Service Corporation International
NYSE:SCI
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Service Corporation International
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Good day, and welcome to the Service Corporation International Fourth Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode [Operator Instructions]. Please note, this event is being recorded.
I would now like to turn the conference over to SCI Management. Please go ahead.
Thank you, and good morning. This is Debbie Young, Director of Investor Relations at SCI. Welcome to our company's review of business results for the fourth quarter and the year ending 2021. As usual, let me quickly go over the Safe Harbor language before we begin with the prepared remarks from Tom and Eric.
Any comments made by our management team 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 may also discuss certain non-GAAP financial measures. A reconciliation of these measures to the appropriate GAAP measures can be found in the table at the end of our earnings release and also in the non-GAAP presentation located on our website under the Investors Webcast and Events section.
With that out of the way, I'll now pass it on to our Chairman and CEO, Tom Ryan.
Thank you, Debbie. Hello, everyone, and thank you for joining us on the call today. First of all, I want to express my sincere thanks to our entire SCI team. As we now are on the verge of navigating in this COVID-19 world for nearly two years, I am so very proud of your result. You've never wavered from your mission. You continue to do what we do best, helping our client families gain closure, comfort and healing through the process of grieving, remembrance and celebration.
For the home office teams that worked tirelessly providing support to the field, thank you. To our field leadership, making critical real-time decisions that protect our company our client families and our employees, thank you. And a special shout out to our frontline teammates who provide peace of mind to our preneed customers, comfort and support to our grieving families and to our maintenance teams that make every effort to ensure our locations and parks are world-class. Our team gets it, if the details of the matter.
Now to the business at hand. This morning, I'm going to provide some color on our business performance for the year and for the fourth quarter, including some detail around our funeral and cemetery results. Then I will offer some commentary on our 2022 outlook. Keeping in mind, we must be flexible as we navigate the uncertainty of another year impacted by COVID.
First, in terms of the full year 2021 results. We ended the year with a strong performance in both our cemetery and funeral segments. For the year, we grew revenue $632 million or 18% and adjusted earnings per share to $4.57 or 57% compared to the prior year.
While we saw a 4% comparable funeral volume growth, even growing over a COVID impacted 2020, the primary drivers of our revenue was mid-20% growth in both preneed and at-need cemetery revenues combined with a strong 7% increase in our funeral sales revenue. Timely, meaningful action in our share repurchase program and debt refinancing also drove healthy increases in our full year 2021 earnings per share.
Now shifting to the fourth quarter. We generated adjusted earnings per share of $1.17, a 4% increase over the prior year quarter and a 95% increase over a pre-pandemic fourth quarter of 2019.
Compared to the 2020 fourth quarter, funeral results drove the earnings per share increase as a healthy 8% increase in the funeral sales average offset slightly lower volumes and cost increases associated with staffing and energy. On the cemetery side, profitability was relatively flat as revenue growth from at-need cemetery sales and preneed cemetery sales was offset by a lower impact from new construction on cemetery projects and increased costs from staffing and maintenance. Below the line, the benefit of fewer shares outstanding offset higher general and administrative and interest expense as well as a higher tax rate.
Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues grew $47 million or about 9% over the prior year quarter, exceeding our expectations as core revenues, non-funeral home revenues from SCI Direct and general agency revenues all saw impressive growth in the quarter. Comparable core funeral revenues grew $32 million, led by an impressive 8.4% increase in the comparable funeral sales average. The core sales average continues to climb sequentially and is up about 5% over the 2019 pre-COVID fourth quarter.
Our percentage of families selecting to have funerals and celebrations of life has essentially returned to pre-COVID levels. In the funeral sales average, it is being further positively impacted by an uptick in ancillary revenues, such as flowers and catering. This increase in average was achieved despite a 120 basis point increase in the core cremation rate.
Comparable core funeral volume declined 1.5% compared to the prior year quarter, slightly offsetting the positive impact of the funeral sales average. Keep in mind, the 2020 fourth quarter we're comparing against was acutely impacted by COVID and saw a 17% core funeral volume increase over the 2019 fourth quarter.
From a profit perspective, funeral gross profit increased $10 million, while the gross profit percentage dropped 60 basis points to 27%. Fixed costs in the funeral segment includes salaries, fringe, vehicles, facilities and general and administrative expenses. In the fourth quarter of 2020, those costs were actually down 2% versus the 2019 fourth quarter, even with 17% more volume as the pre-vaccine era of the virus restricted both the consumers and our ability to provide a full-service funeral.
In the 2021 fourth quarter, these costs increased by 8% compared to the 2020 fourth quarter. So overall, our fixed costs have increased 6% over the two-year period or, let's say, 3% on a compounded annual basis while we are caring for 17% more customers than we did in 2019. So bottom line, I believe we are managing our costs very well against an unusual and difficult 2020 fourth quarter comparison.
