Q1 2025 Service Corp International Earnings Call
Operator: Good day and welcome to the SCI first quarter 2025 earnings conference call. All participants will be in lesson only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero.
Good day and welcome to the S. C. I first quarter 2025 earnings conference call.
All participants will be in listen only mode.
Or do you need assistance. Please signal a conference specialist by pressing the stocky funded by veto.
Operator: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note, this event has been recorded.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad.
Your question. Please press Star then two.
Please note. This event has been recorded.
Operator: I would like to turn the conference over to SCI Management. Thank you and over to you. Morning, everyone.
I would like to turn the conference over to S. C. I management. Thank you I know what to you.
Good morning, everyone. This is Trey bocage 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.
Trey Bocage: This is Trey Bocage, 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.
Trey Bocage: And before that, let me quickly go over the Safe Harbor Land... comments made by our management team that state our plans. Expectations or projections for the future. forward-looking statements are subject to risk. cause actual results to differ materially.
Before that let me quickly go over the Safe Harbor language any comments made by our management team that stayed on our plans.
Expectations or projections for 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.
Trey Bocage: Contemplative. risks and uncertainties include, but are not limited Those factors identified in our earnings release and in our filings with the SEC that are available on our website.
These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the SEC are available on our website.
Trey Bocage: 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.
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.
Tom Ryan: With that out of the way, I will now turn it over to Tom Ryan, Chairman Thanks, Troy. Hello, everyone, and thank you for joining us on the call today.
Speaker Change: With that I'll go away I will now turn it over to Tom Ryan Chairman and CEO.
Tom Ryan: Thanks, Greg and Hello, everyone and thank you for joining us on the call today.
Tom Ryan: 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 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 96 cents, which compares to 89 cents in the prior year. We saw impressive increases in funeral revenue and gross profit, partially offset by slightly lower cemetery revenue and gross profit. which when combined resulted in 7 cents of earnings per share growth from operating.
Tom Ryan: This morning, I'm going to begin my remarks, with some high level color on our business performance for the quarter.
Tom Ryan: Then provide some greater detail around our funeral and cemetery results.
Tom Ryan: And then close with some thoughts about our current outlook for the year 2025.
Tom Ryan: For the first quarter, we generated adjusted earnings per share of 96, which compares to 89 in the prior year.
Tom Ryan: We saw impressive increases in funeral revenue and gross profit, partially offset by slightly lower cemetery revenue and gross profit.
Tom Ryan: Which when combined resulted in seven cents of earnings per share growth from operating income.
Tom Ryan: Below the line, the favorable impact of a lower share count and a slightly lower interest effectively offset by a higher effective tax rate. The higher tax rate was the result of the non-deductibility of certain excess tax benefits from the settlement of stock option awards. If the tax rate had remained constant...
Tom Ryan: Below the line.
Tom Ryan: Favorable impact of a lower share count and a slightly lower interest expense was effectively offset by a higher effective tax rate.
Tom Ryan: The higher tax rate was the result of the non deductibility of certain excess tax benefits from the settlement of stock option Awards.
Tom Ryan: Yes, the tax rate had remained constant we would have had an additional four cents in earnings per share, resulting in 12% earnings per share growth over the prior year quarter.
Tom Ryan: We would have had an additional 4 cents in earnings per share, resulting in 12% earnings per share growth over the prior year quarter.
Tom Ryan: Now let's take a deeper look into the funeral results. Total comparable funeral revenue increased over $23 million, 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 pre-need sales revenue. Comparable Corps Funeral Revenue increased by $18 million, or about 4%, primarily due to a healthy 2.5% growth in the Corps Average Revenue Per Service and a 1% increase in Corps Funeral Services Performed. This core average growth was achieved despite a modest increase of 40 basis points in the core cremation. SCI Direct non-funeral home revenue decreased by $3 million, driven primarily by a $7 million decline in non-funeral home pre-need sales revenue.
Tom Ryan: Now, let's take a deeper look into the funeral results for the quarter.
Tom Ryan: Total comparable funeral revenue increased over $23 million or about 4% over the prior year quarter.
Tom Ryan: Strong core revenue and core General agency revenue growth exceeded declines in Sci direct non funeral preneed sales revenue.
Tom Ryan: Comparable core funeral revenue increased by $18 million were about 4%.
Tom Ryan: Primarily due to a healthy two 5% growth in the core average revenue per service and a 1% increase in core funeral services performed.
Tom Ryan: This core average growth was achieved despite a modest increase of 40 basis points in the core cremation rate.
Tom Ryan: Sci direct non non funeral home revenue decreased by $3 million, driven primarily by a $7 million decline in non funeral home preneed sales revenue.
Tom Ryan: Resulting from the anticipated negative effect of operational changes. to defer merchandise delivery. This was partially offset by growth in general agency commitments. as we are in the process of switching from a trust to an insurance funded pre-need model. This net decline from pre-needs sales revenue was partially offset by a $4 million 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.
Tom Ryan: Resulting from the anticipated negative effect.
Tom Ryan: Operational changes to defer merchandise deliveries.
Tom Ryan: 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.
Tom Ryan: This net decline from preneed sales revenue was partially offset by a $4 million increase in non funeral home revenue.
Tom Ryan: <unk> generated by an impressive 6% increase in non funeral home services performed.
Tom Ryan: A 10% improvement in the average revenue per service from the effect of higher value contracts maturing from the backlog.
Tom Ryan: Certain of these contracts now include merchandise or travel protection. There more recently was deferred from the time of sale into the backlog.
Tom Ryan: This healthy average revenue per service growth should continue as more contracts with merchandise Core General Agency and other revenue grew by an impressive $8 million, primarily due to growth in General Agency revenue driven by higher average commission rates derived from our new pre-need insurance market. 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 million, while the gross profit percentage increased by 240 billion. to over 24 percent. This gross profit increase was the result of the solid 4% revenue.
Tom Ryan: This healthy average revenue per service growth should continue as more contracts with merchandise and travel protection mature over the coming years.
Tom Ryan: Core General agency and other revenue grew by an impressive $8 million, primarily due to growth in general agency revenue driven by higher average commission rates derived from our new preneed insurance marketing agreement.
Tom Ryan: As well as the effect of selling a larger percentage of underwritten insurance products, which carry a higher commission rates versus the flex or a non underwritten product.
Tom Ryan: Funeral gross profit increased by about $21 million, while the gross profit percentage increased by 240 basis points to over 24%.
Tom Ryan: This gross profit increase was a result of the solid 4% revenue increase.
Tom Ryan: combined with managing fixed costs to about a 1% increase for the quarter.
Tom Ryan: Bind with managing fixed costs to about a 1% increase for the quarter.
Tom Ryan: pre-need funeral sales production decreased by $32 million, or about 10% over the first quarter of 2024. Corps Pre-National Funeral Sales Production decreased by $12 million, or 5%. primarily due to the transition to our new pre-insurance provider during the back half of 2020. We anticipate comparable core printing sales production to normalize later in the back half of 2025. Non-funeral home pre-need sales production decreased $20 million, or 26%, as SCI Direct transitions from the sale of trust to insurance-funded pre-need contracts. This transition required many of our sales counselors to go through extensive training and obtain insurance licenses.
Tom Ryan: Yeah.
