Service Corporation International (SCI) Q2 2020 Earnings Call Transcript

Service Corporation International (SCI 0.78%)
Q2 2020 Earnings Call
Jul 30, 2020, 9:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the SCI second-quarter 2020 earnings conference call. [Operator instructions] Please note, today's event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

Debbie Young -- Director of Investor Relations

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.

Tom Ryan -- Chairman and Chief Executive Officer

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. On the cemetery side, we saw significant declines in a lot of places in preneed cemetery sales and more pronounced in our larger markets on the West Coast. 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 Hispana 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 was 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 non customer-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 work 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, was 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 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.

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

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 3.88 times at March 31 to 3.79 times at the end of June, which is well within our targeted range of net debt-to-EBITDA of three and a half to four times. 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 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 $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 three 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 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 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 benefited 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 of 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 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 toward 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.

Questions & Answers:

Operator

Thank you. [Operator instructions] Today's first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Daniel Hultberg -- Oppenheimer & Co. Inc. -- Analyst

Good morning, guys. 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?

Tom Ryan -- Chairman and Chief Executive Officer

Sure, Daniel. This is Tom. Thanks for your question. So on cemetery sales, I guess it's first important to point out.

If you look at our cemetery atneed sales, they're up more dramatically than we've ever seen them. And that is being driven by the fact that, unfortunately, more people are -- more families are going through the experience of losing a loved one. And as that is happening, it's driving traffic in your cemetery. So that is continuing to happen.

We've seen it happen throughout the second quarter. And so I want to point that out because that also, if you think about it, if I lose dad, I may buy a space for mom, too. So you're getting a pretty good lead source, what we call a companion sale, that's helping drive that. And that's just a small part of it.

The second thing that we've done, and we talked about standing up technology, is we now are getting very good and very effective through training of going through virtual appointments. So we're able to interact with consumers. If we can't get into their homes or they're not capable of coming to the cemeteries, we're able to transact with them, provide information and the like. As part of our strategy also because we knew these were going to be difficult times, we added additional incentives for our salespeople to sell cemetery.

We have lifted some restrictions as it relates to that, I'll call them, customer incentives. So we're utilizing some 0% financing terms. We're utilizing a little more discounting. And those are the types of things that I think are happening now that are allowing us to drive cemetery sales with a more attentive customer because there's more of them there.

And that's leading to a lot of the success that we're experiencing in May and June. And we're continuing to see that success roll into July. So we feel very good about our team. I think our sales team has been heroic in being able to stand up this technology.

They're utilizing a lot of the tools that they were using before, but now it's their lifeblood. They're not able to travel. So we're utilizing sales force to monitor appointments and which leads to -- I'm sorry, monitor leads, which leads to appointments and then after appointment setting, can we close that sale. And we're able to help our teammates at a senior level as they're managing the various businesses from their death, but they're able to provide, I'd say, a more productive training and development in this COVID environment.

Daniel Hultberg -- Oppenheimer & Co. Inc. -- Analyst

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?

Tom Ryan -- Chairman and Chief Executive Officer

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

Daniel Hultberg -- Oppenheimer & Co. Inc. -- Analyst

Yes, please.

Tom Ryan -- Chairman and Chief Executive Officer

OK. So on the funeral side of things, we believe we're now -- and just so this isn't an updated number, not for the quarter. But to date already, we've probably provided services to about 12,000 COVID cases, which is not insignificant. And so with that, typically, when we see a flu season, you're going to see a pretty significant pull-forward because a lot of times with the flu, it's going to result in death with people that have other health issues or elderly.

A lot of times they're in retirement communities or homes. So we're used to seeing probably a pull-forward of 60%, 70%, 80%, sometimes probably closer to that. What's worried about COVID, and I don't think we -- we don't know yet is truly the answer, is COVID, when you looked at it when it first started in the United States on the East Coast, we saw a significant number of cases coming out of retirement communities, nursing homes. And so when you think about those numbers, those probably were cases that were pulled forward.

I mean, clearly, all of these are pulled forward. The question is, did you pull it forward from later 2020 and '21 or from another date. So that may play out a little more like the typical flu. As you're seeing it spread across the country and particularly seeing it in some of the later states or call them the Sun Belt states, that percentage of what I'll call nursing home customers is going down.

