longer term, we're continuing to invest around our customer segmentation platform, enhancing our digital client experience, and leveraging technology to more efficiently and effectively serve our customers. In closing, I would like to reiterate how much I appreciate all of my teammates in both the field and our regional and corporate offices. Your dedication impresses me more than I can express. Remember, fellow shareholders, the heroes in our locations work 365 days a year around the clock and do not have the luxury of working remotely. Our first responders have risen to the challenge, putting others' needs above their own. And to them, I say thank you from the bottom of my heart. With that, I'll turn the call over to Eric.

Thanks, Tom, and good morning, everybody. First, I think it's appropriate just to say that all of us at SCI hope that you, your loved ones, your family, your friends, etc., are remaining safe and healthy during this time. Secondly, I'd like to say how grateful and proud that I am as well of our 25,000 team members as they continue to provide vital support to those we care for in all the communities that we serve. I want to reiterate that we would not be here today discussing our positive quarterly results without the dedication and hard work of all of our team members. So to all of our team members here at SCI, I say thank you. So now let's shift to the business at hand today. I first plan to provide an update on the strength of our financial position, allowing us to weather this pandemic storm, and I will then discuss our cash flow results for the quarter as well as give some color for the remainder of the year. So we entered this crisis from a position of strength, and we continue to be very well positioned. We continue to have a significant amount of liquidity and flexibility to meet all the needs of our businesses as well as invest in growth opportunities. Our liquidity has remained robust, growing to just over $775 million, consisting of about $220 million of cash on hand plus $555 million available today on our long-term bank credit facility. We reduced our leverage from 3.88x at March 31 to 3.79x at the end of June, which is well within our targeted range of net debt-to-EBITDA of 3.5 to 4x. Additionally, let me remind you that other than a small series of notes that are due in November of next year, which are about $150 million, we're also very well positioned with a clear debt maturity profile having no significant debt maturities until May of 2024. So with respect to our $5 billion of trust funds, we experienced a 15% return for the quarter. At March 31, we had a net unrealized loss in our combined portfolios of approximately $460 million. Now recall, that this degradation has a muted effect on our EBITDA and our cash flows in the near term as only those earnings on those contracts that mature will affect us in any given period. Since then, our trust funds have experienced a significant recovery, along with the overall market, of course. At the end of June 30, we had a net unrealized gain in these combined trust funds of approximately $63 million. So now let's shift to the quarter and specifically, let's talk about cash flow. So despite being faced with significant challenges and complexities as a result of the pandemic, our business performed well during the quarter, supporting the resiliency of our cash flows at SCI. With the deferral of certain cash taxes coupled with strong operating results, we experienced a $100 million increase in adjusted operating cash flow in the quarter to $184 million, meaningfully exceeding our own expectations. So let's talk about the details behind this $100 million, and we really could split this into 3 main buckets. First, we benefited during the quarter by about $62 million due to the temporary deferral of certain tax payments. We deferred about $47 million of federal and state income tax payments as allowed by the IRS, and this gets moved into the third quarter of 2020. So this is just really timing within 2020. But additionally, we deferred $15 million of payroll taxes as allowed by the CARES Act. And by the end of this year, this payroll tax deferral is expected to grow to about $40 million for the full year, which will then be equally paid back in 2021 and 2022. Also, approximately $28 million of this cash flow growth is attributable to the increase of $0.11 of higher earnings per share over the prior year based on the strength of our operations during the quarter. And the remaining $10 million of growth is related to working capital benefits, which were primarily related to improved cash collections on atneed sales during the quarter. So our maintenance and cemetery development CapEx spend totaled $44 million for the quarter, which is about $7 million lower than the prior year quarter. This decrease in maintenance spending reflects our actions taken late in the first quarter, which is at the onset of the pandemic. As a result of all of this, free cash flow for the quarter calculates at about $140 million. When normalized for the $62 million, though, of total deferred taxes that I just mentioned, free cash flow came in at about $78 million, which is still $45 million higher than what we generated in the second quarter of last year. Now let's shift out of the quarter and kind of talk about the remainder of the year. Midyear through 2020, adjusted cash flow from operations has grown by $95 million from $269 million in the prior year to $364 million today. Again, adjusted for the $62 million in deferred taxes, we've grown $33 million, but a solid 12% over the prior year. While we have seen operating improvement since the beginning of this pandemic, it still remains unclear whether we'll see any mandated lockdowns again in the communities we serve, which could obviously negatively impact our cash flows in the back half of this year. Therefore, there is still a high degree of economic uncertainty, and the pandemic remains, as we all know, a fluid situation. While our locations are generally open to serve in the communities we operate, our ability to offer a full suite of products and services could be limited in certain geographies where outbreaks do occur. With these comments, though, as a backdrop, let me provide you with a few thoughts on the cash flows for the back half of 2020 as compared to 2019. We will pay, as I've mentioned, a significant amount of cash taxes in the second half of 2020. Our second quarter this year benefited from the deferral of the $47 million of federal and state cash tax, as I mentioned, and that was associated with the pandemic relief from the IRS, and that will be paid again in the third quarter. Benefiting the second half of 2020 will also be an estimated $25 million of additional payroll tax deferrals in the back half of this year. Finally, we expect cash interest to be around $10 million lower as we look to the back part of the year as compared to 2019, which is primarily associated with lower rates on our floating rate debt as well as us benefiting from debt refinancing and redemption activities that we've already completed over the past year. And as you saw in our press release, putting all of this together, we're providing normalized operating cash flow guidance of $600 million to $660 million, that's for the full year of 2020. This updated guidance is reflected in the adjusted EPS guidance, which is in the press release, payroll tax deferrals from the CARES Act, lower cash interest and lower cash taxes, along with other working capital sources. Furthermore, our expectations for maintenance and cemetery development capital spending for the year is now expected to range from $165 million to $195 million with the same midpoint we've discussed before of $180 million. The underlying stability of our cash flows in the funeral and cemetery business as well as our strong financial position really gives us the confidence and the flexibility to also continue being opportunistic in deploying capital for the remainder of the year. We continue to seek value-enhancing acquisition opportunities. I believe for the year we will end up in a $50 million to $100 million spend range that we normally target for business acquisitions. However, we could be at the lower end of this range based on recent activity. We also expect to continue deploying capital towards new funeral homes and other expansion opportunities to further grow our business in our target markets. So in closing, I'd like again to thank our nearly 25,000 team members for their dedication and perseverance through these challenging times. We will continue putting the needs of our associates and the needs of our businesses first to, again, safely navigate this pandemic. We believe this approach is in the best long-term interest of our company and all of our stakeholders. And as we reflected, all that has been accomplished by our teams in the first half, we're excited about the momentum we have going into the back half of this year. So with that, operator, that concludes our prepared remarks, and we'll now go ahead and open the call up for Q&A.