Tom Ryan: Preneed funeral sales production decreased by $32 million or about 10% over the first quarter of 2024.
Tom Ryan: Core preneed funeral sales production decreased by $12 million or 5%.
Tom Ryan: Primarily due to the transition to our new preneed insurance provider during the back half of 2024.
Tom Ryan: We anticipate comparable core preneed sales production to normalize later in the back half of 2025.
Tom Ryan: Non funeral home preneed sales production decreased $20 million or 26%.
Tom Ryan: See I direct transitions from the sale of trust insurance funded preneed contracts.
Tom Ryan: This transition required many of our sales counselors to go through extensive training and obtain insurance licenses and changed the terms of the payment terms for customers financing their training.
Tom Ryan: and change the payment terms for customers financing their premium. 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 2025.
Tom Ryan: All of which contributed to a temporary slowdown in sales.
Tom Ryan: 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 2025.
Tom Ryan: Now shifting to Symmetry. Comparable cemetery revenue decreased by $8 million, or about 2%. The core revenue decline of $10 million was partially offset by a $2 million increase in other revenues. The core revenue decline over the prior year quarter was primarily attributable to a $12 million decrease in recognized pre-need property. Go to lower sales for Within recognized pre-need property revenue, the negative effect of lower recognition rates on the new construction and pre-need merchandise is offset by higher Merchandise and Service Trust Income.
Tom Ryan: Now shifting to cemetery copper.
Tom Ryan: Comparable cemetery revenue decreased by $8 million or about 2%.
Tom Ryan: The core revenue decline of $10 million was partially offset by a $2 million increase in other revenue.
Tom Ryan: The core revenue decline over the prior year quarter was primarily attributable to a 12 million dollar decrease in recognized preneed property revenue due to lower sales production.
Tom Ryan: Within recognized preneed property revenue the negative effect of lower recognition rates on the new construction in preneed merchandise was offset by higher merchandise and service Trust income.
Tom Ryan: Remember, this deferred sales production enhances our backlog and will be recognized in future periods. The $12 million decline in recognized pre-need property revenue was partially offset again by a $2 million increase in internal care funding. Comparable pre-cemetery sales production declined by $8 million or about 3% as a modest increase in core production was more than offset by a decrease in large sales. We believe that decline in large sales is a timing issue that could be recovered in future quarterly periods.
Tom Ryan: Remember this deferred sales production enhances our backlog and will be recognized in future periods.
Tom Ryan: The $12 million decline in recognized preneed property revenue was partially offset again by $2 million increase in internal care fund income.
Tom Ryan: Comparable Preneed cemetery sales production declined by $8 million or about 3% as a modest increase in core production was more than offset by a decrease in large sales.
Tom Ryan: We believe the decline in large sales is a timing issue that can be recovered in future quarterly periods.
Tom Ryan: While we have not yet closed the books, April printing cemeteries sales production looks very good. Cemetery gross profit in the quarter decreased by $6 million and the gross profit percentage declined by 80%. generating an operating margin of 32%. Our 2% revenue decline was somewhat mitigated by a less-than-inflationary 1% growth in our fixed costs.
Tom Ryan: Well, we have not yet closed the books April Preneed cemetery sales production looks very good.
Tom Ryan: Okay.
Tom Ryan: Cemetery gross profit in the quarter decreased by $6 million and the gross profit percentage declined by 80 basis points generating an operating margin of 32%.
Tom Ryan: Our 2% revenue decline was somewhat mitigated by a less than inflationary 1% growth in our fixed costs.
Tom Ryan: Now let's shift to discussion about our Outlook for 2020. As you saw in earnings release, we are confirming our normalized earnings per share guidance range of $3.70 to $4.00 for 2025. We're at 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.
Tom Ryan: Now, let's shift to discussion about our outlook for 2025.
Tom Ryan: As you saw in our earnings release, we are confirming our normalized earnings per share guidance range of $3 70 to $4 for 2025.
Tom Ryan: Or a midpoint of $3 85.
Tom Ryan: The current midpoint of the range represents a 9% year over year growth in earnings per share.
Tom Ryan: 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.
Tom Ryan: 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 victim. 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. When combined, this should result in healthy profit growth for the funeral segment, increasing the gross margin percentage by 80 to 120 basis points.
Tom Ryan: 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.
Tom Ryan: Well, we're still absorbing the temporary negative financial effect of our Sci direct transition, we do expect to see higher General agency revenue generated from the favorable impact of our new insurance agreement.
Tom Ryan: When combined this should result in healthy profit growth. So the funeral segment, increasing the gross margin percentage by 80 to 120 basis points.
Tom Ryan: Transitioning to pre-need funeral, we expect pre-need 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 chain. While sales production may be down for the year, for some perspective, the $1.2 billion of prenatal funeral sales production we expect for 2025 is 27% higher than 2019, or a 4% compounded growth rate over the last As we think out to 2026, we would expect pre-need funeral sales production to return to a low to mid single digit percentage growth.
Tom Ryan: Transitioning to preneed funeral, we expect preneed funeral sales production to be slightly lower in 2025, as we continue the transition of Sci direct to an insurance funded model and we adapt to the new policies and products from our new insurance partner in our core channel.
Well sales production may be down for the year for some perspective, the $1 $2 billion of Preneed funeral sales production. We expect for 2025 is 27% higher than 2019 were a 4% compounded growth rate over the last six years.
Tom Ryan: 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.
Tom Ryan: From a cemetery perspective, We anticipate that we can grow prenatal cemetery cells production in the low single-digit percentage range. Resulting in cemetery revenue growth of about 1-2 billion dollars.
Tom Ryan: From a cemetery perspective.
Tom Ryan: We anticipate that we can grow preneed cemetery sales production in the low single digit percentage range, resulting in cemetery revenue growth.
Tom Ryan: 1% to 2%.
Tom Ryan: The Volatility in the Equity Market 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 $32 Below the line, we expect favorable impacts 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 auction expenses.
Tom Ryan: 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.
Tom Ryan: Continued focus on managing inflationary cost should result in some segment profit dollar growth, while maintaining our presses gross margin percentages in the 32% to 33% range.
Tom Ryan: Below the line, we expect favorable impact from slightly lower interest expense and a lower share count that will be and again for the most part by the higher effective tax rate caused by the loss of deductibility of excess tax benefits from stock option exercises.
Tom Ryan: In conclusion, I want to acknowledge and thank the entire SEI 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. Thank you for making a difference every day.
Tom Ryan: In conclusion, I want to acknowledge and thank the entire SDI team for their daily commitment to our customers our communities and to one another.
Tom Ryan: Skill dedication and attention to detail is the foundation of our success.
Tom Ryan: We're making a difference every day.
Aaron Foley: With that operator, I'll now turn the call over to Aaron. Thank you, Tom, and good morning. Thank you to everyone joining the call today.
Eric: With that operator, I'll now turn the call over to Eric.
Eric: Thank you Tom and good morning, Thank you to everyone joining the call today as I usually do.
Aaron Foley: 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: I want to start to take the first moment to express my deepest appreciation to each of our 25000 plus dedicated associates. The exceptional service that you provide continues to make a meaningful and lasting impact on the lives of their families and communities that we're so proud to serve.