We're seeing a lot more people that you never would have expected to have a death that's occurring. So I think the percentages will change as time goes on. So I wish I could be a little more predictive for you, but I think that's the way to think about it. And on the cemetery side, like I said before, I think when you have an increased number of cases, it is going to generate some lead opportunities.

Because, again, on the cemetery side, if I have a death, there's a lot of family members that want to be adjacent to their loved one. And so it may inspire them to purchase property on a preneed basis. Having said that, I think, our sales force has adapted so powerfully to what's going on. They've embraced the tools, the technology.

I think we've learned a lot through this crisis and how to sell better, how to present better, how to develop better. So I'm really optimistic about our sales force's ability to continue to drive improvement in 2021. I just caution you with if we were to experience, again, I hope, some cure for this virus, and we saw the number of cases in funeral go down a bit that's going to take away some leads that you're experiencing now that you won't have in 2021. But I think we feel really good about our ability to sell in 2021.

And I think on the funeral side of things, we're getting better all the time. We're more efficient and more effective. If you look at the loyalty scores of our consumers, those are coming back, I just think we're doing so many things to embrace ourselves with our potential customers and our communities. So I think 2021 is going to be a good year.

I just think we have to understand that we -- probably some of this case volume is being pulled out of 2021 and that percentage I can't tell you, Daniel.

Daniel Hultberg -- Oppenheimer & Co. Inc. -- Analyst

Thank you. That's very helpful. I'll turn it over.

Operator

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

A.J. Rice -- Credit Suisse -- Analyst

Hi, everyone. A couple questions, if I could. So obviously, the cemetery production was stronger than expected. And it sounds like one of the -- I mean, it sounds like you did a good job on the transitioning to virtual sales and so forth.

But it sounds like one of the dynamics was also that people that had the spike in death, whether it's COVID related or whatever, when they went to buy the cemetery plot they bought multiple plots. Is there any way to parse out how -- where you stand relative to the traditional sort of preneed selling activity? How much that is off versus this phenomenon of just an uptick in atneed that had some spillover effect in just cemetery production?

Tom Ryan -- Chairman and Chief Executive Officer

Yes, A.J. Thanks for your question. I don't have specific numbers in front of me. And I didn't want to -- I don't want to give an indication that that's some majority of it.

It's not. It's one of many factors. So if I were to speculate, and again, I'm speculating, we grew production some 10%. I would say that that's probably somewhere of the, call it, 20% to 30% of the increase.

I think a lot of it, too, has -- goes back to we really hustled. We got -- the way this thing kind of transition is we started out in April with a real decline in the number of leads. And we rotated pretty quickly and generated new leads through digital technology and through some enhanced direct mail campaigns. And with those new leads in May, you began to see us setting a lot more appointments.

And so the appointment count began to go up. And again, this is outside of the walk-in business. And from that appointment count, while we were doing really good, our close rate wasn't quite as good, again, because of some of the virtual technology. And by June, we really had it hammered.

We had the number of appointments were very, very high and our close rates as it relates to those appointments jumped to levels we really haven't seen in recent years. So I think a lot of this really has to do with that. I mentioned the incentives before. We enhanced the incentives for the sales counselors on directed at the cemetery.

The customer incentives were much better. And so if you saw, A.J., our production was up but our GAAP revenues were slightly down. And what that means is we had not an insignificant amount of people that didn't put 10% down or took to 0% financing. Now we've taken into account what we think is -- potentially may cancel because probably some of this business has a higher likelihood to cancel.

But so far, so good. Our collections have been great. And so we believe that that production is going to turn into GAAP revenues in the third quarter and the fourth quarter. So I would tell you, I don't have specifics, but that is not the majority reason.

It's just one of a few reasons why we're doing so well, A.J.

A.J. Rice -- Credit Suisse -- Analyst

OK. Another question is, obviously, you got good margin leverage or gain in the funeral business. I know last quarter, when we're dealing with the big spike in cases in New York, there was some discussion about, well, at some level, we don't get the operating leverage off the incremental case. It ends up almost hurting margins because we're sort of overwhelmed.