Preneed funeral sales production for the quarter exceeded our expectations, growing $30 million or nearly 14% over the fourth quarter of 2020. Both our core funeral homes and SCI Direct businesses posted strong production increases against an easier fourth quarter comparison in 2020. Our core preneed funeral average revenue per contract winning the backlog now is over $6,300. This is an 8% increase over 2020 and more than $300 higher than our at-need average for the quarter.
We continue to see positive momentum in generating significantly more high-quality marketing leads at a lower cost through increased focus on digital needs as well as more sophisticated data targeting for our direct mail and seminar programs.
Now shifting to cemetery. Comparable cemetery revenue increased $21 million or 5% in the fourth quarter. In terms of the breakdown, at-need cemetery revenue generated $13.5 million of the growth driven by a higher quality core average sale and a modest increase in contract velocity. Recognized preneed revenues generated about $8 million of the revenue growth, primarily due to higher recognized preneed merchandise and service revenue.
So preneed cemetery sales production grew $39 million or 13% in the fourth quarter. This growth is on top of a 2020 fourth quarter, which grew by 16% over 2019. A higher core sales average accounted for the majority of the increase. However, we were still able to grow the velocity of contracts sold by almost 5%, which accounted for the remainder of the sales production. As I mentioned in my preneed funeral discussion earlier, we continue to see production growth from a marketing-generated leads program that very successfully led to preneed sales production.
Additionally, we're seeing improvements in key sales metrics such as the number of appointments set and our close rates. I want to take a moment to recognize the tremendous efforts of our entire cemetery sales team. For the full year 2021, they produced $1.3 billion in cemetery preneed sales production. This represents a 28% increase over and above the very strong 15% growth in 2020. This could not be accomplished without a tremendous sales organization that is supported by the tireless efforts of our cemetery management, administration and especially our talented grounds maintenance associates that keep our parks clean.
Cemetery gross profits in the quarter declined slightly by $1 million and the gross profit percentage dropped 200 basis points to 36.8%. Recall that in the prior year quarter, no vaccine existed, and we saw fewer visitors to our cemeteries. So labor and maintenance costs were temporarily low. Now as we normalize the staffing level and make enhancements in our parks appearance, these costs, combined with higher selling costs and higher energy costs, reduced margins as compared to the prior year.
Now let's shift to a discussion about our outlook for 2022. As you saw in our earnings release, we issued 2022 guidance of adjusted earnings per share to a range of $2.80 to $3.20 or a midpoint of $3. At the midpoint, this represents a $0.20 increase from our previously mentioned model midpoint of $2.80 in our third quarter conference call.
The $3 midpoint reflects a 16.5% compounded annual growth rate over the pre-COVID earnings per share base in 2019 of $1.90, well above our historical guidance range. As you think about the cadence for the year, as we compare back to $4.57 in 2021, we would expect negative comparisons for each quarter. We should see continued elevated earnings in the first quarter due to COVID as we are continuing to experience increased demand with funeral volume and at-need cemetery sale.
As the year goes on, we would anticipate that the COVID impact becomes immaterial and that we should begin to see the pull-forward impact from 2020 and 2021 having a mildly negative effect on funeral volumes and at-need cemetery revenue, thereby making the quarterly comparisons increasingly more difficult. For the year, we believe the favorable COVID impact from the fourth quarter and the pull-forward effect later should effectively offset into an impact that will not be material.
So how are we going to grow earnings per share at a 16.5% compounded annual growth rate from the 2019 base. First, we reduced the share count with accelerated share repurchases during the uncertainty of the last two years. The pandemic also forced us to quickly leverage and implement technology in ways that would have taken many years to take hold in an organization of our size. We believe these accelerated changes have made us more productive with our processes, staffing and other efficiencies.
On the sales side, we had to lean on our technological tools to manage, allocate leads and develop and train our counselors, which has resulted in a much more productive organization.
Now let's discuss some of the segment assumptions. Within our funeral segment, we know we're going to have to transition period where volumes are affected by the pull forward of services into 2020 and 2021 that I just described. Our expectations for the pull forward continue to diminish as we see a larger number of the younger population being affected by these latest surges in COVID and COVID-related mortality.
For funeral volumes, we're anticipating a comparable volume decrease in the mid-teen percentage range from 2021, but at levels that are flattish to a pre-COVID 2019 and after considering the pull-forward impact.
Meanwhile, we expect the average revenue per case to continue to compare favorably growing in the low single-digit range. And finally, we forecast preneed funeral sales production to grow in the 3% to 5% range for the year. On the cemetery side of the business, cemetery at-need revenue should correlate strongly with funeral volume. So we expect them to also be down in the mid-teen percentage range.