Eric: I'm truly proud of the work that you do each and every day and want to say it very clearly thank you.
Aaron Foley: 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&A and then conclude the remarks by an update on overall financial position. So starting with cash flow, we generated very solid adjusted operating cash flow of $316 million in the quarter. This did exceed our expectations and was a substantial improvement, a little over $90 million improvement over the prior year.
Eric: So with that and 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&A and then conclude the remarks by an update on our overall financial position.
Eric: So starting with cash flow, we generated very solid adjusted operating cash flow of $316 million in the quarter. This did exceed our expectation and was a substantial improvement little over $90 million improvement over the prior year. So let's break this down a little bit.
Aaron Foley: So let's break this down a little bit. The adjusted operating cash flow was supported by higher operating income, and that was about $20 million, which again, highlighted the sustained strength in the underlying business during the quarter that Tom just walked through and addressed. Cash interest had a timing issue so it was lowered by about $15 million. The timing issue associated with the bond financing that we did in the fall of last year and coincided with the reduction of our bank credit facility that we completed this past September, as well as a little bit lower rate on our floating rate debt.
Eric: Adjusted operating cash flow was supported by higher operating income and that was about $20 million, which again highlighted sustained strength in the underlying business during the quarter at Tom just walked through and addressed.
Eric: Cash interest at a timing issue that was so it was lower by about $15 million the timing issue associated with the bond financing like we did in the fall of last year and coincide and reduction of our bank credit facility and we completed this past September as well as a little bit lower rates on our floating.
Eric: That Ah.
Aaron Foley: Offsetting these items, cash taxes of $5 million was slightly higher than the prior year by about $3 million.
Eric: Setting these items cash taxes of $5 million was slightly higher than the prior year by about $3 million.
Aaron Foley: Finally, working capital provided a significant source this quarter of $65 million from $37 million of higher cemetery installment receipts and other previewed working capital timing, as well as favorable $28 million source of cash as a result of one less payroll cycle when you compare this current quarter to the prior year quarter.
Eric: Finally, working capital provided a significant source this quarter of 65 million from $37 million of higher installed cemetery installment receipts and other pretty working capital timing as.
Eric: As well as favorable $28 million source of cash as a result of one less payroll cycle. When you compare this current quarter to the prior year quarter.
Aaron Foley: Now let's talk about capital investment. In the first quarter, we invested $95 million 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 million of maintenance capital back into our current funeral homes and cemeteries, with $41 million allocated to high returning cemetery development projects. $21 million into our current funeral and cemetery locations, and $5 million into digital investments and some other miscellaneous corporate spam. We also invested $13 million 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: Now, let's talk about capital investment in the first quarter, we invested $95 million 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 million.
Eric: A maintenance capital back into our current funeral homes and cemeteries with $41 million allocated to high returning cemetery development projects $21 million into our current funeral and cemetery locations and $5 million into digital investments and some other miscellaneous corporate spend.
Eric: We also invested $13 million of growth capital in the first quarter towards the purchase of real estate construction projects of new funeral homes, and Crematoriums and the expansion of the existing funeral homes and cemeteries. Finally, we invested $15 million towards business acquisitions during the quarter.
Aaron Foley: Finally, we invested $15 million towards business acquisitions during the quarter. And we again remain optimistic about the deal pipeline that's currently out there in the industry. And we do expect to achieve our $75 to $125 million of acquisition investment, which is our target for the full year of 2025.
Eric: And we again remain optimistic about the deal pipeline. That's currently out there in the industry and we do expect to achieve our $75 million to $125 million of acquisition investment, which is our target for the full year of 2025.
Aaron Foley: So moving to distributing and investing this capital, we returned a substantial $176 million of capital to shareholders in the first quarter, which was done through 46 million of dividends and $130 million of sharing purchases. Let's dive in a little bit deeper on that. We repurchased just under 2 million shares, about 1.6, 1.7 million shares, at an average price of $79 during the quarter, bringing the number of shares outstanding to approximately 143 million shares at the end of the quarter. Subsequently, we have completed another 900,000 shares purchase for about $71 million, which works out to an average repurchase price of about $78.
Eric: So moving to distributed and investing this capital we returned a substantial $176 million of capital to shareholders in the first quarter, which was done through $46 million of dividends and $130 million of share repurchases, so diving a little bit deeper on that we.
Eric: We repurchased just under 2 million shares that's about 161 7 million shares at an average price of $79 during the quarter, bringing the number of shares outstanding to approximately 143 million shares at the end of the quarter.
Eric: Subsequently, we have completed another 900000 shares purchased for about $71 million, which works out to an average repurchase price of about $78.
Aaron Foley: So I'd like to now shift gears a little bit and make a brief comment about our corporate G&A expense during the quarter. G&A expenses increased about $3 million 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. But as we look forward for the rest of the year and the next three quarters, we continue to expect that corporate G&A expense will average probably about $39 to $41 million 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.
Eric: So I'd like to now shift gears, a little bit and make a brief comment about our corporate G&A expense during the quarter.
Eric: G&A expenses increased about $3 million quarter over quarter, primarily due to higher workers' 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 in the next three quarters, we continue to expect at corporate.
Eric: G&A expense will average probably about 39% to $41 million a quarter for each of these quarters for the remainder of the year, although as you've seen before.
Eric: 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.
Aaron Foley: So now let's 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 $830-890 million with a midpoint of $860 million. After deducting $315 million, which is the expected maintenance capital...
Eric: So now shifting to Furthermore, information of the outlook as you may have seen in the release, we confirmed our 2025 adjusted operating cash flow guidance range of $830 million to $890 million with a midpoint of $860 million.
Eric: After deducting $315 million, which is the expected maintenance capital.
Aaron Foley: We expect impressive adjusted operating free cash flow of almost 550 million dollars for the full year of 2025. And as we've addressed several times in the past, seems like numerous quarters, cash taxes will revert to a more normalized level in 25, following a change in tax accounting policy that has benefited our cash flows since really the mid or third quarter of 2023. As the federal cash tax payments are generally not made in the first quarter, the headwind, which is about $150 million 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.
Eric: We expect impressive adjusted operating free cash flow of almost $550 million for the full year of 2025.
Eric: And as we've addressed several times in the past it 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 2023.
Eric: As a federal cash tax payments are generally not made in the first quarter the headwind, which is about $150 million to remind you year over year that we've discussed will be more pronounced beginning next quarter or the second quarter as we were in right now as we speak.
Aaron Foley: As we've addressed in prior quarters, we also expect our effective tax rate in 2025 to be about 25 to 26 percent.
Speaker Change: 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 I've said excess tax benefits are no longer recognized on the settlement of certain executive employee share based orbs.
Aaron Foley: 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.
Aaron Foley: So I'd like to now conclude my comments with an update on our financial... We continue to have a very attractive and manageable debt maturity profile with substantial liquidity. We ended the quarter with liquidity of about $1.6 billion, consisting of approximately $230 million of cash and approximately $1.35 billion 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 4 times.
Eric: So I'd like to now conclude my comments with an update on our financial position.
Eric: We continue to have a very attractive and manageable debt maturity profile with substantial liquidity. We ended the quarter with liquidity of about $1 $6 billion consistent of approximately $230 million of cash and approximately 135 billion available on our long term.
Eric: Bank credit facility.
