Service Co. International Q1 2025 Earnings Report

Service Co. International EPS Results

• Actual EPS: $0.96
• Consensus EPS: $0.91
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: $0.89

Service Co. International Revenue Results

• Actual Revenue: $1.07 billion
• Expected Revenue: $1.06 billion
• Beat/Miss: Beat by +$13.29 million
• YoY Revenue Growth: +2.80%

Service Co. International Announcement Details

• Quarter: Q1 2025
• Date: 4/30/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 1, 2025
• Conference Call Time: 9:00AM ET

Service Corp. International engages in the provision of funeral goods and services. It operates through the Funeral and Cemetery segments. The Funeral segment offers services related to cremations, including the use of home facilities and motor vehicles, arranging and directing services, removal, preparation, embalming, memorialization, and catering. The Cemetery segment provides property interment rights, including lawn crypts, mausoleum spaces, niches, and interment options. The company was founded by Robert L. Waltrip in July 1962 and is headquartered in Houston, TX.

Service Co. International Q1 2025 Earnings Call Transcript

Presentation

[Operator]

Good day, and welcome to the SCI First Quarter twenty twenty five Earnings Conference Call. All participants will be in listen only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad.

[Operator]

Note this event is being recorded. I would like to turn the conference over to SCI Management. Thank you, and over to you.

[Trey Bocage, Director of Strategic Finance and IR at Service Corporation International]

Good morning, everyone. This is Trey Bocaj, Director of Investor Relations and Strategic Finance. Welcome to our first quarter earnings call of 2025. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me quickly go over the safe harbor language.

[Trey Bocage, Director of Strategic Finance and IR at Service Corporation International]

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. Today, we might also make certain non GAAP financial disclosures. A reconciliation of these measures can be found in the tables at the end of our earnings release and on our website.

[Trey Bocage, Director of Strategic Finance and IR at Service Corporation International]

With that out of the way, I will now turn it over to Tom Ryan, Chairman and CEO.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Thanks, Trey. Hello, everyone, and thank you for joining us on the call today. This morning, I'm going to begin my remarks with some high level color on our business performance for the quarter, then provide some greater detail around our funeral and cemetery results. I will then close with some thoughts about our current outlook for the year 2025. For the first quarter, we generated adjusted earnings per share of $0.96 which compares to $0.89 in the prior year.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

We saw impressive increases in funeral revenue and gross profit, partially offset by slightly lower cemetery revenue gross profit, which when combined resulted in $07 of earnings per share growth from operating income. Below the line, the favorable impact of a lower share count and a slightly lower interest expense was effectively offset by a higher effective tax rate. The higher tax rate was the result of the nondeductibility of certain excess tax benefits from the settlement of stock option awards. If the tax rate had remained constant, we would have had an additional $04 in earnings per share, resulting in 12% earnings per share growth over the prior year quarter. Now let's take a deeper look into the funeral results for the quarter.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Total comparable funeral revenue increased over $23,000,000 or about 4% over the prior year quarter, as strong core revenue and core general agency revenue growth exceeded declines in SCI Direct non funeral home preneed sales revenue. Comparable core funeral revenue increased by $18,000,000 or about 4%, primarily due to a healthy 2.5% growth in the core average revenue per service and a 1% increase in core funeral services performed. This core average growth was achieved despite a modest increase of 40 basis points in the core cremation rate. SCI Direct non funeral home revenue decreased by $3,000,000 driven primarily by a $7,000,000 decline in non funeral home preneed sales revenue, resulting from the anticipated negative effect of operational changes to defer merchandise deliveries. This was partially offset by growth in general agency commissions as we are in the process of switching from a trust to an insurance funded preneed model.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

This net decline from preneed sales revenue was partially offset by a $4,000,000 increase in non funeral home revenue, generated by an impressive 6% increase in non funeral home services performed and a 10% improvement in the average revenue per service from the effect of higher value contracts maturing from the backlog. Certain of these contracts now include merchandise or travel protection that more recently was deferred from the time of sale into the backlog. This healthy average revenue per service growth should continue as more contracts with merchandise and travel protection mature over the coming years. Core general agency and other revenue grew by an impressive $8,000,000 primarily due to growth in general agency revenue driven by higher average commission rates derived from our new pre need insurance marketing group, as well as the effect of selling a larger percentage of underwritten insurance products, which carry a higher commission rate versus a flex or a non underwritten product. Funeral gross profit increased by about $21,000,000 while the gross profit percentage increased by two forty basis points to over 24%.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