We expect preneed cemetery sales production to fare much better as we can drive activity with marketing leads, we expect a decline in the mid- to high single-digit percentage range when compared to a very robust 2020 and then returning to a more normalized growth in 2023 but on a much higher base. Beyond 2022, as I just mentioned, we believe the pull-forward effects will weigh and the trend of year-over-year growth should begin as we approach an aging baby boomer cohort with a leaner, more technologically efficient and effective operating model.
We continue to believe that after establishing a new base year in 2022, we will return to earnings growth in the 8% to 12% range in 2023. And with demographic tailwinds and the improvements we have made and plan to continue to make through our operating platform we expect to capture upside opportunities in the years ahead.
With that, operator, I will now turn it over to Eric.
Thanks, Tom, and good morning, everybody. As we reflect over the past 7 or 8 quarters during this pandemic, we are so proud of all of our associates, especially those who have been on the front lines with the families and communities, we've had the privilege to serve. I can't thank you enough for all you have done and the support you have provided during these most challenging of times. We're all hopeful we are closer to the end of this pandemic, which will enable us to return to some form of normalcy for all of us.
So with that, I'd now like to transition to walking you through our cash flow results and capital for the quarter and full year of '21 and then provide some comments on our outlook for 2022.
So operating cash flow is approximately $190 million in the current quarter compared to $245 million in the prior year with the primary decline due to an increase in cash tax payments during the quarter to $97 million versus the $36 million in the fourth quarter of last year.
Excluding cash taxes in both periods, operating cash flow before taxes increased almost $6 million to $287 million in the fourth quarter, driven by modest increases in earnings and favorable working capital, partially offset by $6 million of higher cash interest payments. So as we step back and look at the full year of 2021, we generated $912 million in adjusted operating cash flow, representing a substantial increase of $108 million or 13% over the prior year. Deducting recurring CapEx of $260 million, which again represents maintenance CapEx and cemetery development CapEx, we calculate free cash flow for the full year to be an impressive $652 million in 2021, up $33 million from $619 million in 2020.
So capital deployment has really been a highlight all year for us, and the fourth quarter was no exception deploying nearly $500 million, which is the highest quarterly capital deployment we have seen in recent history. This capital went to reinvesting in our businesses first, expanding our footprint through key acquisitions and new funeral home builds and returning capital to shareholders.
Now let's talk about the breakdown. We invested $110 million in our businesses with $65 million of maintenance capital and $45 million of cemetery development capital spend during the fourth quarter. From a growth capital perspective, and as I mentioned on our October call, recall that we were very excited about the acquisition candidates we are working with late in 2021. So I'm happy to report, as you have seen that those acquisitions closed bringing the total investments during the quarter to $112 million and again, expecting low double-digit to mid-teen IRRs on each of these transactions.
These businesses added almost $40 million of full year revenues from 28 funeral homes and two cemeteries in Ohio, California, Illinois, Oregon and Rhode Island. And most importantly, I'd like to welcome the over 300 new associates from the Sheninger, Miller Jones, Lochner, Skyline, Russel Boyle and Golden Businesses to the SCI family. We also deployed about $16 million towards newbuilds in Texas, Colorado, Washington and Florida. This brings total 2021 spend on newbuilds to $43 million with, again, low double-digit to mid-teen IRRs, which also helped drive additional earnings and cash flow growth for the company.
Finally, we deployed $248 million of capital during the quarter to shareholders through dividends and share repurchases and $700 million for the full year of 2021. For the last two years alone, we've meaningfully reduced our outstanding shares by about 10% through timely execution on our repurchasing strategy. Since the inception of our repurchase program, we have now reduced our shares outstanding by just over 50%.
So now let's shift to our outlook for '22 in terms of cash flow and capital. Based on the guidance range for adjusted EPS of $2.80 to $3.20, which as noted in our press release, we expect our adjusted cash flow from operations to range from $675 million to $725 million, again with a $700 million midpoint. As Tom mentioned, at the midpoint of our earnings guidance range of $3, we expect to meaningfully exceed our 8% to 12% earnings growth framework for EPS when comparing back to a pre-COVID 2019 base of $1.90. So from a cash flow perspective, our 8% to 12% earnings growth framework generally translates historically into about a 4% growth in adjusted cash flow before cash taxes.
So adjusting for $150 million of expected cash taxes in '22, our adjusted cash flow from operations before cash taxes is expected to be about $850 million at the midpoint. This equates to a 6.5% CAGR over our pre-COVID 2019 adjusted cash flow from operations before cash taxes of $700 million, which is similarly in excess of this normalized 4% annual growth that we normally expect.