Today's first question comes from Scott Schneeberger with Oppenheimer.

It's Daniel on for Scott. Congratulations on a good performance in the quarter. Could you elaborate a bit on the drivers of the cemetery preneed sales? And maybe help us get a sense of the magnitude of each and elaborate a little bit on what you're seeing into July thus far?

Sure, Daniel. This is Tom. Thanks for your question. On cemetery sales, it's important to note that our at-need cemetery sales have increased more significantly than we've ever experienced. This is largely due to the unfortunate reality that more families are facing the loss of a loved one, which is driving more traffic to our cemeteries. We witnessed this trend throughout the second quarter. I also want to highlight that when one family member passes, it often leads to additional purchases, like a space for another family member, which we refer to as companion sales. Additionally, we've made strides in technology and training for virtual appointments. This allows us to engage with consumers who may not be able to visit our cemeteries in person. As part of our strategy during these challenging times, we've implemented extra incentives for our sales team to boost cemetery sales, including offering 0% financing and increased discounting. These efforts are helping us engage with a more attentive customer base, leading to the success we've seen in May and June, which has continued into July. We're proud of our sales team for adapting to this technology; they're effectively using existing tools which are now crucial to our operations. We're leveraging Salesforce to track leads, appointments, and sales closures, and our senior team is providing productive training and development support to manage our businesses remotely during this COVID environment.

And that was very helpful color. I recognize a little early to think about next year. But could you please give us some perspective on how you think about any pull-forward dynamics as we try to model out going forward?