This gross profit increase was the result of the solid 4% revenue increase, combined with managing fixed costs to about a 1% increase for the quarter. Preneed funeral sales production decreased by $32,000,000 or about 10% over the first quarter of twenty twenty four. Core preneed funeral sales production decreased by $12,000,000 or 5%, primarily due to the transition to our new preneed insurance provider during the back half of twenty twenty four. We anticipate comparable core preneed sales production to normalize later in the back half of twenty twenty five. Non funeral home preneed sales production decreased $20,000,000 or 26% as SCI Direct transitions from the sale of trust to insurance funded pre need contracts.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

This transition required many of our sales counselors to go through extensive training and obtain insurance licenses and change the payment terms for customers financing their preneed, all of which contributed to a temporary slowdown in sales. As of today, we've made the transition in markets that represent 80% of our production. So this too should stabilize over the next few months and begin to grow again probably sometime during the fourth quarter of twenty twenty five. Now shifting to cemetery. Comparable cemetery revenue decreased by $8,000,000 or about 2%.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

The core revenue decline of $10,000,000 was partially offset by a $2,000,000 increase in other revenue. The core revenue decline over the prior year quarter was primarily attributable to a $12,000,000 decrease in recognized preneed property revenue due to lower sales production. Within recognized preneed property revenue, the negative effect of lower recognition rates on the new construction and preneed merchandise was offset by higher merchandise and service trust income. Remember, this deferred sales production enhances our backlog and will be recognized in future periods. The $12,000,000 decline in recognized preneed property revenue was partially offset, again, by a $2,000,000 increase in internal care fund income.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Comparable preneed cemetery sales production declined by $8,000,000 or about 3%, as a modest increase in core production was more than offset by a decrease in large sales. We believe the decline in large sales is a timing issue that could be recovered in future quarterly periods. While we have not yet closed the books, April printing cemetery sales production looks very good. Cemetery gross profit in the quarter decreased by $6,000,000 and the gross profit percentage declined by 80 basis points, generating an operating margin of 32%. Our 2% revenue decline was somewhat mitigated by a less than inflationary 1% growth in our fixed costs.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Now let's shift to discussion about our outlook for 2025. As you saw in our earnings release, we are confirming our normalized earnings per share guidance range of $3.7 to $4 for 2025 or a midpoint of $3.85 The current midpoint of the range represents a 9% year over year growth in earnings per share. Again, neutralizing the increased tax rate caused by the loss of deductibility of certain excess tax benefits from the settlement of stock options would result in the midpoint generating 12% earnings per share growth. For the full year 2025, within our funeral segment, we expect flat to slightly down funeral volume compared to 2024, with the average revenue per case growing at inflationary rates slightly negated by the effect of a modest cremation mix increase. While we're still absorbing the temporary negative financial effects of our SEI Direct transition, we do expect to see higher general agency revenue generated from the favorable impact of our new insurance agreement.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

When combined, this should result in healthy profit growth for the funeral segment, increasing the gross margin percentage by 80 to 120 basis points. Transitioning to preneed funeral, we expect preneed funeral sales production to be slightly lower in 2025 as we continue the transition of SEI Direct to an insurance funded model and we adapt to the new policies and products from our new insurance partner in our core channel. While sales production may be down for the year, for some perspective, the $1,200,000,000 of preneed funeral sales production we expect for 2025 is 27% higher than 2019, or a 4% compounded growth rate over the last six years. As we think out to 2026, we would expect preneed funeral sales production to return to a low to mid single digit percentage growth rate. From a cemetery perspective, we anticipate that we can grow preneed cemetery sales production in the low single digit percentage range, resulting in cemetery revenue growth of about 1% to 2%.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

The volatility in the equity markets and the potential impact on trust income for the rest of the year has caused us to dial back our expectations a bit. Continued focus on managing inflationary costs should result in some segment profit dollar growth while maintaining our impressive gross margin percentages in the 32% to 33% range. Below the line, we expect favorable impact from slightly lower interest expense and a lower share count that will be negated for the most part by the higher effective tax rate caused by the loss of deductibility of excess tax benefits from stock option exercises. In conclusion, I want to acknowledge and thank the entire SCI team for their daily commitment to our customers, our communities, and to one another. Your skill, dedication, and attention to detail is the foundation of our success.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Thank you for making a difference every day. With that, operator, I'll now turn the call over to Eric.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Thank you, Tom, and good morning. Thank you to everyone joining the call today. As I usually do, I want to start to take the first moment to express my deepest appreciation to each of our 25,000 plus dedicated associates. The exceptional service that you provide continues to make a meaningful and lasting impact on the lives of the families and communities that we are so proud to serve. I'm truly proud of the work that you do each and every day and want to say very clearly, thank you.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