So there are also a couple of items that I'd like to highlight when we think about our adjusted cash flow in 2022. First, we will be required to pay the remaining half for about $20 million of payroll taxes that were deferred in 2020 as allowed under the CARES Act. And as I just mentioned, cash tax payments in '22 are anticipated to be about $150 million based on the midpoint of our earnings guidance or $115 million lower than the $265 million of 2021. And from an effective tax rate standpoint, we continue to model in the range of 24% to 25% in 2022.
One other topic I'd like to address for 2022 as we look forward for the full year, is our corporate G&A expectations. Now historically, we've guided to around $125 million to $130 million of annual recurring corporate general and administrative expenses. Recently, we have begun a process to reevaluate our overhead structure with all of the initiatives we currently have underwent.
As a result of this review that is ongoing, we have identified about $20 million to $25 million of cost, which we believe may be more appropriately characterized as corporate in nature versus fuel-related expenses that is primarily related to certain technology, risk and governance areas. Therefore, when you're modeling 2022 at this point, I would expect annual corporate G&A to increase to maybe around $145 million to $150 million per year, with the corresponding dollar-for-dollar decrease in costs in the segment margins. So therefore, with no effect on our bottom line or our cash flows.
So looking forward to 2023, we expect to return to a normalized cash flow growth trajectory with an expected 4% growth in adjusted cash flow from operations before cash taxes, which again is in line with our 8% to 12% earnings growth framework per share that we just mentioned. So in terms of capital deployment, moving on to some thoughts in 2022. Our expectations for maintenance and cemetery development capital spending is $270 million to $290 million for the year. At the midpoint, cemetery development CapEx comprises about $120 million of this amount and maintenance CapEx makes up the remaining $160 million.
This maintenance CapEx of $160 million includes about $110 million of normal routine maintenance capital used at our funeral and cemetery operating locations as well as another $50 million for field and corporate support capital. This $50 million is primarily being deployed towards technology to not only improve the customer experience with ultimately customer-facing technology, but also towards network infrastructure at our operating locations.
In addition to these recurring capital expenditures of $280 million at the midpoint, we expect to deploy $50 million to $100 million towards acquisitions and roughly $50 million more in new funeral home construction opportunities, which together, as I continue to say, drive meaningful after-tax IRRs well in excess of our cost of capital.
So to summarize this for a capital deployment strategy for 2022, we really expect to continue much of the same as you've seen from us over the past several years. We follow a disciplined and balanced approach, deploying capital to the highest relative value for our shareholders. And of course, this strategy is predicated on our stable free cash flow, our robust liquidity, which is over $1 billion at the end of the year as well as our favorable debt maturity profile.
Lending additional support to this strategy, our leverage ratio at the end of the quarter landed just under 2.6x from a net debt-to-EBITDA perspective. And as we've noted in the past, looking beyond the impacts of this pandemic, we continue to expect to increase back to our targeted leverage range of 3.5 to 4x towards the latter part of this year as we lap stronger EBITDA quarters moving forward.
So in closing, after a very strong 2020, we are very pleased that we exceeded those results in 2021. We are most proud of how our team has persevered over the last two very challenging years. The compassion and professionalism our teams have demonstrated is truly remarkable, and we appreciate each and every one of our team members. As we look forward to another year, I'm very excited about the momentum we have moving forward into 2022.
So with that, operator that concludes our prepared remarks. I'd now like to turn it back over to you for the Q&A session.
[Operator Instructions] The first question comes from Scott Schneeberger with Oppenheimer. Please go ahead.
Thank you very much. Good morning everyone. I guess I'd like to start with funeral and particularly cemetery preneed sales remain quite strong and it sounds like you all are anticipating within this 2022 guidance, that second quarter, third quarter, fourth quarter is where we really see the reversion from the pull-forward based on your crystal ball at the moment. I want to ask cemetery preneed. It sounds like you think that, that will persist for a while longer. Could we get a little bit more sense of what kind of tail that would be and bridging you to the normal period, presumably in 2023 after that reversion period? Thank you.
Sure, Scott. What we think is, again, COVID obviously had an impact on our funeral business, obviously has an impact on our at-need cemetery revenues. And so our expectations are that as this begins to wane, particularly in the last three quarters of the year that our comparisons are going to get down kind of double digits as you think about those two categories. And to your point, when you turn it around and talk about, let's talk about cemetery because that's going to impact EPS, funeral, we feel very good about. We actually think we'll continue to grow at low to mid-single digits for the year. But on the preneed cemetery side, while we're saying, call it, mid-teens for funeral volume, we're looking at kind of mid-single digits.