Daniel, I'm assuming you're talking about both funeral and cemetery there?

Yes, please.

On the funeral side, we believe that up to now, we've provided services for about 12,000 COVID cases, which is considerable. Typically, during flu seasons, we see a substantial pull-forward in cases, especially among individuals with existing health issues or the elderly, often residing in retirement communities or nursing homes. This usually reflects a pull-forward of about 60% to 80%. What's concerning about COVID is that early on, especially on the East Coast of the United States, many cases were reported from these facilities. This suggests that many of these cases were indeed pulled forward. The question remains whether this pull forward was from late 2020 and 2021 or earlier. As COVID spreads across the country, particularly in later states, the percentage of nursing home customers appears to be declining, while we're witnessing deaths in demographics we'd typically not expect. This could shift the percentages over time. I'm not able to provide a precise prediction, but that's how to approach this situation. Regarding the cemetery side, an increase in cases tends to generate more lead opportunities. When a death occurs, family members often want to be near their loved ones, which may encourage them to purchase property ahead of time. Our sales team has adapted remarkably, embracing new tools and technology. We've learned a lot from this crisis about enhancing our sales approach and customer engagement. I'm optimistic about our team's ability to drive improvement in 2021. However, I want to caution that if we find a cure for the virus and funeral case numbers decrease, some of the leads we’re seeing now may not be there in 2021. Nevertheless, we're confident in our sales abilities for the upcoming year. We're continually improving in efficiency and effectiveness. Customer loyalty scores are recovering, and we are making significant efforts to engage with potential customers and our communities. I believe 2021 will be a good year, but we should understand that some of the case volume may be pulled from 2021, and I can't specify that percentage.

And our next question today comes from A.J. Rice at Crédit Suisse.

I have a couple of questions. The cemetery production exceeded expectations, and it seems like you did well transitioning to virtual sales. However, it appears that one factor is that during the spike in deaths, possibly related to COVID or other reasons, people bought multiple cemetery plots when they went to make a purchase. Can you clarify where you currently stand in relation to traditional preneed selling activity? How much of the current situation is due to this increase in atneed sales that has affected cemetery production?

Thank you for your question, A.J. I don't have the specific numbers with me right now. I want to clarify that this is not the primary reason for our performance; it’s just one of several factors. If I were to guess, I would estimate that our production increased by around 10%, which could account for about 20% to 30% of that growth. A significant part of this success can be attributed to our quick response to a decline in leads we experienced in April. We adapted swiftly, generating new leads through digital technology and improved direct mail campaigns. As a result, we saw an increase in appointment bookings in May, separate from our walk-in business. While the appointment count was strong, our closing rates initially lagged due to the use of virtual technology. By June, however, we significantly ramped up the number of appointments, and our closing rates for those appointments reached peak levels not seen in recent years. Additionally, we enhanced incentives for our sales counselors focused on cemetery sales, and improved customer incentives. Although our production rose, our GAAP revenues were slightly down, indicating a notable number of customers opted not to put down 10% or chose 0% financing. We've factored in potential cancellations since this segment may have a higher likelihood of that happening. So far, our collections have been strong. We believe that the production we've seen will convert to GAAP revenues in the third and fourth quarters. I can't provide specific figures, but I want to emphasize that this is just one of the reasons for our positive performance, A.J.

Another question is regarding the good margin leverage gain in the funeral business. Last quarter, we discussed how the spike in cases in New York impacted our operating leverage, with additional cases potentially hurting margins due to being overwhelmed. It seemed like there wouldn't be as much margin leverage on these incremental cases, but it appears that we did realize that leverage. There were also several company-specific initiatives aimed at reducing costs. Can you clarify how much of the margin improvement was due to the strong leverage on incremental cases versus the impact of company initiatives? Additionally, how sustainable do you think this improvement will be going forward?

