Service Corporation International

Welcome to the Service Corporation International first quarter 2022 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star, then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touch-tone phone. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to SCI Management. Please go ahead.

Thank you, and good morning to everyone. This is Debbie Young, Director of Investor Relations at SCI. Welcome to our company's review of business results for the first quarter. As usual, I'm going to cover the safe harbor language before we begin with the prepared remarks. Any comments made by our management team that state our beliefs, plans, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. During this call, we may also discuss certain non-GAAP financial measures. A reconciliation of these measures to the appropriate GAAP measures can be found in the tables at the end of our earnings release and on our website under the Investors, Webcasts, and Events section. With that behind us, I'll now pass it on to our Chairman and CEO, Tom Ryan.

Thank you, Debbie, and hello, everyone, and thank you for joining us on the call today. First of all, I want to express my heartfelt thanks to our entire SCI team. It is your continued courage and commitment that positioned us for the results we posted this quarter. More importantly, you have continued to stay relentlessly focused on what we do best, helping our client families and our communities gain closure and healing through the process of grieving, remembrance, and celebration. Every day, you live and reinforce the Dignity Memorial motto, every detail remembered. Now to the business at hand. This morning, I'm going to provide some color on our business performance for the quarter, including some detail around our strong funeral and cemetery results. Then I will offer some commentary on our revised 2022 outlook, keeping in mind we must be flexible as we navigate the uncertainty of another year still being impacted by COVID-19. For the first quarter, we generated adjusted earnings per share of $1.34, a two-cent increase over the prior year quarter, and a 212% increase over a pre-pandemic first quarter of 2020. Compared to the 2021 first quarter, funeral results were relatively flat, but well ahead of our expectations as we continued see elevated levels of funeral services with a healthy increase in our funeral average. On the cemetery side, profitability was slightly down as double-digit increases in our pre-need cemetery sales over a strong 2021 quarter were muted by a lower recognition rate. This was primarily due to a healthy increase in premium property sales production that occurred in a variety of projects that are still being developed. These revenues should be recognized later in the year once we've completed construction. So the primary driver of our year-over-year earnings per share fee was a lower share count from our share buyback program and contributions from our recent acquisitions. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues grew nearly $18 million, or about 3% over the prior year quarter. exceeding our expectations, as core revenues and general agency revenues provided the growth for the quarter. Comparable core funeral revenues grew $9 million, led by an impressive 6% increase in the comparable funeral sales average. Our percentage of families selecting to have funerals in celebration of life services has essentially returned to pre-COVID levels, and the funeral sales average is being further positively impacted by an uptick in ancillary revenues such as flowers and catering. This increase in average was achieved despite a 120 basis point increase in the core cremation rate. Comparable core funeral volume declined about 4% compared to the prior year quarter, slightly offsetting the positive impact of the funeral sales average. Keep in mind the 2021 first quarter that we're comparing against was acutely impacted by COVID and saw a 22% core funeral volume increase over the 2020 first quarter. We are continuing to service elevated levels of client families. General latency revenues grew by $9 million, primarily from a 21% growth in comparable pre-need funeral insurance production for the quarter. From a profit perspective, funeral gross profit decreased $2 million, while the gross profit percentage dropped 120 basis points to 30.4%. Remember, $9 million of our revenue increase was from general agency revenues due to the impressive growth in our funeral pre-need sales production. These general agency revenues are effectively offset by the selling costs associated with the deferred pre-need funeral sales production. So no gross profit is delivered, and it puts downward pressure on our gross profit percentage. Comparable core funeral revenues grew by $9 million, and the anticipated $7.5 million gross profit was offset by inflationary increases in our fixed costs. Our fixed costs in the funeral segment, the majority of which are tied to labor costs, grew 4% over the prior year quarter. Overall, our fixed costs have compounded at a 3% growth rate since 2020, and we are serving 19% more customers than we did two years ago. Bottom line, I believe we are managing our costs very effectively against an unusual and difficult 2021 first quarter comparison. Pre-need funeral sales production for the quarter exceeded our expectations, growing $42 million, or nearly 17%, over the first quarter of 2021. Our core production was particularly strong, posting an increase of over 20% over the prior year quarter, with solid gains in both velocity and sales average. We continue to see positive momentum in generating significantly more high-quality marketing leads at a lower cost through increased focus on digital leads, as well as more sophisticated data targeting for our direct mail and seminar programs. Now shifting to cemetery. Comparable cemetery revenue increased $1 million, or was essentially flat in the first quarter. In terms of the breakdown, core revenue was down by $2.6 million compared to the prior year, seeing slight revenue declines from both at-need and recognized pre-need cemetery revenues. Other revenue increased by $3.5 million over the prior year quarter, as ECF trust income was positively impacted by the timing of alternative asset distribution. Pre-need cemetery sales production grew over $35 million, or 11% in the first quarter. This growth is on top of a record 2021 first quarter, which grew by an astounding 67% over 2020. Substantially, all the revenue from the sales production increase was deferred as it was primarily related to new cemetery inventory in the midst of development. We anticipate completed construction to occur later this year, having a positive impact on revenue and earnings in the coming quarters. Strong large sales accounted for a significant part of the increase, particularly within Rose Hills in Los Angeles and in our Phoenix market. Core sales average improved across the entire network and further contributed to growth with a 7% increase over the prior year. Sales velocity declined by almost 7%, as we expected, offsetting some of the strong gains from large sales and core sales average. Remember, we're comparing against the 2021 first quarter, which saw a 48% increase in sales velocity. As I mentioned in my pre-need funeral discussion earlier, we continue to see production growth from both our marketing and core lead programs that have very successfully contributed to our increase in our pre-need sales production. Additionally, we're seeing continued strength in key sales metrics, such as the number of appointments set and close rates. Cemetery gross profits in the quarter declined by about $10 million, and the gross profit percentage dropped about 210 basis points to 38.9%. Recall that we deferred an incremental $35 million of revenues, primarily from unconstructive property sales, which still had the effect of driving selling compensation costs higher in the quarter. We also experienced modest inflationary cost increases coupled with higher incentive compensation compared to the prior year quarter. Now let's shift to discussion about our revised outlook for 2022. As you saw in our earnings release, we revised our 2022 adjusted earnings per share to a range of $3.30 to $3.70, or a midpoint of $3.50. At the midpoint, this represents a 50-cent increase from our previously mentioned model midpoint of $3. The $3.50 midpoint reflects an almost 23% compounded annual growth rate over the pre-COVID earnings per share base in 2019 of $1.90, well above our historical guidance ranges. The increase in the midpoint is attributable primarily to our first quarter outperformance on both the funeral and cemetery segments. Additionally, we have favorably revised our expectation related to pre-need cemetery sales production, previously anticipating a mid-single-digit decline and now expecting to show a low single-digit growth for the year 2022. We have effectively maintained our expectations for the next three quarters in the funeral segment, expecting volumes down for the year in the low to mid-teen percentages, and funeral sales average growth in the low single-digit percentages. We invite you to attend or listen into our Investor Day presentation tomorrow. we will discuss some of the exciting trends and opportunities we see in the coming years and will provide more color on our thinking for 2022, 2023, and beyond. With that operator, I'll now turn the call over to Eric.