You did say, how did you do that? Or why is it different? And I think our opinion is this that we have, because of technology and the tools that we have access to in our learnings that we are a much more effective and efficient sales force with better leads, better ability to train, just much more effective and efficient. And so from that, we think 2022, while it will be down versus 2021, establishes this new base and, let's call it, mid-single digit down. And then we begin to grow off of it again.
So really is a, I'd say, efficiency and effectiveness of everything from the lead coming in to the sales force itself, to the sales managers that are using technology to better manage, develop and train. And we -- so that's the way we view the world is that preneed kind of got a new base to go off of and at-need still going to be impacted by what's happening with deaths clearly. And that's something that's clearly outside of our control.
I appreciate that. And then switching over to at-need funeral. The revenue per service has been -- has really bounced back nicely. I'm curious, it's been about two quarters since FEMA amended the COVID-19 funeral assistance policy to financially assist with funerals for COVID-related death. How much has that contributed? Obviously, opening up has contributed a lot. But how much is this financial assistance program contributed to revenue per funeral service and cemetery for that matter? And how long will that -- is that program anticipated to persist? Thanks.
So just a little feedback on that. It's very difficult for us to measure it. The one thing that we have done is we put the link on our website. And I would tell you that, very few people ever went there. So we're not seeing a big evidence of that contributing to the spend of our consumer. I think what it is, Scott, is a couple of things on the preneed side, clearly, our trust fund income, if you look at the market returns or just our returns over the last three years, they're all kind of mid- to high-teen returns that have accumulated in those trust funds. So that's having a bigger impact on the preneed and at-need.
And on the at-need side, it looks acutely higher compared to 2022. But what's really causing that is remember, in last year's fourth quarter and most of last year, we saw a real shift to out of service. And what we're seeing now is a big return to service, and we're seeing people that are choosing particularly cremation but burial too are spending up for additional services and the like. We also are seeing a real rebound in our -- what we call our ancillary revenues. And these would be flowers that are purchased by friends of the family as well as kind of catering.
So these are things that kind of went away for a while and not only have they come back, but they've come back incredibly strong. I think on the flower side, we're well beyond anything we ever saw as a company. So I think those are the things really lifting. And if you step back and look at my comments, I'm saying of a 2019 base, our average is up 5%. Now I'm very pleased with that. I think we're happy, but it's not unreasonable. I mean you think over a 2-year period, if you can get 5% inflationary pricing.
So I think some of it is just the numbers look unusual as you try to compare back. But a lot of positive things happening, and we do not have any real evidence of FEMA. Now clearly, there's money in the system out there. I don't want to pretend there's not and that could have an impact on what people want to spend, can spend, but I don't think it's anything material.
All right. I appreciate that. One more, if I could sneak it in. This is essentially a 2023 CapEx question, just to give you the question upfront. But just you've been trending prior to the pandemic 7% CapEx as a percent of revenue. And it looks depending on what your sales estimate is for this upcoming 2022, looks like that's going to be up around 9%. It sounds like you have some increased infrastructure technology spending.
I'm just curious, are we going to see a reversion on CapEx percent of revenue if that's the way you think about it back down to like a 7% in 2023 and thereafter? Are we going to be at a new elevated level of 9 or 10-ish going forward? And just kind of a little bit more of what's behind in this increased CapEx spend. Thanks.
Scott, it's Eric. There's a couple of things that are happening here. First, let's talk cemetery development. So as you know, in that 7%, we've always said, all else being equal, we think we're going to spend somewhere around $100 million in cemetery development CapEx per year. If you look at the financials, you'll notice that we didn't spend that in the last two years. We spent in the low 80s, frankly, for cemetery development. So I think 1 thing you have to notice is that our cemetery development is going to be higher this year, kind of making up some momentum in some of the capital that we had. And some of those are just projects that got hung up in permitting in California and things like that. But let's call that $120 million to $125 million. So that's a little bit higher, and I anticipate that to normalize. So that's going to be part of that component going back down to the 9%, 7% the metrics you use. The other thing that I'd tell you is our maintenance CapEx kind of normalized around $125-ish million in that ballpark.
It was generally that 110 to so area investing back into the funeral homes and cemeteries from a maintenance perspective. And then we had this corporate strategic kind of spend which was about $15 million or $20 million or so. And that is what has grown that I talked about in my conference call.
And that's been the things that I've said before, which are some of the infrastructure as we've gone through remember, 2,000 locations going through, you can't do that overnight. So that's going to be a multiyear project where we are investing in network upgrades, infrastructure which again is all about the technology we use on-site for customer-facing things such as celebration of life in addition to some of the software that we use that's also customer-facing such as HMIS+, et cetera.
Ultimately, I think that eventually starts reverting back to the mean, but I wouldn't characterize that probably in '23. I think we need another year or so, maybe 18 months to get through some of the stuff we're doing. We've also talked about reimagine, which is some of the efficiencies we want to bring us in technology to kind of the back office part of the field operations, and that's going to be ongoing as well for a couple of years.