Sure, A.J. I think I can break this down into two parts. First, I want to highlight the outstanding performance of our field management, which contributed to the incremental volume generating the expected level of profits. We had expressed some concerns previously that this might not happen, possibly influenced by my experiences in Europe last summer, where we faced an unusually high number of fatalities. Due to various challenges, we did not achieve the throughput we anticipated. However, I can assure you that this time, our teams managed their costs and staffing excellently. It's important to note that we did not lay off or furlough anyone. Instead, we effectively balanced part-time and overtime work. In the Northeast, we had great support from helpers from outside the state, and we see similar support today in markets like Florida and Texas. This collaboration is significant, and if needed again, we would continue this practice, led by our field management. On a broader scale, we took steps to control non-customer-facing expenses, which was not difficult. We decreased expenditures on travel and incentives, which naturally declined. We also managed our cemetery lawn and grounds better than expected, purposefully looking for ways to maintain the grounds while saving costs. Furthermore, regarding media spending, we reduced local advertising and national media expenses, which made sense under the circumstances, leading to substantial savings. While we plan to increase spending again in the future, it is likely to be different and potentially at a lower level based on the lessons we've learned during this crisis. So, there were many levers at play, resulting in positive outcomes, and the insights gained will help us establish some of these cost savings as permanent changes, while others may return as things normalize.

Okay. And maybe just one last question. I know there was discussion regarding average revenues per funeral. There was an expectation coming out of the first quarter that it would be down in the low double digits, around 10% to 12%. However, you performed better than that. Can you explain the variance? What exceeded your expectations? Do you believe any of these declines are permanent, or do you still think we will see a return to normal at some point in the future?

A.J., looking at the month gives a clearer picture. In April, we experienced a decline of about 12%. Out of that, 11% was attributed to reduced spending on catering, flowers, or services. The remaining 1% was due to our usual mix changes. In May, that 11% drop decreased to 6.7%, and by June, it further declined to 3.1%. This illustrates the fluctuations within the quarter. As we discuss June and July, the situation looks very different than at the start of the period. Regarding the future, I believe there will still be some apprehension about gathering in larger groups over the next year, depending on how we manage the virus. I expect a lingering effect, although not excessively large. Currently, we're seeing about a 3% to 4% decline year-over-year, and it might be challenging to bridge that gap soon. However, I am confident that eventually, people will want to honor their loved ones and celebrate lives. The cultural need for this won't fade away; the concern about COVID will likely linger for the next year or so.

Our next question today comes from John Ransom with Raymond James.

No holes in one this quarter either. So I had to give you a little update, still no hole in one, 58 years in. As we think about modeling funeral average selling price for the rest of the year, is the 3% decline you mentioned in June a reasonable assumption, assuming that the world continues in this holding pattern of rolling shutdowns, without returning to pre-Phase 1 conditions?

Yes, John, I think that is. Could we get a little bit better? Yes. And at some point, you're going to lap yourself, right? So when you talk about month-over-month or quarter year over quarter year. So as you get into March of next year, you ought to have a pretty good tailwind helping you out. But until we get to that point, I think that's probably the best way to think about it, John.

And this primarily concerns the at-need segment. The preneed aspect is still lingering. People may choose to defer, but they are not requesting refunds.

Yes, we've observed some of that. The transition from preneed to atneed has improved significantly. There are a few instances where some individuals might say, 'I'm not gathering or I'm going to organize 10 people. I want a partial refund.' However, the gap is not 3%, more like 1%.

I understand that cemetery sales are growing faster than funeral preneed for some time now, but I've never witnessed a gap this significant. What is it about how these two products are marketed that accounts for such a difference? We accurately projected the funeral side, but I must admit, we didn’t anticipate the extensive gap where you excel in cemetery sales while facing challenges in funerals. Please explain how the selling methods of these products contribute to this large disparity.

Sure, John. On the cemetery side, we are seeing some differences. First, we're incentivizing our sales team to promote cemetery sales more than funeral sales at this time. While that's not the sole reason for the disparity, it's important to note. Second, there is an immediate need when it comes to cemetery sales. When someone passes away, there is a strong impulse to secure the burial space next to a loved one, and if that space isn't purchased promptly, it could be taken by someone else. This creates a sense of urgency. In contrast, funeral decisions can afford to be made with more time and flexibility. Additionally, we are facing challenges with our lead generation for funeral services, particularly from two key sources that have recently diminished. One of these sources was seminars, which had been effective in generating interest and leads because they were held in restaurants. These events have essentially ceased, which has affected our conversion rates for funeral services. We are working on alternative lead generation, and we are seeing improvements, but the initial impact was significant. The other source is referrals from services where we usually follow up with family and friends post-service. However, people are currently less open to follow-up interactions. This reliance on those two lead sources means the funeral side has been more adversely affected. The positive aspect is that we are gradually improving our funeral averages as we adapt to new leads coming from digital channels and direct mail. As we move further into the second half of the year, I expect to see some recovery in the funeral segment, though it will be somewhat challenging due to the issues with lead sources.