So with that, today, I'll begin my remarks by providing highlights on our cash flow results and our capital investments in the quarter. I'm going to make a few comments on corporate G and A and then conclude the remarks by an update on our overall financial position.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

So starting with cash flow, we

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

generated very solid adjusted operating cash flow of $316,000,000 in the quarter. This did exceed our expectations and was a substantial improvement, a little over $90,000,000 improvement over the prior year. So let's break this down a little bit. Adjusted operating cash flow was supported by higher operating income, and that was about $20,000,000 which again, highlighting sustained strength in the underlying business during the quarter that Tom just walked through and addressed. Cash interest had a timing issue that was so it was lower by about $15,000,000 The timing issue associated with the bond financing that we did in the fall of last year and coincided with reduction of our bank credit facility that we completed this past September as well as a little bit lower rates on our floating rate debt.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Offsetting these items, cash taxes of $5,000,000 was slightly higher than the prior year by about $3,000,000 Finally, working capital provided a significant source this quarter of $65,000,000 from $37,000,000 of higher cemetery installment receipts and other preneed working capital timing, as well as favorable $28,000,000 source of cash as a result of one less payroll cycle when you compare this current quarter to the prior year quarter. Now let's talk about capital investment. In the first quarter, we invested $95,000,000 into existing locations, new build and expansion opportunities, business acquisitions and real estate. So breaking this down, in line with expectations, we invested about $67,000,000 of maintenance capital back into our current funeral homes and cemeteries, with $41,000,000 allocated to high returning cemetery development projects, dollars 21,000,000 into our current funeral and cemetery locations and $5,000,000 into digital investments and some other miscellaneous corporate spend. We also invested $13,000,000 of growth capital in the first quarter towards the purchase of real estate, construction projects of new funeral homes and crematories and the expansion of existing funeral homes and cemeteries.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Finally, we invested $15,000,000 towards business acquisitions during the quarter. And we again remain optimistic about the fuel pipeline that's currently out there in the industry, and we do expect to achieve our $75,000,000 to $125,000,000 of acquisition investment, which is our target for the full year of 2025. So moving to distributing and investing this capital, we returned a substantial $176,000,000 of capital to shareholders in the first quarter, which was done through $46,000,000 of dividends and $130,000,000 of share repurchases. To dive in a little bit deeper on that, we repurchased just under 2,000,000 shares, it's about 1,600,000.0, 1 point 7 million shares at an average price of $79 during the quarter, bringing the number of shares outstanding to approximately 143,000,000 shares at the end of the quarter. Subsequently, we have completed another 900,000 shares purchased for about $71,000,000 which works out to an average repurchase price of about $78 So I'd like to now shift gears a little bit and make a brief comment about our corporate G and A expense during the quarter.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

G and A expenses increased about $3,000,000 quarter over quarter, primarily due to higher worker compensation claims as well as higher expenses related to the timing of some of the incentive compensation accruals. But as we look forward for the rest of the year and the next three quarters, we continue to expect that corporate G and A expense will average probably about $39,000,000 to $41,000,000 a quarter for each of these quarters for the remainder of the year. Although, as you've seen before, we do expect some variability in this due to our long term incentive compensation plans that could push us above or below this kind of range during a particular quarter based on how the company is performing in the future during the year. So now shift to further more information of the outlook. As you may have seen in the release, we confirmed our 2025 adjusted operating cash flow guidance range of $830,000,000 to $890,000,000 with a midpoint of $860,000,000 After deducting $315,000,000 which is the expected maintenance capital, we expect impressive adjusted operating free cash flow of almost $550,000,000 for the full year of 2025.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

And as we've addressed several times in the past, seems like numerous quarters, cash taxes will revert to a more normalized level in 'twenty five following a change in tax accounting policy that has benefited our cash flows since really the mid or third quarter of twenty twenty three. As the federal cash tax payments are generally not made in the first quarter, the headwind, which is about $150,000,000 to remind you, year over year that we've discussed will be more pronounced beginning next quarter or the second quarter as we're in right now as we speak. As we've addressed in prior quarters, we also expect our effective tax rate in 2025 to be about 25% to 26%. And again, it's as Tom mentioned, as excess tax benefits are no longer recognized on the settlement of certain executive employee share based awards. So I'd like to now conclude my comments with an update on our financial position.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