And that sort of indicated maybe there wouldn't be as much margin leverage on these incremental cases. But it looks like that you did see that. Now I know there was a lot of company-specific initiatives as well that were designed to pull cost out. Can you sort of parse out in your mind how much was -- well, the leverage on the incremental case was actually pretty good or is this really mostly just company initiatives? And how sustainable is some of that going forward?

Tom Ryan -- Chairman and Chief Executive Officer

Sure, A.J. I think most of it is -- I'll bifurcate the two. First to say, our field management did a spectacular job, and the incremental volume did produce the level of profits that you would expect. And we had kind of warned you guys, I think, ahead of time, we were concerned that may not be the case.

And some of that may have been my experience that I saw in Europe, if you remember the summer in Paris, where we experienced an extraordinary number of deaths. And because of what we had to do at the company, we experienced -- we didn't get the throughput that you would expect in the business. And I'll just tell you that that did not happen. Our teams did a fantastic job of managing their cost, their staffing.

And so the field really drove a lot of the salary and wage savings that we experienced. And remember, we didn't lay anybody off. We didn't furlough. This was managing the workload between part-time and over time and the like, but effectively utilizing people.

And as you'll recall, in the Northeast, particularly, we had some heroic helpers coming from outside of the state to assist our friends in the Northeast. And vice versa, we're seeing that happen again today in different markets like Florida, Texas. So that is real, and that is something that I think if it happened again, we'd continue to do, and that was led by our field management. At a higher level, we really took on some things like noncustomer-facing costs, which were easy to do.

I mean, we've had a lot of travel, a lot of things that we spent money on, trips, incentives, things like that that just kind of faded out. Our lawn and grounds on the cemetery side, we managed better than expected, and that was very purposeful. We kind of went in and said, what's our cycle on knowing, special projects, and we found some better ways to maintain the ground and save some money there. And again, that, I think, continues to happen.

And then I think media spend. We spend money, local advertising, national media, different forms of media. And because of what's going on, it just made sense to tone that down, and we have and saved a lot of money. And we're going to tone it back up at some point, but I think it's going to be different and probably spend less money, because we learned a lot through this crisis.

So a lot of levers, a lot of good things. And I think learnings across each of those things that I talked about that's going to allow us to make some of those savings very permanent and some of them will come back as things normalize.

A.J. Rice -- Credit Suisse -- Analyst

OK. All right. And maybe just one last question. I know the discussion about what was happening with average revenues per funeral.

There's an expectation coming out of the first quarter that it would be down low double digits, low 10%, 12% or something. And you came in better than that. Where was the variance? What was better than you were expecting? And do you think any of those declines are permanent? Or do you still think we'll see it return to normal at some point in the future?

Tom Ryan -- Chairman and Chief Executive Officer

OK. So A.J., if you take the month, it's probably easier to see this. We were down in April about 12%. 11% of that was people not spending -- it's kind of what I referred to on the call, people not buying catering or flowers or maybe not having a service.

So 11% of the 12% decline was that and then the other 1% is just our typical mix change. As you got into May, remember that 11% number because that's just a ticket, somebody walking in and spending. In May, that 11% went down to 6.7%. And in June, it's down to 3.1%.

So it gives you an idea of the quarter has many turns and twists. As we sit here in June and July, that gap is very different than where we started. Now to your point, as I think about going forward, I believe -- and again, this is Tom's opinion, so maybe not worth as much. It's going to be a little bit of an issue because I think there are people that for at least the next 12 months, if we understand this virus right, there's going to be some reluctance to gather in larger groups for a while.

And so I do think there's a hangover effect. I just don't think it's that big. I think we're now seeing like I said, a 3% to 4% year-over-year decline. That may be tough to fill that gap for a little while.

I think one day, it does because if we've learned one thing, we know that our families really, really want to go through this grieving process, celebrate a life lived. So I don't see that culturally going away. I just think there's a concern around the spread of COVID that it's probably going to be a hangover for the next 12 months or so.

A.J. Rice -- Credit Suisse -- Analyst

OK. Great. Thanks a lot.

Operator

[Operator instructions] Our next question today comes from John Ransom with Raymond James. Please go ahead.

John Ransom -- Raymond James -- Analyst

Hey, everybody. No holes in one this quarter either. So I had to give you a little update, still no hole in one, 58 years in. The -- thanks for that polite laugh, Eric.