Eric: Our leverage declined during the quarter and went from about 365 times that again, its net debt to EBITDA at the end of the year to 359 times at the end of this first quarter, which again is towards the lower end of our long term leverage target range of three and a half to four times.
Aaron Foley: 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: 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.
Eric: For the long term benefit of our company, our associates and our shareholders.
Aaron Foley: Finally, I just want to again reiterate how extremely proud we are of the entire FCI 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.
Eric: Finally, I just want to again reiterate how extremely proud we are of the entire SDI team.
Eric: The way you continue to serve our families in need at their greatest time is truly inspiring and again. Thank you for everything that you're doing.
Operator: 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. Thank you.
Speaker Change: So operator with that that concludes Tom and myself remarks, and we will go ahead and turn it back to you and we'll open the call up to questions.
Operator: 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're using a speakerphone, please pick up your handset before pressing the key.
Eric: Thank you.
Speaker Change: We'll now begin the question and answer session.
Speaker Change: I'll ask a question you May press Star then one on your telephone keypad, if youre using a speakerphone. Please pick up your handset before pressing the keys.
Operator: If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster.
Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Joanna Gajuk: The first question comes from Joanna Gajuk with Bank of America. Please go ahead. Hey, good morning. Thanks so much for taking the question. So maybe first on the semantic pre-cells production being down, so it sounds like some of it was worse, right? So now you kind of got into a little bit slower growth. So can you maybe talk about, you know, what do you assume for the largesse versus core? It 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 location?
Speaker Change: The first question comes from Joanna <unk> with Bank of America. Please go ahead.
Joanna: Hey, good morning. Thanks, so much for taking the question. So maybe first on the cemetery preneed sales production being down so it sounds like.
Speaker Change: Some of it was worst way, so now you're kind of guiding to a little bit slower at Gabelli. So.
Speaker Change: So can you maybe talk about you know what do you assume for the <unk>. This quarter. It sounds like much was worth maybe core was a little bit better.
Speaker Change: That context can you also talk about.
Speaker Change: You know you're a guest experience at our Roseville location, because I guess that the committee or it can be used around those skills were impacted by the wildfires I just wonder if there's any slowdown there.
Joanna Gajuk: Because I guess that the community or the communities around those hills were impacted by the wildfire. So I just wonder if there's any slowdown there.
Tom Ryan: 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 million of production. For the last three or four years, we've probably averaged about a hundred. So on an average basis, we'll sell 45 million 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. So we've seen a range of $30 million in a quarter to $57 million in a quarter, and again they tend to kind of level out.
Speaker Change: Yeah, Thanks, Joanne and good to hear from you. So as it relates first to first part of your question around production in large sales.
Speaker Change: Probably good to remind everybody kind of the cadence of large sales in 2019 on an annualized basis, we had about $90 million of production.
Speaker Change: For the last three or four years, we've probably averaged about $180 million. So on an average basis will sell 45 million a quarter.
Speaker Change: What we've seen is kind of a lot of volatility between quarters really just about the timing of when they close.
So we've seen a range of $30 million in the quarter to $57 million in a quarter and again, they tend to kind of level out.
Tom Ryan: The first quarter was towards that $30 million number, so it isn't a place that we haven't seen before. And 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. So 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 on, I think, discretionary purchases and other industries.
Speaker Change: The first quarter was towards that $30 million number so it isn't a place that we haven't seen before and I think our expectations right now at least based on what we're seeing out there in the appointments being set we see a pretty strong pipeline.
Speaker Change: April turning out to be a really good sales quarter, both on our core and on a large sales.
Speaker Change: So from what we see in the business today, we feel confident that.
Speaker Change: Sales look pretty good as we go forward, we're not blind to what's going on outside you know theres a lot of pressure right now to make discretionary purchases that other industries, you're seeing it in retail and others.
Tom Ryan: You're seeing it in retail and others. So what I want to remind people is we've been through this movie before. In 2008 and 2009 and then again in 2020 and 2021, discretionary purchases really kind of fell off the map in a lot of industries. And the nice thing about us, that I see in our business... We're viewed as a mature sale or call it a, you know, taking care of business type of sale. We're not a big screen TV. We're not a sports car. This is a responsible decision. So we always saw these sales tend to come back very quickly relative to other discretionary.
Speaker Change: What I want to remind people is we've been through this movie before.
Speaker Change: 2008, and 2009, and then again in 2020, one discretionary purchases really kind of fill up the map and a lot of industries and the nice thing about us that I see in our businesses.
Speaker Change: We're viewed as a mature sale or color.
Speaker Change: You know taking care of business type of sale were not a big screen TV, we're not a sports car.
Speaker Change: This is a responsible decision. So we always saw these sales tend to come back very quickly relative to other discretionary purchases.
Tom Ryan: So we feel pretty good about the rest of the year and feel like the large-scale 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. You know, regionally, we're going to have that quarter-to-quarter. Our team's done a fantastic job, I think, selling through that and taking care of their So, you know, we feel good about the rest of the year as it relates to Rose Hills.
Speaker Change: So 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 in and activity there as it relates to rose Hills again.
Speaker Change: I think of course, there was some distraction as it relates to these fires.
Speaker Change: Regionally, we're gonna have that quarter to quarter, our team's done a fantastic job I think selling through that and taking care of their community. So yeah. We feel good about the rest of the year as it relates to red cells. There is a lot of exciting things happening in a lot of new projects that are scheduled to open later in the year.
Tom Ryan: 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 2026. Hopefully that answers your question. Yeah, no, thank you. And the Rose Hills in particular, or the West Coast, in terms of the the Ching Ling festivities, I guess, sounds like, at least in Rose Hills, based on your response, when you said you feel good about things there, sounds like those kind of progress as normal in terms of just, you know, the product that's available and the food traffic around those festivities.
Speaker Change: In early 2026.
Hopefully that answers your question Joanna.
Speaker Change: Yeah, no. Thank you and well excuse me in particular or the west coast in terms of Dod that Shanghai festivities, I guess, it sounds like a decent wells skills based on your response when you say you feel good about things there. It sounds like got those kind of progressed us as normal in terms of shifts you know the product that's available and the foot traffic.
Speaker Change: Oh about Dallas facilities.
Tom Ryan: Yeah, so I would say we've had a very good Qingming, you know, and the various markets around the country were that 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, and so we're trying to manage people through it as best we can, and again, I think it was a pretty solid first quarter, and in April, again, it's only a month, but it looks to be really solid.
Speaker Change: But yes, I would say we've had a very good Ching Ming.
Speaker Change: And the various markets around the country, where that strong. So yeah, we feel good about that and through the first quarter and the momentum into April so.
Speaker Change: 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 and so we're trying to manage people through it as best we can and again I think it was a pretty solid first quarter and in April again, it's only a month, but that looks to.
Speaker Change: Be really solid.
Joanna Gajuk: And if I may, another, I guess, item that's quite topical outside of the discretionary, obviously the tariffs. So maybe you could 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 incremental costs? You know, this year, are you including anything in your guidance? And also, you know, if you can give us some sense in terms of the exposure for your purchases to China specifically and other markets.