We continue to have a very attractive and manageable debt maturity profile with substantial liquidity. We ended the quarter with liquidity of about $1,600,000,000 consisting of approximately two thirty million dollars of cash and approximately $1,350,000,000 available on our long term bank credit facility. Our leverage declined during the quarter. It went from about 3.65 times, that again is net debt to EBITDA at the end of the year, to 3.59 times at the end of this first quarter, which again is toward the lower end of our long term leverage target range of 3.5 to four times. So in conclusion, our strong balance sheet position we just walked through, our liquidity combined with substantial robust cash flows really continue to underpin the continuation of a very strong capital investment program, which again provides us tremendous flexibility to invest opportunistically for the long term benefit of our company, our associates and our shareholders.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Finally, I just want to again reiterate how extremely proud we are of the entire SCI team. The way you continue to serve the families in need at their greatest time is truly inspiring. And again, thank you for everything that you're doing. So operator, with that, that concludes Tom and myself's remarks, and we'll go ahead and turn it back to you, and we'll open the call up to questions.

[Operator]

Thank you. We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed

[Operator]

Please go ahead.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Hey. Good morning. Thanks so much for taking the question. So maybe first on the, cementary preheat sales, production being down. So it sounds like some of it was worse.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Right? So now you're kinda guiding to a little bit slower growth. So can you maybe talk about, you know, what you assume for the large versus core? Sounds like large was worse, but maybe core was a little bit better. And in that context, can you also talk about, you know, your, I guess, experience at the Rosehill location?

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Because I guess that the community or the communities around Rosehill were impacted by the wildfire. So I just wonder if there's any slowdown there.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Yeah. Thanks, Joanna. Good to hear from you. So as it relates first to first part of your question around production and large sales, it's probably good to remind everybody kind of the cadence of large sales. In 2019, on an annualized basis, we had about $90,000,000 of production.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

For the last three or four years, we've probably averaged about $180,000,000 So on an average basis, we'll sell $45,000,000 a quarter. But what we've seen is kind of a lot of volatility between quarters, really just about the timing of when they close. We've seen a range of 30,000,000 in a quarter to $57,000,000 in a quarter. And again, they tend to kind of level out. The first quarter was towards that $30,000,000 number, so it isn't a place that we haven't seen before.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I think our expectations right now, at least based on what we're seeing out there and the appointments being set, we see a pretty strong pipeline. April's turning out to be a really good sales quarter, both on a core and on a large sales. From what we see in the business today, we feel confident that sales look pretty good as we go forward. We're not blind to what's going on outside. There's a lot of pressure right now, think, purchases and other industries.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

You're seeing it in retail and others. What I want to remind people is we've been through this movie before. In 02/2008 and 02/2009 and then again in 'twenty and 'twenty one, discretionary purchases really kind of fell off the map in a lot of industries. The nice thing about us that I see in our business is we're viewed as a mature sale or call it a taking care of business type of sale. We're not a big screen TV.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

We're not a sports car. This is a responsible decision. We always saw these sales tend to come back very quickly relative to other discretionary purchases. We feel pretty good about the rest of the year and feel like the large sale pipeline, we're still seeing a lot of interest and activity there. As it relates to Rose Hills, again, I think of course there was some distraction as it relates to these fires.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Regionally, we're going to have that quarter to quarter. Our team's done a fantastic job, I think, through that and taking care of their community. We feel good about the rest of the year as it relates to Rose Hills. There's a lot of exciting things happening and a lot of, you know, new projects that are scheduled to open, you know, later in the year and in early twenty twenty six. So, hopefully, that answers your question, Joanna.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Yeah. No. Thank you. And and the World Hills, in particular, or the West Coast, in terms of the the Qingming festivities, I guess, it sounds like, at least in World Hills, based on your response when you said you feel good about things there, Sounds like those kinda progress as as normal in terms of just, you know, the product that's available and the food traffic around those festivities. What do think?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I would say we've had a very good Xingming in the various markets around the country where that's strong. So, yeah, we feel good about that and through the first quarter and the momentum into April. So, again, we're not seeing anything that concerns us right now, but we're very aware and we're on top of the fact that there's a lot of uncertainty out there. We're trying to manage people through it as best we can. Again, I think it was a pretty solid first quarter in April, again, it's only a month, but but looks to be really solid.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

And if I may, another, I guess, item that's quite topical outside of the discretionary, obviously, the tariffs. So maybe you can walk us through how you're thinking about this. Obviously, things are very fluid. But based on what you know, how would you think about, you know, any any incremental cost, you know, this year? Are you including anything in your guidance?

