Service Corporation International

Good morning and welcome to the Service Corporation International first quarter 2023 financial results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to SCI Management. Please go ahead.

Good morning, everyone, and welcome. This is Debbie Young, Director of Investor Relations, and today we're going to be providing an overview of our business results for the first quarter. Before we begin with prepared remarks, let me quickly go over the Safe Harbor language. Any comments made by our management team that states our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. Today, we will 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 also on our website under the Investors Webcast and Events section. Now that that's out of the way, let me turn it over to Tom Ryan, Chairman and CEO, for opening remarks.

Thank you, Debbie. Hello, everyone, and thank you for joining us on the call today. Before I begin, I want to take a moment to honor our founder and chairman emeritus, Bob Waltrip. He passed away at the age of 92 on February 27th. Without Bob's vision and tenacity, there would be no SCI. He was a tremendous mentor and the consummate funeral service professional. We will all be forever grateful for this company he created, and we're all better for having known and learned from such a great man. He will be missed immensely. This morning, I'm going to begin my remarks with some high-level color on our business performance for the quarter, and then provide you with some greater detail around our solid funeral and cemetery results. For the first quarter, we generated adjusted earnings per share of 93 cents, which was in line with our expectations, but down from the prior year, which benefited from a significant pandemic impact. We continue to see significant earnings per share growth over pre-pandemic results. Compared to a first quarter of 2019 of 47 cents per share, we have effectively doubled earnings per share from four years ago, growing at a compounded annual rate of 19%. Funeral metrics were strong and performed at or above our expectations, while cemetery pre-need sales production fell short of our internal expectations as we experienced unusual weather events on the West Coast, which temporarily affected cemetery sales activity at some of our largest properties. Below the line, the favorable impact of a lower share count and a slightly lower tax rate offset the impact of higher interest expense incurred on our variable rate debt. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues declined $46 million or about 7% over the prior year quarter, primarily due to a decline in comparable core funeral volume. Although comparable core funeral volumes declined by 12% compared to the prior year quarter, volumes were higher than we had anticipated, and about 10% higher than comparable first quarter 2019 levels. Our core average revenue per service grew over the prior year by an impressive 2.5%, even after absorbing the negative effects of cremation mix change, currency translation, and reduced trust fund income. From a profit perspective, funeral gross profit decreased $48 million, while the gross profit percentage declined to about 25%. The revenue decline due to lower volumes versus 2022 accounted for the preponderance of the profit decline. We saw moderating growth in fixed costs year over year and slightly higher selling costs correlating with the solid growth in pre-need funeral sales production for the quarter. Pre-need funeral sales production grew in an impressive $24 million, or more than 8% over the first quarter of 2022. Both the core and the SCI direct channels showed growth in both contract velocity and sales averages. We continue to see consumers' awareness and openness to pre-planning elevated with continued strength in marketing leads and pre-need funeral sales production. Now shifting to cemetery. After coming off a record-setting prior year quarter, we saw comparable cemetery revenue decline almost 10% or $45 million when compared to the prior year first quarter. Core revenue accounted for the preponderance of this decline as it decreased by $42 million compared to the prior year, as recognized pre-need revenue declined by 29 million, or 9%, and at-need revenue accounted for the remaining $13 million decrease. The pre-need core revenue decline of 9% compares favorably to the 16% decline in pre-need cemetery sales production, as we sold a higher percentage of developed property versus the prior year quarter. We would expect that trend to continue over the next few quarters as more recently constructed property is available for our families to purchase versus 2022. Pre-need cemetery sales production declined by $57 million or 16% in the first quarter, primarily due to a decrease in pre-need property sales production. While we anticipated a decline compared to the prior year quarter, which was heavily impacted by the COVID-19 pandemic, we also experienced unanticipated geographic impacts to property sales production. Multiple severe rain events on the West Coast, and particularly California, adversely affected both foot traffic into our properties and our ability to showcase our premium and custom-designed cemetery property inventories. The last wave of storms had a direct impact on our Qingming celebrations, events, and related selling activities. We saw a similar impact on core sales velocity as our California businesses experienced a disproportionate decline versus the rest of our markets. Over 80% of our pre-need cemetery sales production decline occurred in California and other major West Coast markets. On the good news front, these are sales deferred, not lost, and we'll work diligently to get those customers back into our impressive parks over the coming months. Still, to put pre-need sales production in its proper perspective, even with the negative effects from the weather, our first quarter pre-need cemetery sales production was about 41% higher than our 2019 first quarter, representing a 9% compounded annual growth rate over the four-year period. Cemetery gross profits in the quarter declined by about $41 million, and the gross profit percentage dropped to 34% from 39% in the prior year quarter. The revenue decline accounted for the preponderance of the profit decline. We experienced higher cemetery maintenance expense, but for the most part, we saw moderating growth in all other fixed costs year over year. Now let's shift to a discussion about our outlook for the rest of 2023. We believe the dramatic, tough comparison quarters are over, as the first quarter of 2022 was the last one impacted meaningfully by COVID-19. From an earnings per share perspective, we would expect to be able to deliver year-over-year growth in the coming quarters, as the favorable impact of higher year-over-year cemetery revenues and the impact of our share repurchase program will more than offset the negative effects of slight volume declines and higher interest expense from our variable rate debt. Finally, I'd like to thank the entire SDI team for all that you do every day for our families, our communities, and each other. You are what makes this company great. With that, operator, I'll now turn the call over to Eric.