Speaker Change: And if I may another I guess item that's topical outside of the discretionary obviously the tariffs. So maybe you could walk us through how you're thinking about that sort of a few things have outflow fluid web based on what you know how would you think about you know any any incremental costs. This year are you including anything.
Speaker Change: In your guidance and also about well you know if you can give us some sense in terms of bad debt exposure for you.
Speaker Change: No purchases to China, specifically in other markets. Thank you.
Tom Ryan: Thanks, Joanna and 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. 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.
Speaker Change: Thanks, Joanna it's Eric we feel pretty good about it in this particular category. We do have when you think about things that would logically.
Speaker Change: You know maybe be effected by this youre going to talk about the merchandise that we're selling both in our funeral segment. Our cemetery segment, that's primarily relates to caskets on the funeral side.
Speaker Change: Probably relates to some earns 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.
Speaker Change: That.
Speaker Change: That are used in terms of celebration at the cemeteries themselves.
Tom Ryan: 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 got to tell you, there's a good 60% or two-thirds that we already source within the U.S., and the things that we are sourcing externally, I'd give you two comments, really. One, as a very general statement, you know, we have entered into long-term production-type contracts with our business partners. And those, without getting into too much detail, I think those are going to generally protect us from a lot of these situations in the near term.
Speaker Change: Ultimately that's a couple of hundred million dollars for us in terms of cost when I want all of that is a very general category.
Speaker Change: But I got to tell you. There is there is a good 60% or two thirds that we already sourced within the U S and the things that we are.
Speaker Change: That were sourced externally active you to comments surely one as a very general statement.
Speaker Change: We have entered into long term production type contracts.
Speaker Change: With our business partners and those without getting into too much detail I think those are going to 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 is flexibility.
Tom Ryan: 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 a China or an India, and you can source it here in the U.S. 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, so 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.
Speaker Change: City here, where you don't have to take things from China or in India, and you can source. It here in the U S. We don't want to overreact to that because we do have some long term protection and some of our contracts, but we do think that we will continue to actively manage it and keep our pulse on it.
Speaker Change: So to speak so we understand as we move forward, but just 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 of these situations I just described to you.
Joanna Gajuk: 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.
Speaker Change: Okay. So you say immaterial on you don't assume anything incremental into guidance I assume like you you can manage this year I guess, we'll see how things go can you talk about next year later, but yeah. Thanks for taking the questions.
Joanna Gajuk: I guess we'll see how things go and talk about next year later. But yeah, thanks for taking the question.
Julien: Hey, Julien.
Joanna Gajuk: Thank you.
Scott Schneeberger: The next question comes from Scott Schneeberger with Oppenheimer. Please go ahead. Thank you very much. Good morning all.
Speaker Change: Thank you.
Speaker Change: The next question comes from Scott <unk> with Oppenheimer. Please go ahead.
Scott: Thank you very much good morning, all I'd like to start off asking about funeral volume, they're pretty big swing from down three 8% in the fourth quarter up 1.8, a year over year in the first quarter could you speak to the drivers of that in the <unk>.
Scott Schneeberger: I'd like to start off asking about funeral volume. The pretty big swing from down 3.8 percent 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? Just maybe the top three by degree of magnitude and then I'll follow up on that.
Scott: First quarter I'm, just you know maybe the top three by degree of magnitude and then I'll follow up on that thanks.
Tom Ryan: I think sometimes because of the volatility between quarters it's tough, you know, 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 kind of evaluate over annual periods versus quarter. But I would say as we track these things, we feel really good about the fact that, you know, it's not perfect science but we are continuing. Slightly grow our overall market share, I think is a belief that we have. Obviously, that's different in each market. And some of that's probably because of our strong pre-need program historically.
Speaker Change: Yes, Scott I think sometimes because of the volatility between quarters, it's tough.
You got one quarter, there was weak last year and you're comparing to strong with this year. So it is much easier to kind of evaluate over annual periods versus quarter, but I would say as we track. These things we feel really good about the fact that.
Speaker Change: You know, it's not perfect science, but we are continuing to.
Speaker Change: Slightly grow our overall market share I think is a belief that we have obviously that's different in each market.
Speaker Change: And some of that's probably because of our strong preneed program historically.
Tom Ryan: I think a lot of the efforts that we've put in in the past are bearing fruit today, and that those may be the biggest drivers as you think about the year, you know, quarter-to-quarter again you just have some of this volatility, and the pull-forward effect continues to have a more diminished effect, but it's still out there, so I think it's harder and harder to compare and predict, 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.
Speaker Change: I think a lot of the efforts that we've put in in the past are bearing fruit today and that those may be the biggest drivers as you think about the year quarter to quarter again, you just have some of this volatility in the pull forward effect.
Speaker Change: To have a more diminished effect, but it's still out there. So I think it's harder and harder to compare predict but we feel very good about the first quarter, it and feel like again between preneed and competing more effectively.
Speaker Change: That we are enhancing our national market share.
Scott Schneeberger: Thanks.
Scott Schneeberger: And when you referenced pull-forward, you were speaking to the longer-term COVID trend and reversion, or perhaps, I think this was a heightened flu season. Just if you could clarify that. Yeah, my I'm sorry, Scott, that that was really more about the COVID pull forward. And again, kind of that diminishing effect as time goes on. But it's still out there, right? And we still have early deaths that, you know, 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.
Speaker Change: I mean, when you referenced pull forward when you were speaking to the longer term COVID-19 trend in reversion or or perhaps though I think this is a heightened flu season.
Speaker Change: If you could clarify that thanks.
Speaker Change: Yeah, My I'm, sorry, Scott that was really more about the COVID-19 pull forwarded and again kind of that diminishing effect as time goes on but it's still out there either and we still had early deaths that you know 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.
Scott Schneeberger: I don't think we saw anything a dramatic there, but I have heard. that that is up and probably has.
Speaker Change: Anything too dramatic there.
Speaker Change: But I have heard some statistics of it but.
Speaker Change: That is up and it probably has some effect.
Scott Schneeberger: Thanks so the takeaway here is that it could be I think the full year expectation was flat to slightly down. Sounds like you're training, you know, obviously you're training well against that out of the gate.
Speaker Change: Thanks.
Speaker Change: The takeaway here is that it could be I think the full year expectation with flat to slightly down it sounds like you're trending you know, obviously, you're trading well against that out of the gate I'm just curious kind of.
Tom Ryan: Just curious kind of how you how you see that shaping over the end of the year and any change to that specific outlook. You know, I think we're taking the approach of, you know, 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 start the year. So, yeah, I'm optimistic that it could be a... a really good solid funeral volume year as it relates to market share and and others.
How you how you see that shaping over the end of the year and any change to that specific outlook. Thanks.
Speaker Change: Sure you know I think we're taking the approach of you know one quarter does not a year make so we're very pleased with the first quarter.
Speaker Change: It was ahead of our expectations, we haven't altered our annual guidance because again, it's the first quarter, but I would say that we feel a lot better now about that then probably as we start the year. So I would say I'm optimistic that.
Speaker Change: It could be.
Speaker Change: A really good solid funeral volume year as it relates to market share and continue to compete in the marketplace.
Speaker Change: Thanks appreciate that and just for my follow up just curious on the cremation mix yet it's been a little bit below historical average for a while now over a year I believe just comments on what you're seeing there if you think of new trends shaping.