[Joanna Gajuk, Equity Research Analyst at Bank of America]

And also, you can give us some sense in terms of the exposure for your purchases to China, specifically in other markets. Thank you.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Thanks, Johanna. It's Eric. You know, we feel pretty good about it in this particular category. You know, we do have when you think about things that would logically, you know, maybe be affected by this, you're going to talk about the merchandise that we're selling both in our funeral segment and our cemetery segment. That's primarily going to relate to caskets on the funeral side.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

It probably relates to some urns for cremated remains on both the funeral and cemetery side. And on the cemetery side specifically it's going to relate to granite and bronze and those types of products that are used in terms of celebration at the cemeteries themselves. Ultimately, that's a couple hundred million dollars for us in terms of costs when I lump all of that as a very general category. But I've got to tell you, there's a good 60% or two thirds that we already source within The US, and the things that we're sourcing externally, I'd give you two comments really. One, as a very general statement, we have entered into long term production type contracts with our business partners.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

And those, without getting into too much detail, I think those are gonna generally protect us from a lot of these situations in the in the near term. The other thing is our teams here are doing a really good job of just actively managing it. You know, there's flexibility here where you don't have to take things from China or India, and you can source it here in The US. We don't want to overreact to that because we do have some long term protection in some of our contracts, but we do think that we will continue to actively manage it and, you know, keep our pulse on it, so to speak, we understand it as we move forward. But to talk specifically about it, we have not really affected our guidance or affected our model in a way that I should mention that would be material because of all these situations that I just described to you.

[Joanna Gajuk, Equity Research Analyst at Bank of America]

Okay. So you're saying immaterial and you don't assume anything incremental in the guidance as in, like, you you can manage this here. I guess, we'll see how things go and talk about next year later. But, yeah, thanks for taking the question.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Thanks, Ryan.

[Operator]

Thank you. The next question comes from Scott Schenberger with Oppenheimer. Please go ahead.

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Thank you very much. Good morning, all. I'd like to start off asking about funeral volume. The pretty big swing from down 3.8% in fourth quarter to up 1.8 year over year in the first quarter. Could you speak to the drivers of that in the first quarter?

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Just maybe the top three by degree of magnitude, and then I'll follow-up on that. Thanks.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Jessica, I think sometimes because of the volatility between quarters, it's tough. You got one quarter that was weak last year, and you're comparing it to a strong one this year. So it's much easier to evaluate over annual periods versus quarter. I would say as we track these things, we feel really good about the fact that it's not perfect science, but we are continuing to slightly grow our overall market share, I think is a belief we have. Obviously that's different in each market.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Some of that's probably because of our strong pre need program historically. I think a lot of the efforts that we've put in in the past are bearing fruit today, Those may be the biggest drivers as you think about the year. Quarter to quarter again you just have some of this volatility. The pull forward effect continues to have a more diminished effect, but it's still out there. I think it's harder and harder to compare and predict.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

But we feel very good about the first quarter and feel like, again, between pre need and competing more effectively, that we are enhancing our national market share.

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Thanks. And when when you referenced pull forward, you were speaking to the longer term COVID trend and reversion or or perhaps I think this is a heightened flu season. Just just if you could clarify that. Thanks.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Yeah. My I'm sorry, Scott. That that was really more about the COVID pull forward and and, again, kind of that diminishing effect as time goes on. But it's still out there. Right?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

And we still had early deaths that may or may not have occurred in this period, and I think that's the way we think about it. There was I've heard some things around the flu season. I don't think we saw anything too dramatic there, but I have heard some statistics that that that that that is up and and probably has some effect.

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Thanks. So the the takeaway here is that it could be I think the full year expectation was flat to slightly down. Sounds like you're trending know, obviously, you're trending well against that out of the gate. Just curious kind of how you how you see that shaping over the end of the year and any change to that specific, outlook? Thanks.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Sure. I think we're taking the approach of one quarter does not a year make, so we're very pleased with the first quarter. It was ahead of our expectations. We haven't altered our annual guidance because, again, it's the first quarter. But I'd say that we feel a lot better now about that than probably we did as we started the year.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I'm optimistic that it could be a really good, solid funeral volume year as it relates to market share and continue to compete in our marketplace.