The -- as we think about modeling funeral ASP for the rest of the year, is that down 3% that you mentioned in June, is that a -- you think that's -- assuming that the world kind of stays in this holding pattern of rolling shutdowns, but nothing -- not going back to pre-phase one, do you think that's a good way to think about it?

Tom Ryan -- Chairman and Chief Executive Officer

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.

John Ransom -- Raymond James -- Analyst

And this is mostly the atneed. So the preneed going atneed is that still hanging in. People aren't -- people may defer, but they're not asking for their money back?

Tom Ryan -- Chairman and Chief Executive Officer

Yes. For the most part, yes, we've seen a little bit of that. So the gap in preneed going atneed is a lot better. You are going to have the few that come in and say, "Hey.

I'm not gathering or I'm going to do 10 people. I want a little money back." But yes, not 3% gap, so maybe 1% gaps on that.

John Ransom -- Raymond James -- Analyst

OK. Second question is, I know that cemetery is growing faster than funeral preneed for a while, but I've never seen a gap quite like this. Just what is it about the way those two products are sold that explain such a disparity? I mean, we modeled down correctly in funeral, but I'll be honest, we didn't see such a disparity that you do so well in cemetery, but struggle so much on the funeral side. Just help us understand why those -- how those things are sold differently, would explain such a big gap.

Tom Ryan -- Chairman and Chief Executive Officer

Sure, John. So on the cemetery side, we're experiencing a little -- number one, recall that we're incenting our sales for to sell a little bit more cemetery, and we're not doing that on funeral today. I don't think that's the biggest reason, but I think it's just important to understand. The second thing is, like I said, there's an immediate need, if you think about it, as I have a death and I'm burying my loved ones, if I'm burying my wife, I want to buy the space next to her.

And if I don't do it now, then somebody else could buy the space next to her. So I think there's a locked in -- you need to make a decision to do something whereas, let's say, a companion funeral sale, I got time. Rght? It doesn't really matter. So I think there's an urgency for that cemetery sale.

The other thing that's very impactful is we get a lot of our leads on funeral from two sources that kind of dried up for now. One is seminars. We mentioned it a little bit. So we have these grassroots events or educational seminars, which generate a lot of interest and leads for us.

Those have shut down to effectively zero because they were in restaurants. Those were 75%, 80% of the -- conversions off that were funeral, and that's kind of gone away. Now we've done some additional lead work to help funeral, and I think it's getting better, but that was kind of a shock to the system. And the other thing is just referrals.

We generate a lot of leads off of having a service then following up with friends and family afterwards, bringing flowers over or a phone call. Well, people aren't as receptive to follow-up visits right now. So because funeral was so vested in those two lead sources, I think, it's been impacted more dramatically. The good news is, again, it's kind of like what you're seeing in the funeral average.

We're creeping up better and better in funeral because we're taking these new leads that are coming from digital or coming from direct mail, and we're getting better and more effective at how we use them. So I think you're going to see improvement as the back half of the year comes in on funeral, but it is a little bit harder just because of that lead source issue.

John Ransom -- Raymond James -- Analyst

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

Tom Ryan -- Chairman and Chief Executive Officer

Exactly. And we were gonna have one -- we're going to have one called Hole in One in Florida, named after you, but then I realized you didn't ever have one.

John Ransom -- Raymond James -- Analyst

No. No. The other -- just to remind us. Cemetery certainly more heterogeneous.

It could be a $100,000 monument or a $300 bronze marker. But just at a high level, what's the median versus average sale, if you will? And how much of that are you generally booking in the quarter you sell it versus how much are you deferring just to level set that for folks?

Tom Ryan -- Chairman and Chief Executive Officer

So when you think about the non-large sale, think of the blended sale as being -- and I'm making this up, John, so it's not going to be perfect. But think of it as a $4,000 sale and more likely than not, that's going to be -- or maybe $5,000 is a better use. So when you think of $5,000, we'll say $3,000 of that could be the property and the other $2,000 would be a service and merchandise that you may buy. So in that case, typically, if we sell it and we get 10% down and it's constructed, we're going to take the $3,000 to income and $2,000 are going to get deferred and put into the trust fund over time.