So to answer your question, is cemetery development kind of reverts back. I think maintenance is here for a little bit longer, maybe for another year in '23, maybe leads into '24 and then it starts reverting back.
Eric, that's real helpful. Thank you, thanks for taking my questions.
The next question comes from Joanna Gajuk with Bank of America. Please go ahead.
Good morning. And thanks for taking the question. So thanks for the clarification on the CapEx because I was also wondering about that number being higher. But I guess also -- as it relates to D&A, depreciation and amortization for the year, I don't know whether you -- is there a number you can guide us to? Because it seems like it could -- historically, right, D&A has been higher than CapEx. Correct me if I'm wrong. And then I guess it might actually flip this year. So how should we think about D&A.? That's what I'm getting at. Thank you.
I think D&A is going to be a little bit higher. I really do. I think it's somewhere around $280 million, $290 million in that general area. The one thing you have to remember is probably $160 million to $170 million of that, Joanna is the D part, the depreciation. But the amortization, remember, is the noncash cost that relates to the sale, the recognition of the cost of sale related to cemetery properties sold on a preneed basis. So from that perspective, the reason why it ends up being somewhat variable is because it relies a lot on what the preneed cemetery sales are going to do in the property area. And as we know, that's going to be quite different this year than last year.
So that's kind of the biggest variable in our D&A, which is somewhat unique to our company is that amortization of cemetery property that you could see on the cash flow statement. But it's a very general statement. I kind of go with those numbers that I just described to you to help you kind of think about it and model it for 2022.
Okay. That's helpful. And two more, I guess 1 follow-up on the deals you did in Q4. So I guess, clearly, there was some pent-up demand for these deals closing last year. So kind of how do you think about this year in terms of M&A? Are you expecting kind of a more elevated activity or there was just things were delayed last year and this was just happening in one quarter. And I guess any kind of change to multiples? Is there kind of requirement or rather expectation the multiples will be moving higher?
Okay. Well, as I said in my remarks, the official guidance is the -- going back, reverting back to our $50 million to $100 million that I think we'll spend this year in '22 related to M&A. So with that being said, I said that last year, too, and we ended up beating that handily, especially because of the activity that we saw in the fourth quarter. And as I kind of alluded to in my remarks, I said in the October call that we were somewhat pretty excited about the pipeline that had come to fruition and presented itself in the fourth quarter of last year. And I don't think that pipeline just shuts down overnight.
Now I don't want to say anything more than that, that I guess the best way to say it is, I think we continue to have some excitement early in the same type of excitement that we characterized in the call when we talked about it in the fourth quarter as well.
And would that excitement any pressure on multiples to think?
No. I think generally, we're pleased with the type of the multiples, and we're pleased with the type of after-tax IRRs that we're able to produce. They're going to be in the low double digit to kind of mid-teens depending on the deal and the deal size. But no, I think we're somewhat pleased with the type of returns we're getting.
Okay. Great. And my last question, so the commentary around aging demographics. So you even put it in the press release, which I think was first and maybe. So how should we think about that? Are you kind of pointing to the concept of like we're getting closer, but is there a kind of a more finite commentary there? Are you expecting to see this benefit in '23? Or is it kind of more a period after that where it's going to be a more meaningful impact? Thank you.
Yes, Joanna, I think the comment was geared more towards a post '23 look. And I think what we're trying to say is a couple of things about demographics or potential impacts that are non-market share related. And I'd say, number one, the cohorts that from COVID that were impacted, we mentioned the younger demographic which tends to not be a pull-forward effect and that's really because if you think about Omicron and even before that with Delta, both those impacted, I'd say, non-vaccinated people that were younger versus the first wave which were more concentrated when nobody had any vaccinations or more concentrated, let's say, in the nursing home. So I think the waves become less impactful.
Then as you think about the next few years, and we'll probably explore this a little more when we get to our Investor Day is there's unfortunately a lot of negative trends out there when you think about -- I mean even car deaths, smoking is up for the first time, alcohol sales, so many things that impact our health that continued, we believe, to have a near-term impact that's not going to revert back to 2019. And then longer term, I think which is the bigger impact, we're referencing to say, look, the baby boomers get older every year, one more year. And so we're closer and closer.
So I think as we think about managing and expectations, we look at the mid -- particularly kind of the middle part of this decade that we may have more to do than we originally anticipated we've been doing five years ago.
Thank you.
[Operator instructions] The next question comes from A.J. Rice with Credit Suisse. Please go ahead.