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Thanks. Appreciate that. And just for my follow-up, curious on the cremation mix shift. It's been a little bit below historical average for a while now, over a year, I believe. Just comments on on what you're seeing there, if you think a new trend is shaping.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

You know, it's hard to hard to answer that, but I guess I would say this. When you get to these highest numbers, you know, as you get close to 60%, it just becomes harder and harder to move the needle, I think, if you look at other demographics, different countries as their cremation mix change. Because you got a lot of Northern Europe and Canada and Australia with high cremation rates, and I don't think it's unlike that. So I'm not surprised. I think it can still we used to say 100 to 150 basis points.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I don't think we think 150 basis points is in the cards anymore. But I don't think 100, if that snuck up in a quarter, would surprise me either. So so, yeah, I I think you as you think about that, you know, less than a hundred basis points is very, very possible as we move forward.

[Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.]

Understood. Alright. Thanks very much. Thank

[Operator]

you. The next question comes from A. J. Rice with UBS. Please go ahead.

[A.J. Rice, Managing Director at UBS Group]

Of your preneed funeral volume to insurance. I think when you inked the contract last summer, the discussion was around, you know, $7,800,000,000 of core plus a couple hundred million of SCI Direct. So it's sort of roughly a billion dollars of premium. I may have those numbers wrong. Correct me if if they're wrong.

[A.J. Rice, Managing Director at UBS Group]

It sounds like now with this push, you're gonna have meaningfully more premium that comes under this agreement. Do you sort of have a target as to where you think you'll end up as to how much insurance annual premium you're gonna generate from preneed funeral contracts?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

AJ, I think we're we're still kinda figuring that out because, you know, you mentioned two things. One is we're transitioning completely on SCI Direct. That was a 100% trust. We're now converting to effectively almost 100% insurance. And so as that transition occurs, how quickly can you do it?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

How many people can you get on board? Because you're seeing the production levels drop because it takes it's a lot harder to transition from a trust to an insurance product. It's really more about the timing and when that can get back. Then the other thing is what type of insurance commission can you drive and what would drive that? Well, a single pay insurance product doesn't pay nearly as much as a multi pay.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

So what's the mix between the two? You can begin to appreciate why it's hard to completely predict. I will tell you that you're right in your thinking in that that number is probably going to be north of what you originally thought once we get through the noise. Same thing on the the core side. You know, even though it's still an insurance product, we've got different policies and procedures as it relates to these things.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

You can take into account Social Security numbers or not having Social Security numbers. That can be a difference as an example of a policy that one insurance provider may have versus a previous insurance provider. And and then as you think again about the products that we sell, it's slightly different. The sales force has to understand it, convey the value. So I think we're in a little bit of a low, but as we come out of this, you know, the back half of this year, I really expect this to be hitting on all cylinders in 2026.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

And, again, assuming that all your SCI direct for the most part will come under this insurance product, and we'll go back to, call it, you know, three to 5% growth on the core as it relates to pre and funeral. So those numbers are the ones I'd be dialing as you get into '26.

[A.J. Rice, Managing Director at UBS Group]

Okay. And then just wanna also go back to the comment that I think Eric made about more of the cases coming out of the backlog have merchandise and travel associated with them. I know, obviously, the case is coming out of the backlog. You got the investment income build up and and so on. But I wonder incrementally how much do those two things tend to contribute to revenue per case if there if there's more of that coming out?

[A.J. Rice, Managing Director at UBS Group]

And is is that fully reflected in the run rate you're seeing now, or do you think that'll the percentage of case cases that have those two dynamics will continue to increase for a while.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

AJ, it's gonna increase very consistently, very dramatically for a long period of time. Because remember, the function here is we used to sell merchandise and deliver it. We used to sell away from home protection and provide it. And in both those cases, we had a revenue recognition event. Now what you're seeing happening for the most part is all of those being deferred and being put on, for the most part, an insurance product.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

So we're gonna get a G and A revenue now, and that's why we've got the diminished profits as we're losing some of that immediate delivery of merchandise and immediate recognition of away from home, and they're going into a contract in the backlog. So long term, think about today or previously, if we sat around 1,400, 15 hundred dollars a contract, SCI Direct one day, that average should go to north of $3,000. And and that's the path that it's on. Now it takes those new loaded contracts to become at need to drive it, and so it's gonna be a trickle at first, it's gonna get bigger and bigger and bigger. So as you think about the average on SCI Direct from a service perspective, it's been growing at 10% each quarter so far.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I'd be surprised if it varies much from that for for a very long time.

[A.J. Rice, Managing Director at UBS Group]

And is the average life on the, SCI Direct preneed contracts the same as in the core funeral business?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

I think for the most part, maybe slightly shorter, but but I think, you know, not dramatically different than the backlog.

[A.J. Rice, Managing Director at UBS Group]

Alright. I just might ask one last thing on your capital deployment. It sounds like you're expecting the deal activity to be about which at budget, 75 to a hundred and 25,000,000. I know you stepped up buybacks in the quarter, share repurchases. Any comment on that?