And on a large --

John Ransom -- Raymond James -- Analyst

But you're paying the commission -- you're paying the commission day 1 on the $5,000. Right? So $5,000 --

Tom Ryan -- Chairman and Chief Executive Officer

Exactly.

John Ransom -- Raymond James -- Analyst

You're paying the commission, you're recognizing $3,000, but you're probably only collecting a fraction of that. So the cash is -- you're just collecting a fraction of that, especially if it's like a four year, five-year contract or something?

Tom Ryan -- Chairman and Chief Executive Officer

Yes. But on average, our typical down payments probably is about 40%. So on the fringe, you're going to have some of that, and we are definitely -- our average down payment is down this quarter versus most because of incentives. But generally, it's pretty good cash in hand.

And again, when you think about selling something, your ability to repossess is pretty easy in the cemetery. So it's a pretty good collateral.

John Ransom -- Raymond James -- Analyst

Interesting. And then if we think about the more interesting question, I think. So a year from now things, hopefully, are back to normal. What permanent and structural changes will have been made at SCI, either cost or how you go-to-market or business or philosophical? What do you think sticks? And then what do you think is just -- this is a temporal reaction to an extraordinary pandemic?

Tom Ryan -- Chairman and Chief Executive Officer

I think the biggest learning for us -- first of all, I think it's leveraging technology. We -- a lot of companies have said this. We have advanced our use of technology three or four years over the last three or four months. And it's really great timing because we had a lot of initiatives that were driven off introducing more technology, both to the support side of what we do.

So think of the back office mechanisms that happen and the customer facing. So we're in the midst of developing a product that was going to make us more effective and efficient any way and make us better at interacting with consumers. And through this, we've accelerated it. We did not cut back on that because we view this as a huge opportunity to advance the ball.

I think as a company, we're all more tech savvy. We're less afraid to jump into that. We learned a lot of things around, I think, media spend, at a local level and a national level. So I think there's quite a few things that are changed, John.

And the other one, I think, that we've learned is travel. We were -- and a lot of companies like this, I'd call it heroic travelers where we'd get out quite a bit and beat the bushes and see people. And that's an effective way to manage sometimes. But I think what we're learning is with these technology tools, you're top of a better manager being driven off of data.

And I think on the sales force side, for sure, the feedback from our senior sales leadership across the board has been saying, Tom, we're so much more effective because we're utilizing these tools to understand what's happening and can take corrective actions. It'd be helpful. And so I think you'll see less travel and entertainment and things like that across a lot of countries. Now that isn't bode well for the restaurant business, but -- or the hotel business.

But I think that's a collective learning corporate America.

John Ransom -- Raymond James -- Analyst

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

Tom Ryan -- Chairman and Chief Executive Officer

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

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

John, Beacon's been doing pretty well. I mean, one thing we have been doing is executing -- continue to execute on the plan that I laid out to you in previous quarters. And so I think we have upwards of, let's call it, probably two-thirds of the 500 cemeteries or so that have kind of been implemented in some stage as of right now. It's difficult to measure based on the volatility that we're obviously seeing.

It's difficult to isolate it. But I think when we do get to it and we show pre and post-implementation, I do think we're starting to see some decent movement in both the cemetery average sale, kind of, what Tom just mentioned, as well as some better control and visibility into the discounts of the cemetery property. So yes, behind the scenes, there's been some improvement, specifically related to that in our cemetery business that I think will benefit the future when we get back to more kind of normal times.

John Ransom -- Raymond James -- Analyst

Right. OK. Thanks so much. Good job.

Tom Ryan -- Chairman and Chief Executive Officer

Thank you.

Operator

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.

Tom Ryan -- Chairman and Chief Executive Officer

I wanna thank everybody for participating on 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.

Operator

[Operator signoff]

Duration: 54 minutes

Call participants:

Debbie Young -- Director of Investor Relations

Tom Ryan -- Chairman and Chief Executive Officer

Eric Tanzberger -- Senior Vice President and Chief Financial Officer

Daniel Hultberg -- Oppenheimer & Co. Inc. -- Analyst

A.J. Rice -- Credit Suisse -- Analyst

John Ransom -- Raymond James -- Analyst

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