Scott Schneeberger: You know, it's hard to answer that, but I guess I would say this, when you get to these highest numbers, you know, as you get closer... thanks so much. But I don't think 100, if that snuck up in a quarter, would surprise me either. So, yeah, I think you... If you think about that, you know, less than 100 basis points is very, very possible. Thank you very much.
Speaker Change: 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%.
Speaker Change: It becomes harder and harder to move the needle I think is if you look at other.
Speaker Change: Graphics different countries is there.
Speaker Change: Cremation mix change because you've got a lot of northern Europe, and Canada, Australia with high cremation rates and I don't think it's unlike that so im not surprised I think you can still you know we used to say 100 to 150 basis points I don't think we take a 150 basis points in the cards anymore.
But I don't think a 100.
Speaker Change: Snuck up in the quarter, which surprised me either so so yes, I think as you think about that less than 100 basis points is very very possible as we were before.
Speaker Change: Understood Thanks very much.
Speaker Change: Okay.
Scott Schneeberger: Thank you.
Speaker Change: Thank you.
AJ Rice: The next question comes from AJ Rice with UBS, please go ahead. or of your pre-need. New York Children's Hospital. Last summer the discussion was around you know 7-800 million 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.
Speaker Change: The next question comes from a J rice with UBS. Please go ahead.
Speaker Change: Four of your pre need funeral.
Speaker Change: Funeral volume to insurance I think when you take the contract.
Speaker Change: Last summer the discussion was around you know seven or $800 million of core plus a couple of hundred million dollars of Sci direct so it's sort of roughly a $1 billion of premium I may have those numbers wrong correct me.
AJ Rice: Correct me if they're wrong It sounds like now with this push you're going to have Do you have a target as to where you think you'll end up as to how much insurance annual premium you're going to generate from prenatal funeral contracts? Yeah, I think we're still kind of 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? How many people can you get on board?
Speaker Change: If they're wrong.
Speaker Change: It sounds like now with this push youre going to have.
Speaker Change: 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 going to generate from pre need funeral contracts.
Speaker Change: Yeah, Jay I think we're we're still kind of figuring that out because you know you mentioned two things.
Speaker Change: What is.
Speaker Change: We're transitioning completely on Sci direct that was a.
Speaker Change: 100% Trust, we're now converting to <unk>.
Speaker Change: Effectively almost 100%.
Speaker Change: Insurance and so as that transition occurs how quickly can you do it how many people can you get onboard because youre seeing that production levels drop because it takes it's a lot harder to transition from a trust through an insurance product. So it's really more about the timing of when that can get back and then the <unk>.
Tom Ryan: Because you're seeing the production levels drop because it's a lot harder to transition from a trust to an insurance product. So it's really more about the timing and when that can get back. And 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. So what's the mix between the two? So you can begin to appreciate why it's hard to completely predict. I will tell you that you're right. in that that number's probably gonna be north of what you originally thought once we get through the noise.
Speaker Change: Other thing is you know.
Speaker Change: What type of insurance Commission can you drive and what would drive that will a single pay insurance product doesn't pay nearly as much as a multi pay so so what's the mix between the two so 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.
Speaker Change: That number is probably going to be north of what you. Originally thought once we get through the noise same thing on the core side you know even though it is still an insurance product, we've got different policies and procedures as it relates to these things.
Tom Ryan: Same thing on 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. You can take into account, you know, Social Security numbers, we're not having Social Security numbers. That can be a difference as an example of a policy that one insurance provider may have. previous insurance provider. 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.
Speaker Change: You can take into account.
Speaker Change: Social security numbers or not having social security numbers that can be a a difference as an example of a policy. The one insurance provider may have versus our previous insurance provider.
Speaker Change: And then as you think again about the products that we sell it's slightly different salesforce has to understand it convey the value. So I think we're in a little bit of a lull, but as we come out of this in the back half of this year I really expect us to be hitting on all cylinders in 2026, and again assuming that all year.
Tom Ryan: I think we're in a little bit of a lull, but as we come out of this, you know, the back half of this year, you know, I really expect this to be hitting all cylinders in 2026. And again, assuming that all your SCI direct, for the most part, will come under this insurance product, and we'll go back to, you know, call it... 3% to 5% growth on the core as it relates. So those numbers are the ones I'd be dialing in.
Speaker Change: Sci direct for the most part will come under this insurance product.
Speaker Change: And we'll go back to call it.
Speaker Change: 3% to 5% growth on the core as it relates to preneed funeral. So those numbers are the ones that would be dealt with as you get into 'twenty three.
Tom Ryan: Okay, and then just want to 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 cases coming out of the backlog, you've got the investment income build up and so on, but I wonder, incrementally, how much do those two things tend to contribute to revenue per case if there's more of that coming out, and is that fully reflected in the run rates you're seeing now, or do you think the percentage of cases that have those two dynamics will continue to increase for a while?
Speaker Change: Okay.
Speaker Change: Just wanted to also go back to the comment.
Speaker Change: I think Eric made about more of the.
Cases coming out of the backlog have merchandise and travel associated with them.
Speaker Change: No.
Speaker Change: Obviously, the cases coming out of the backlog you've got the investment income buildup and and so on but I wonder incrementally how much did.
Speaker Change: Do those two things tend to contribute to our revenue per case is there if there's more of that coming out and is that fully reflected in the run rates, you're seeing now or do you think that all of our the percentage of case or cases that have those two dynamics will continue to increase for a while.
Speaker Change: Yes.
Tom Ryan: It's going to increase very consistently, very dramatically for a long period of time. 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 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. So we're going to get a G&A revenue now, and that's why, you know, we've got the diminished profits is 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.
Speaker Change: Hey, Jay it's going to increase.
Speaker Change: It's very consistently very dramatically for a long period of time, because remember the function here is we used to sell merchandise and deliberate we used to sell away from home protection and provided and in both those cases.
Speaker Change: We had a revenue recognition event now what youre seeing happening for the most part is all of those being deferred and being put on for the most part of an insurance product. So we're gonna get a G&A revenue now and that's why you know we've got the diminished profits as we're losing some of that immediate delivery of merchandise and a meter.
Speaker Change: The recognition of away from home and they're going into a contract into backlog. So long term think about today, you know or previously if we sat around 400 $500 a contract Sci direct one day that average should go to north of $3000.
Tom Ryan: So long-term, think about today, you know, or previously, if we sat around $1,400, $1,500 a contract, SCI Direct one day, that average should go to north of $3,000. And that's the path that it's on. Now, it takes those new loaded contracts to become at... to drive it, so it's going to be a trickle at first and it's going to get bigger and bigger. So if you think about the average... on SEI Direct. Service Perspective. has been growing at 10%. I'd be surprised if it varies much from that for a very long time. It is the average life on the SCI direct free contracts, the same as in the core funeral business.
Speaker Change: 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 triplet versus it's going to get bigger and bigger and bigger so as you think about.
Speaker Change: The average on Sci direct.
Speaker Change: Reserves perspective, it's been growing at 10% each quarter, so far I'd be surprised if it varies much from that for a very long time.
Speaker Change: It is the average life on the Sci.
Speaker Change: See I direct preneed contracts the same as in the core funeral business.
Tom Ryan: I think for the most part, maybe slightly shorter, but I think, you know, not dramatically.