[A.J. Rice, Managing Director at UBS Group]

And do you think you'll see elevated share repurchase activity as you progress through the rest of the year?

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Yeah. I I think we'll have to wait and see in terms of the valuation of each one of those options, AJ. I mean, that's how we've always done it as you've known us. Let's talk about shares first. I mean, the shares were a very nice return as we were buying shares in in the high seventies.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

And, you know, we think that's a that's a very nice value return for us to continue to invest capital in. And we went probably a lot a little heavier in the quarter than what we originally expected, but based on what we were seeing. And then as we saw the quarter month to month get better, we got a little bit more confident. And as you know, April was a very good month, as Tom has said as well. From a deal perspective, it's going to ebb and flow.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

You know, the the important thing is to say we've we have numerous discussions at any point in time going on, as we speak. And as you've heard me say many, many times, you know, I'm pretty excited about the pipeline. I think 75 to $1.25 is generally a good number. You know, last year I was wrong. If you remember, it was about $180,000,000 that we ended up investing in.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

And if we have those opportunities, they're normally a really nice return that could be in the almost low teens type after tax IRRs, which as a general statement may beat share repurchases depending on where things are trading. So look, quarter to quarter, we're going to put the capital to the highest relative return opportunity. This quarter, it was shares. That doesn't mean we are passing up high return opportunities for M and A. It just means that we continue to develop very long term relationships with independents and the timing of which kind of ebbs and flows.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

But we're very excited about the future in terms of M and A over the long term.

[A.J. Rice, Managing Director at UBS Group]

Okay. Thanks a lot.

[Operator]

Thank you. The next question comes from Tobey Sommer with Truist Securities. Please go ahead.

[Tobey Sommer, Managing Director at Truist Securities]

Thank you. I wanted to start out, asking you a question about the the Salesforce and any, maybe you could highlight for us what new initiatives and and focus you have for this year sort of headed into next and and what you think the, resulting impacts can be on the on the financials of the business?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Sure. I'll take that one, Toby. I think right now, obviously, a lot of the traditional things that we do is related to, for instance, developing high end cemetery property and making sure we have the right product on the field, if you will, to get that going. What's a little bit different now too is we are very acutely focused on the lead pipeline, how we're getting leads in, how we're working the leads, all the efficiencies around doing that. We currently have a project we're working to that we believe is going to enhance our ability to close sales, to work the sales more effectively.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

So again, utilizing technology to help us get better in how we're approaching the sales process and enhancing the ability of our salespeople to be successful. A lot of sales forces have trouble retaining a lot of high turnover, and one of the focuses we're having now is working with our people to make sure we can ensure their success. So we believe that's going to bear some fruit. It's going to take some time. But our focus now is really on that retention, making our people successful, and utilizing better data and knowledge around how we you know, bring a a lead that comes in the door and how it ends up as a as a contract.

[Tobey Sommer, Managing Director at Truist Securities]

Appreciate that. And then how should how do you enter this late spring or early summer period from a a pre need delivery in in rev rec perspective on cemetery. Could you give us a little bit of the the the buildup of sales production over the last couple of quarters as we look to the the the better weather quarters ahead of us?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Yeah. The I think as you think about the typical cadence, you know, we tend to have stronger delivery of cemetery construction in the back half of the year. So it's typically lighter in the first and second quarters. It gets a little better in the third, and then fourth quarter is typically the bonanza quarter. Now that seasonality is consistent, right?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

So you're comparing against the quarter that has the same characteristics. But I think as we think about it, the second quarter we'd anticipated probably being slightly down as we think about the cadence. And third quarter year over year should be a good one, I think as we think today. But again, these projects can slip. Fourth quarter will be very strong, but so was last quarter.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

So I think that's probably the way to think about it. And again, with the idea that sometimes things can typically, they're gonna come late, not early. Right? But I guess it could be the other way around.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

And, Toby, I'll add to that too just by the recognition rate specifically. You know, last year, it ended up being about 95% of production. It's been like that now for a couple years. And I think I just wanna say that we probably expect nothing different. Despite the quarterly volatility, I think, annually, you're probably looking at the recognition rate of somewhere between 95, 90 seven percent like you did last year.

[Tobey Sommer, Managing Director at Truist Securities]

That's helpful. And and, we haven't I don't think we talked about it here. Anything on the funeral rule or anything from a regulatory perspective that, you're anticipating this year?