Right. And no more Golden Corral meals with 50-year best friends...

Exactly. We were going to have an event called Hole in One in Florida, named after you, but then I realized you never had one.

No, no. Just to remind us, the cemetery market is certainly more diverse. It could be a $100,000 monument or a $300 bronze marker. But at a high level, what is the median versus average sale? Additionally, how much of that revenue are you typically recognizing in the quarter it is sold, and how much are you deferring? I just want to clarify that for everyone.

When considering non-large sales, think of a blended sale as approximately $4,000 or maybe $5,000. If we use $5,000 as an example, we could allocate $3,000 for the property and $2,000 for services and merchandise. Typically, when we sell this and receive a 10% down payment, we would recognize $3,000 as income, while the $2,000 would be deferred and placed into the trust fund over time.

But you're paying the commission from day one on the $5,000, right? So $5,000...

Exactly.

You're paying the commission, you're recognizing $3,000, but you're probably only collecting a fraction of that, especially if it's like a 4-year, 5-year contract or something?

Yes. On average, our typical down payments are around 40%. While there may be some outliers, our average down payment has decreased this quarter due to incentives. Overall, we still have good cash on hand. Additionally, when it comes to selling, repossessing is quite straightforward in the cemetery business, making it solid collateral.

Interesting. Considering the future, a year from now, hopefully things will be back to normal. What permanent and structural changes will have been implemented at SCI, whether in terms of costs, go-to-market strategies, business practices, or philosophy? What aspects do you believe will remain, and which do you think are merely temporary responses to an extraordinary pandemic?

I believe the main takeaway for us is the increased use of technology. Many companies have noted this trend. We have accelerated our technological advancements significantly in just the past few months. This timing is beneficial as we have numerous initiatives focused on integrating more technology into both our support operations and customer interactions. We're currently developing a product that will enhance our effectiveness and improve how we engage with consumers, and we've expedited this process as we see it as a significant opportunity. As a company, we have become more adept with technology and less hesitant to embrace it. We've also gained valuable insights regarding media spending, both locally and nationally. Additionally, we've learned about the value of travel. Previously, we relied heavily on direct travel to meet clients, which can be an effective management strategy. However, we are discovering that these technological tools enable us to be better managers by using data-driven insights. Our senior sales leadership has provided strong feedback that these tools are helping us be significantly more effective in understanding our operations and implementing necessary adjustments. As a result, we anticipate a reduction in travel and entertainment expenses across many companies, which may not be favorable for the restaurant and hotel industries, but represents an important collective realization within corporate America.

Now is Beacon in our future on cemetery? Or is that still kind of a mañana thing?

No, it's in our future, but Eric, go ahead and...

John, Beacon has been performing quite well. One thing we have been focused on is continuing to execute the plan I outlined in previous quarters. I believe we have implemented about two-thirds of the 500 cemeteries in various stages as of now. Measuring the impact is challenging due to the current volatility, making it hard to isolate specific effects. However, I think we will see notable changes when we analyze the situation before and after implementation. We are beginning to observe an increase in the average cemetery sale, as Tom just mentioned, along with improved control and visibility regarding the discounts on cemetery properties. So, behind the scenes, there have been positive developments in our cemetery business that I believe will benefit us once we return to more stable times.

Ladies and gentlemen, this concludes the question-and-answer session. I would like to turn the conference back over to management for any final remarks.

I want to thank everybody for participating in the call today, and I want to also make sure that you guys stay safe and healthy and be careful with all this. We missed getting to see everybody, but that day will come, too. So please stay safe until the next time, and we'll speak to you, I believe, in late October. Thanks again for being on the call.

Thank you, sir. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.