Speaker Change: I think for the most part maybe slightly shorter, but but I think you know not dramatically different than the backlog.
AJ Rice: All right, I just might ask one last thing on your capital deployment. It sounds like you're expecting the deal activity to be about, which it budgets $75 to $125 million. I know you stepped up buybacks in the quarter share repurchases.
Speaker Change: Alright, I just might add one last thing on your capital deployment, but it sounded like you're <unk>.
Speaker Change: Expecting the deal activity can be about which it budget 75 to 125 million I know you stepped up buybacks in the quarter share repurchases.
Tom Ryan: Any comment on that? And do you think you'll see elevated share repurchase activity as you progress through the rest of the year? Yeah, 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.
Speaker Change: Any comment on that and do you think you'll see elevated share repurchase activity as you progress through the rest of the year.
Speaker Change: Yeah, I think well have to wait and see in terms of the valuation of each one of those options a J I mean, that's how we've always done and as you've known us.
Tom Ryan: Let's talk about shares first. I mean, the shares were a very nice return as we were buying shares in the in the high 70s. 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, you know, month to month get better, we got a little bit more confident. And, you know, as you know, April was a very good month, as Thomas said, as well.
Speaker Change: Let's talk about shares first I mean, the shares were a very nice return as we were buying shares in the in the high Seventy's.
Speaker Change: And we think that's a that's a very nice value return for us to continue to invest capital in.
Speaker Change: And we went probably a lot a little heavier in the quarter than what we originally expected, but based on what we're seeing and then as we saw the.
Speaker Change: Quarter.
Speaker Change: Month to month get better we got a little bit more confident and you know as you know April was a very good month as Thomas said as well.
Speaker Change: From a deal perspective, it's going to ebb and flow.
Tom Ryan: From a deal perspective, it's going to ebb and flow. You know, the important thing is to say we, we have numerous discussions at any point in time going on, including 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 125 is generally a good number. You know, last year, I was wrong. If you remember, it was about 180 million that we ended up investing in. And if we have those opportunities, they're normally a really nice return that could be, you know, in the almost low teens type after tax IRRs, which as a general statement, may be share repurchases.
Important thing is to say we have numerous discussions at any point in time going on including as we speak.
Speaker Change: And as you've heard me say many many times.
Speaker Change: Pretty excited about the pipeline.
Speaker Change: I think 75 to 125 is generally a good number.
Speaker Change: Last year I was wrong. If you remember it was about $180 million that we ended up investing in and if we have those opportunities. There are normally a really nice return that could be.
Speaker Change: And almost low teens type after tax IRR is which as a general statement may be 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.
Tom Ryan: 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're passing up high return opportunities for M&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.
Speaker Change: This quarter it was share so it doesn't mean, we are passing up high return opportunities for M&A. It just means that we continue to develop very long term relationships.
Speaker Change: With independence, and the timing of which kind of ebbs and flows.
AJ Rice: But we're very excited about the future in terms of M&A over the long Okay, thanks.
Speaker Change: But we're very excited about the future in terms of M&A over the long term.
Speaker Change: Okay. Thanks, a lot.
Operator: Thank you.
Tobey Sommer: The next question comes from Tobey Sommer with Truist Securities. Please go ahead. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question comes from Tobey Sommer with Jewish Securities. Please go ahead.
Speaker Change: Yes.
Tobey Sommer: I wanted to start out asking you a question about the sales force. and any, maybe you could highlight for us what new initiatives 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. I think right now obviously a lot of the traditional things that we do is related to, for instance, 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 lead pipeline.
Speaker Change: Thank you.
Speaker Change: Wanted to start out.
Speaker Change: You're asking me a question about the sales force and any maybe you could highlight for us.
Speaker Change: New initiatives and focus you have for this year sort of headed into next and.
Speaker Change: And what you think the resulting impact can be on the on the financials of the business.
Speaker Change: Sure I'll take that one.
Speaker Change: I think right now obviously a lot of the traditional things that we do as it relates to for instance, developing high end cemetery property and making sure we have the right.
Speaker Change: Product on the field, if you will to get that going with a little bit different now too is we're very acutely focused on.
Speaker Change: The lead pipeline, how we're getting leads and how we're working the leads all the efficiencies around doing that so.
Tom Ryan: All the efficiencies around doing that. So 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, 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. You know a lot of, a lot of sales forces have trouble retaining, there's 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. And 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 I'm going to bring a lead that comes from the door and how it ends up as a...
Speaker Change: 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 so again.
Speaker Change: Utilizing technology to help us get better and how we are approaching the sales process and enhancing the ability of our salespeople to be successful you know a lot of a lot of sales forces have trouble retaining theres a lot of high turnover and one of the focuses we're having now is working with.
Speaker Change: Our people to make sure we can ensure their success.
Speaker Change: And.
Speaker Change: So we believe that's going to bear some fruit is going to take some time.
Speaker Change: Our focus now is really on that retention, making our people successful and utilizing better data and knowledge around how we.
Speaker Change: You know bring a lead that comes in the door and how it ends up as a contract.
Speaker Change: I appreciate that and then.
Tom Ryan: How do you enter this late spring, early summer period from a pre-need delivery in RevRec perspective on cemetery? Could you give us a little bit of the buildup of sales production over the last couple of quarters as we look to the better weather quarters ahead of us? The, um, I think as you think about the typical cadence... 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's typically the bonanza quarter.
Speaker Change: How should how do you enter this a late spring.
Speaker Change: Early summer period from Oh, a pre need.
Speaker Change: Delivery and Rev Rec perspective on cemetery.
Speaker Change: Give us a little bit of the the buildup of sales production over the last couple of quarters as we look to the better weather quarters ahead of us.
Speaker Change: I think as you think about the typical cadence.
Speaker Change: We tend to have stronger delivery of cemetery construction in the back half of the year. So it's typically later in the first and second quarters. It gets a little better in third and then fourth quarter is typically the bonanza quarter now that seasonality is consistent right. So so you're comparing again.
Tom Ryan: Now that seasonality's consistent, right? So you're comparing against a quarter that has the same characteristics. But I think as we think about it, the second quarter we'd anticipate it probably being slightly down as we think about And third quarter, year-over-year, should be a good one, I think, as we think today. But again, these projects can slip, and fourth quarter will be very strong, but so has last I think that's probably the way to think about it, and again, with the idea that sometimes things can't. I guess it could be the other way around. 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.
Speaker Change: The quarter that has the same characteristics, but I think as we think about it you know 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.
Speaker Change: I think as we think today, but again these projects can slip.
Speaker Change: Fourth quarter will be very strong, but so was last quarter. So I think that's probably the way to think about it and again with the idea that sometimes things can.
Speaker Change: Typically they're gonna come laid out earlier, but I guess it could be the other way around.
Speaker Change: And Toby I'll add to that too just by the recognition rates specifically you know last year. It ended up being about 95% of production. It's been like that now for a couple of years and I think I just want to say that we probably expect nothing different despite the quarterly volatility I think annually you probably looked at a record.
Tom Ryan: It's been like that now for a couple years, and I think, I just want to say that we probably expect nothing different. Despite the quarterly volatility, I think annually, you're probably looking at that recognition rate of somewhere between 95-97% like you did last year.