Hi everybody. I wondered if I could first ask about the cemetery production number. You're up 13% year-to-year, and I think you said on velocity was 5%, implying probably a pretty robust increase in the averages. What did you see there? It didn't sound like that was the really high-end stuff that you sold on a preneed basis. But what is going on with that?
AJ. I think the -- on the high-end sales, we actually saw those slightly down versus the prior year. So you're right, 5% was velocity, call it, 8% was average. And you say, how is that possible? And if you remember the whole concept of the tiered inventory, it was about building out the entire tiers, the very top, all the way the middle to the bottom. And so if you think about the 8%, it's not necessarily a price increase, it's a different level of inventory. So over the last few years, we've built out more of the stuff.
We've enhanced the beauty of the cemetery. And I'd say that the stuff that people are coming to look at and particularly as we saw more volume, they're buying up. They're seeing better opportunities and they want higher quality cemetery. So kind of back to our original plan was to build it and they will come. And that's really how cemetery has kind of worked out for us. So we're not seeing increases in price necessarily. It's buying up in value chain that's driving that average revenue per case of 8%.
Okay. When you think about both businesses, and you referenced some and talked about a little bit in the prior remarks, some inflationary pressure. It sounds like if you look at it relative to 2019, it's still for your business pretty good on the cost side, compound annual growth, 3%. But I know that a lot of times just your absolute price increases you're trying to sell a richer service and all of that. But the average price increases year-to-year tend to be more CPI-driven as we see CPI and other inflationary indexes increase here in the last 6, 9 months, have you looked at that? Are you inclined to move your pricing more in line with what the current inflationary trends look like?
A.J., we really try to look at it on a market-by-market basis. So I don't want to generalize and say from a national perspective. So most of our cost tends to correlate with labor. So the way we try to look at this is if we're seeing labor cost increases in the market, we're going to adapt to that and huddle up as a team and say, here's what we're facing. We've got to -- if we have to maintain these key employees, then let's get a plan together to figure out how we pay for it. And so I would tell you that that's probably the most -- the way that we approach pricing within a market, clearly, we have some thoughts and ideas, but that's really being driven by local market conditions.
Okay. And your perception is you have the ability to make those price adjustments as needed. There's not resistance. People still relatively immune to what people paid a year ago, and so that there's been a price adjustment in any sense?
We do, A.J. I think where we've done that because we're very sensitive to that, we do not want to price ourselves. If you remember a few years back, we really made some adjustments, particularly to the cremation side of our business to be more competitive in that market. So we are absolutely sensitive to that, monitoring that. And I know no market where we've made those adjustments when we feel like it's come back in our face. So we're careful. They're not going to be egregious price increases.
But again, I think if we're seeing some labor issues, which you can see from time to time, let's say, in a hot market, where it's labor competitive with other industries, be it real estate or other folks, we have more ability to pass along those inflationary costs. And again, we try to engage the whole market and saying, "Hey, how do we solve this problem? If we really are losing people need price increases, then let's come up with a game plan to where everybody wins. And I'd say the approach so far has worked. Clearly, there's inflation in the system, and we're going to have to deal with that in the coming year.
Okay. And then just lastly, just another aspect of the deal activity in the fourth quarter. Should we think about this as just sort of normal succession planning coming to fruition that maybe got put on hold a little bit during the pandemic? Or is there any other dynamic people burned out post pandemic with everything they've had to deal with. And therefore, looking to make a transition that maybe wouldn't have been if the pandemic hadn't happened? Or is there any other dynamic at work that you see that's prompting some of these transactions.
I think it's a little of all the above. For sure, I think that you continue to have kind of an aging transition problem. So every year, the businesses that we're buying generally are -- they generally are not start-up business, right, they're generational businesses. So I think that is definitely playing an impact. I think having gone through COVID and everything that's happened over the last couple of years is from talking to some people that are making these decisions, they're saying, "I want to enjoy life.
And so I do think that's had a bit of an impact. And let's face it, what's the best time to sell your business when our pro forma have volumes up and that's a starting point of any negotiation. Clearly, we're not going to pay for what we believe are onetime business. But I think all those things kind of come together to force a little more activity.
And like Eric referenced, we're clearly seeing more deal flow opportunities to grow. And again, I think we're going to be selective, but we're excited about what we're seeing now. And I kind of think this will go on for a little period of time.
Okay, great. Thanks a lot.
The next question comes from John Ransom with Raymond James. Please go ahead.
Hey, I'm still mad at you guys for sending me that mailer for dignity. I'm a boomer, but I'm kind of a young Boomer.
It was very targeted John.
Yes, I am trying to get healthy during the pandemic. The question I had is, if you look at the full kind of excess pull-through, which is a nice euphemism of course, over the last two years. And what is your current -- So let's just say that's a little over 100,000 excess funerals, what's your current thinking about the pull-through of that as we look out over the next, like, one year, three years, five years? Have you been able to get any insight into that?