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Well, there's a lot going on in Washington. So you know? But we don't have an update. You know, again, it's the same update that is out there. I think a lot of things are changing as we all read the paper together and understand it.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

I don't know where this is going to exactly shake out, but, you know, again, we feel very good about where we are from a regulatory, standpoint. And, if anything comes out, we'll adapt very quickly. It kind of sounds like we're ahead of the curve in some of the cases that you've heard us talk about over several quarters in terms of if there's anything that needs to be posted online or anything along those lines. But, ultimately, whatever it is, there's nothing that's been out there to be very clear that appears to have any type of material effect on our company or our financials.

[Tobey Sommer, Managing Director at Truist Securities]

Thank you.

[Operator]

The next question comes from Parker Snorr with Raymond James.

[Parker Snure, Senior Equity Research Associate at Raymond James]

This is Parker on for John Ransom. Maybe just going back on the macro pressure. I understand the pressure on the preneed cemetery production with the tough environment. But do you expect any trade down on the at need funeral side for the funerals that are kind of truly at me not coming out of the backlog. Would you expect any trade down there, maybe accelerating ship to cremation, maybe trading down on the catering or the flowers?

[Parker Snure, Senior Equity Research Associate at Raymond James]

Is that something that you expect? Or is that something has historically happened under other tough macrocycles?

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Yeah, Parker. I can only speak to experience, right? But I'd say as I look back over the last twenty, twenty five years I've been involved in all this, I typically would tell you that we have seen not much. In other words, I think it's an emotional purchase. I think it's one that people find very important.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

And so, of course, on the friends, you could have some trade down. But I'd say the most part, people wanna do what they wanna do, and it's important to them. So, yeah, we we do not tend to see any kind of big trend down as it relates to to to funeral. Cemetery, as you as we talked about, is a little different because it's a discretionary purchase. That can have a different impact.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Right? But I think when in the immediate need, people want what they want, and we try to help them deliver that.

[Parker Snure, Senior Equity Research Associate at Raymond James]

Okay. That's helpful. And then maybe just on the impact from M and A. It looks like there was a few points of help on the funeral volume side from the non same store. It looks like roughly 2% good guide of volumes.

[Parker Snure, Senior Equity Research Associate at Raymond James]

Is that a good way to think about it for the rest of the year? And maybe just remind us how you're thinking about the M and A benefit you're getting this year from the bolus of M and A that you did last year, maybe just on total earnings and also on funeral volumes?

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

Yeah. When you think about total earnings and you go back to the original formula of

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

the 8% to 12,

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

and the midpoint of our guidance is about 9%, as we've talked about before this quarter and the prior quarter. I mean, m and a is gonna ebb and flow, as I keep saying. But, you know, generally, when you look historically, Parker, you know, m and a can be a couple percentage points. You know, call it bless you. It one to 3%, you know, of the eight to 12% over, you know, complete formula.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

It just depends on what you did in the in the prior year. We had a good year in investment last year, and, you know, so maybe that m and a is gonna be in that kind of 2% of the eight to 12% kind of area. But, you know, I can't say it enough. It just depends on when the deals come and timing of those particular deals, what kind of impact it's gonna have. Of course, the volume numbers that we give are same store, so they're being adjusted for that, so they're not influencing the 1.8% that we set enough volume for the quarter.

[Eric Tanzberger, Executive VP & CFO at Service Corporation International]

That's purely an apples to apples same store scenario. And it depends on what you buy. You know, if you have a heavy acquisition year that's heavy in the cemetery, well that really doesn't matter for the funeral volume model. So there's all kinds of different plays back and forth, but generally I would call M and A maybe a 1% to 2%, one to 3% growth driver if you have some solid years behind you.

[Parker Snure, Senior Equity Research Associate at Raymond James]

Okay. Great. Thank you.

[Operator]

Thank you. This concludes our question and answer session. I would like to turn the conference back over to the SCI management for closing remarks.

[Thomas Ryan, Chairman & CEO at Service Corporation International]

Okay. Thank you, everybody, for being on the call today. We appreciate you, and we'll talk to you again after our second quarter results. Thanks so much.

[Operator]

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Thomas Ryan, Chairman & CEO
• Eric Tanzberger, Executive VP & CFO

Analysts

• Trey Bocage, Director of Strategic Finance and IR at Service Corporation International
• Joanna Gajuk, Equity Research Analyst at Bank of America
• Scott Schneeberger, Managing Director at Oppenheimer & Co. Inc.
• A.J. Rice, Managing Director at UBS Group
• Tobey Sommer, Managing Director at Truist Securities
• Parker Snure, Senior Equity Research Associate at Raymond James