Speaker Change: <unk> rate of somewhere between $95, 97% like you did last year.
Tom Ryan: That's helpful.
Speaker Change: That's helpful.
Tom Ryan: And we haven't talked about here anything on the funeral or anything from a regulatory perspective that you're anticipating this 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 it's out there. I think a lot of things are changing as we all read the paper together and understand it. 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.
Speaker Change: And we haven't I don't think you've talked about here or anything on the.
Speaker Change: Funeral rule or anything from a regulatory perspective.
Speaker Change: You're anticipating this year.
Speaker Change: Well Theres a lot going on in Washington, So.
Speaker Change: But we don't have an update.
Again, it's the same update that it's out there I think a lot of things are changing as we all read the paper together and understand it I don't know where this is going to exactly shake out but.
Speaker Change: Again, we feel very good about where we are from a regulatory.
Speaker Change: Standpoint, and if anything comes out will adapt very quickly it kind of sounds like were ahead of the curve and some of the cases that you've heard us talk about over several quarters in terms of if there is anything that needs to be posted online or anything along those lines, but ultimately whatever it is theres nothing thats been out there to be very clear.
Tom Ryan: It kind of sounds like we're ahead of the curve.
Speaker Change: Here that appears to have any type of material effect on our company or our financials.
Tom Ryan: Thank you.
Speaker Change: Thank you.
Yes.
Speaker Change: Thank you.
Parker Snure: The next question comes from Parker Snure with Raymond James. Please go ahead. Hey, good morning. Yeah, this is Parker on for John Ransom.
Speaker Change: The next question comes from <unk> <unk> with Raymond James. Please go ahead.
Parker: Hey, Good morning. This is Parker on for John Ransom.
Parker Snure: Maybe just going back on the macro pressure, I mean, I understand the pressure on the pre-need 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-need, not coming out of the backlog? Would you expect any trade-down there, you know, maybe accelerating ship to cremation, maybe trading down on the catering or the flowers? Is that something that you expect or is that something that has historically happened under, you know, other tough macro cycles?
Speaker Change: Maybe just going back on the macro pressure.
Speaker Change: 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 add need coming out of the backlog.
Speaker Change: Would you expect any trade down there may be accelerating ship to cremation, maybe trading down on the catering or the flowers is that something that you expect or is that something that has historically happened under there are tough.
Speaker Change: Micro cycles.
Tom Ryan: Yeah, Parker, I can only speak to experience, right? But I'd say, as I look back over the last 20, 25 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. And so, of course, on the fringe, you could have some trade down. But I'd say, for the most part, you know, people want to do what they want to do. And it's important to them. So, yeah, we do not tend to...
Speaker Change: Yes, Parker I can only speak to experience right, but I'd say as I look back over the last 2025 years I've been involved in all of this.
Speaker Change: I typically would tell you that we have seen not much in other words I think it is an emotional purchase I think it's one that people find very important and so of course on the friends you could have some trade down.
Speaker Change: Say for the most part.
Speaker Change: People wanted to do what they wanted to do and it's important to them. So yeah, we do not tend to see it.
Tom Ryan: Any kind of big trend down that it relates to?
Speaker Change: Any kind of big trend downs as it relates to <unk>.
Tom Ryan: Cemetery, as we talked about, is a little different because it's a discretionary project. That can have a different impact, right? In immediate need, people want what they want, and we try to help them to live better lives.
Speaker Change: General Cemetery as you as we've talked about a little different because its a discretionary purchase.
Speaker Change: That can have a different impact right because I think in the immediate need people want what they want and we.
We try to help them deliver that.
Parker Snure: Okay, that's helpful.
Tom Ryan: And then maybe just on the impact from M&A, looks like there was a few points of help on the funeral volumes side from the non-same store, looks like, you know, roughly 2% good guide of volumes. 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&A benefit you're getting this year from the bulls of M&A that you did last year, maybe just on total earnings and also on funeral volumes. When you think about total earnings, you go back to the original formula of 8-12%, and the midpoint of our guidance is about 9%.
Speaker Change: Okay. That's helpful. And then maybe just on the impact from M&A. It looks like there was a few points of help on the funeral volume side from the non same store. It looks like you know roughly 2%. Good guide of volumes is that a good way to think about it for the rest of the year.
Speaker Change: Maybe just remind us how youre thinking about the M&A benefit youre getting this year from the bolus of M&A that you did last year, maybe just on total earnings and also on funeral volumes.
Speaker Change: Yeah. When you think about total learning and you go back to the original formula the 8% to 12%.
Speaker Change: The midpoint of our guidance is about 9% you know as we've talked about before.
Tom Ryan: You know, as we've talked about before, this quarter and the prior quarter, I mean, M&A is going to ebb and flow, as I keep saying, but, you know, generally, when you look historically, Parker, you know, M&A can be a couple percentage points, you know, call it, bless you, call it 1 to 3%, you know, of the 8 to 12% over, you know, complete formula. It just depends on what you did in the prior year. We had a good year in investment last year, and, you know, so maybe that M&A is going to be in that kind of 2% of the 8 to 12% kind of area, but, you know, I can't say it enough.
Speaker Change: This quarter in the prior quarter, I mean, M&A is going to ebb and flow as I keep saying, but generally when you look historically Parker.
Speaker Change: <unk> can be a couple percentage points call.
Speaker Change: Call It plus you call it 1% to 3%.
Speaker Change: Of the 8% to 12% over complete formula.
Speaker Change: It just depends on what you did in the prior year, we had a good year in investment last year.
Speaker Change: And so maybe that M&A is going to be in that kind of 2% of the 8% to 12% kind of area, but you.
Tom Ryan: It just depends on when the deals come and timing of those particular deals, what kind of impact it's going to 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 said, enough volume for the quarter. 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 into cemetery, well, that really doesn't matter for the funeral volume model, so, you know, there's all kinds of different plays back and forth, but generally, you know, I would call M&A, you know, maybe a 1% to 2%, 1% to 3% growth driver if you have some solid years behind it.
Speaker Change: I can't say it enough it just depends on when the deals come and timing of those particular deals what kind of impact is going to have of course, the volume numbers that we gave our same store so they're being adjusted for that so they're not influence in.
Speaker Change: The one 8% that we said enough volume for the quarter Thats purely an apples to apples same store.
Scenario and it depends on what you buy.
Speaker Change: We have a heavy acquisition year, that's heavy into 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 arent call M&A, maybe a one to two 1% to 3% growth driver.
Speaker Change: Have some solid years behind it.
Parker Snure: Okay, great. Thank you.
Speaker Change: Okay, great. Thank you.
Speaker Change: [laughter].
Speaker Change: Thank you.
Operator: This concludes our question and answer session.
Speaker Change: This concludes our question and answer session.
Operator: I would like to turn the conference back over to the SCI management for closing remarks. Thank you everybody for being on the call today. We appreciate you and we'll talk to you again after our second quarter results.
Speaker Change: I'd like to turn the conference back over to the Sci management for closing remarks.
Speaker Change: Okay. Thank you everybody for being on the call today. We appreciate you and we will talk to you again.
Speaker Change: Our second quarter results. Thanks, so much.
Operator: The conference has now concluded. Thank you for attending today's presentation.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: You may now disconnect.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].