Yes. I think it was a little bit different than what we originally said earlier in the pandemic. That's the first thing I have to say. First of all, the 100,000 for us is really more like 120,000 what we believe were the COVID ancillary deaths that we did, which was 50,000 in '20 and 70,00 in '21 is a very rough estimate.
When we first said one-third, one-third, one-third, I think we are very much off, and I think we've been trying to say that. We're learning as we go forward and trying to figure it out. But I think the tail is much longer that's the first thing I'd say. It's not just a 3-year event. And the second thing, I'd say, it's roughly maybe even half to a little bit less than half of that one-third, one-third, one-third.
So when you think that way, think of 15 -- 14%, 15%, 16% area. I'm talking way too precise, just to start because we haven't experienced this yet, and we have to get through and continue to sync up. But we think in '22, for example, it's somewhere about that percentage of the 120,000 that's through there. What I'll tell you is we'll learn as we go. I'll be very surprised if that's perfectly accurate. But we'll put our best foot forward and we'll learn as we go, and we'll update you as we move forward.
Okay. And then just kind of flipping this, I haven't talked to you about this in a while. But I would imagine finding commission-based salespeople to sell a product with no recurring revenues is a tough gig in 2022. Just kind of talk about maybe your sales force turnover productivity metrics, kind of the 80-20 rule. And if you've had to do any different things to recruit people or maybe with the comp structure of the payout, anything there to -- I mean, because you're obviously humming in a difficult backdrop. But what have you had to change to keep that going if anything?
Well, John, I think, first of all, just to compare pre-pandemic to post pandemic, we're actually probably down about 400 to 500 counselors because one of the things we did is in the uncertainty, we didn't know what kind of leads we're going to be able to generate. Because remember, when we started, traditionally, we were getting a lot of leads through, I'd call it, the walk-in model or the activity follow-up model. We didn't have a lot of marketing leads being generated.
So we really pared down and said, "Let's give our leads to the best people and at the same time, launch this marketing sales lead programs, which became incredibly effective. At the same time, you'll recall we had customer relationship management software, which we were encouraging people to use but weren't insisting that they use it.
And what happened in all that, when you shut down travel and you didn't have the ability to go is we started leaning on these technological tools to manage and then have these incredible leads. So what we found is we were much more productive as a sales force as a sales management team. We had more capacity to manage because we weren't on the road all the time.
We were using data off of this customer relationship management. So we knew effectiveness. We could apply training. So what's really happened out of this is we have less people that are selling a lot more, so much more effective. So as we think about going forward, I think our thoughts are this.
We can go deeper on effectiveness. We believe we're now launching tools that actually will allow us to be more productive, more effective with what we have. At the same time, we're generating more marketing leads that we talked about. So I think it's going to be an interesting dance that allows us to be more productive. But at some point, our hope is that we're going to have so many leads that we have to begin to grow the headcount, again, too.
Right now, I'd tell you there's a lot less turnover, a much more effective sales force, and it's really being driven by productivity and putting the best leads in the hands of the most capable sales people.
I mean, Tom, do you think looking back on it a year from now or so, you'll say this might have been the most enduring benefit of the COVID response?
For sure. I mean I think it's the biggest impact. We've got some efficiencies, I think we've gained in staffing and learning how to manage that. I think some back-office efficiencies that we've learned by leveraging on technology. But the biggest issue and when you think about the excitement of what we're on is we believe we've achieved a new plane of sales production. We accelerated the growth. We're saying we don't -- some of this isn't going back. Clearly, some of it is COVID.
And I think at the Investor Day, we'll try to talk a little more. But we mentioned before we really accelerated. We used to guide to cemetery sales of 4% to 6%. Over this period, compounded, we think over the last 3- to 4-year periods, we may have grown at 9% to 10%. And we don't think we're giving it back. That's the real growth, right? And then we had the excess growth that's related to COVID. So that's what's exciting. And I think we're at a new base camp for 2022 that we're going to begin to grow off of and could probably wouldn't have achieved it if COVID didn't happen to us.
Got you. And last 1 for me. Is there any more wood to chop with Beacon on the cemetery side, is that fully deployed at this point?
It's fully deployed, John, at this point, but what you'll see going forward, as Tom just mentioned, there's a lot of technological increases and uses that we want to do and improvements that we want to do -- so it'll be that type of ongoing thing. But the answer to your question is, it's rolled out deployed.
Okay, thanks guys. Appreciated.
This concludes our question-and-answer session. I would like to turn the conference back over to the SCI management for any closing remarks.
Thank you, everyone, for being on the call today. We look forward to talking to you again on our first quarter earnings call in late or early May. Take care.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.