Service Corporation International

Good morning and welcome to the Service Corporation International fourth quarter 2024 earnings 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. 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 is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

Good morning. This is Allie O'Connor, AVP of Investor Relations and Financial Reporting. Welcome to our fourth quarter earnings call. We will have prepared remarks about the quarter from Tom and Eric in just a moment. But before that, let me quickly go over the Safe Harbor language. Any comments made by our management team that state our plans, beliefs, expectations, or projections for the future are forward-looking statements. These forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website. Today, we might also discuss certain non-GAAP financial measures. A reconciliation of these measures can be found in the tables at the end of our earnings release and also on our website. With that out of the way, I will now turn it over to Tom Ryan, Chairman and CEO.

Thanks, Ellie. Hello, everyone, and thank you for joining us on the call today. This morning I'm going to begin my remarks with some high-level color on our business performance for the quarter, then provide some greater detail around our funeral and cemetery results, and I will then close with some thoughts about our 2025 business and financial outlook. For the fourth quarter, we generated adjusted earnings per share of $1.06, which compared to $0.93 in the prior year. Revenues, gross profit, and comparable margin percentages increased in both the funeral and cemetery segments, contributing 9 cents to adjusted earnings per share growth, while lower general and administrative expense contributed an additional 5 cents per share, resulting in a combined 14 cents earnings per share growth from operating income. Below the line, The favorable impact of a lower share count and a slightly lower interest expense was offset by a higher effective tax rate. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues increased over $5 million, or about 1% over the prior year quarter, as strong core general agency and other revenue growth exceeded declines in core revenue and SCI direct non-funeral home pre-need sales revenue. Comparable core funeral revenue decreased by $9 million, or about 2%, primarily due to a 4.4% decrease in core funeral services performed, which was somewhat offset by a healthy 2.7% growth in the core average revenue per service. This core average revenue growth was achieved despite a modest increase of 100 basis points in the core cremation rate. SCI direct non-funeral home revenue decreased by over $4 million, driven primarily by a $6 million decline in non-funeral home pre-need sales revenue as a result of the anticipated negative effect of operational changes to defer merchandise deliveries. This was partially offset by growth in general agency commissions as we're in the process of switching from a trust to an insurance-funded pre-need model. This net decline from pre-need sales revenue was slightly offset by a $2 million increase in non-funeral home revenue generated by a 10% improvement in 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 at the time of sale into the backlog. This healthy average revenue per service growth should continue as more contracts of merchandise and travel protection mature over the coming years. Before general agency and other revenue grew by an impressive $19 million, primarily due to growth in general agency revenue driven by higher average commission rates derived from our new pre-need insurance marketing agreement, as well as the effect of selling a larger percentage of underwritten insurance products which carry higher commission rates versus a flex or a non-underwritten product. General gross profit increased by about $4 million, while the gross profit percentage increased by 40 basis points to just about 22%. This increase was the result of a modest revenue increase combined with managing fixed costs to about a 1% increase for the quarter. Pre-need funeral sales production decreased by $27 million, or about 9%, over the fourth quarter of 2023. Poor pre-need funeral sales production decreased by $14 million, or 6%, primarily due to the transition to our new pre-need insurance provider during the back half of 2024. We expect to continue to see increased underwritten insurance product sales production as our counselors focus on raising customer awareness of the benefits of a fully insured product. We anticipate comparable core pre-need sales production to normalize later in the spring or early summer months. Non-funeral home pre-need sales production decreased $13 million, or 20%, 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 and changed the payment terms for customers financing their pre-needs, all of which contributed to a temporary slowdown in sales. As of today, we have made the transition in markets that represent 75% of our production, so this too should stabilize over the next few months and begin to grow again, probably beginning in the second half of 2025. Now shifting to cemetery. Comparable cemetery revenue increased by $20 million, or about 4%. Core revenue was primarily responsible for the increase as it grew by $21 million over the prior year quarter. Higher recognized pre-need property revenues accounted for $14 million of this increase, generated by a combination of higher pre-need cemetery sales production in higher pre-need cemetery sales recognition rates, as completed construction projects triggered the recognition of prior period sales in the fourth quarter. Recognized pre-need merchandise and service revenue accounted for an additional $5 million of core revenue growth, as contracts with a higher sales average are being delivered out of the backlog. The backlog value has been enhanced by cumulative merchandise trust fund earnings over the life of the contract. Comparable printing cemetery sales production increased by $7 million, or about 2%, primarily due to an increase in large sales, while our core production was relatively flat. Cemetery gross profits in the quarter increased by $14 million, and the gross profit percentage increased by 150 basis points. generating an operating margin percentage of 36%. The 4% revenue growth, which includes an increase in higher margin merchandise and service trust fund income, was slightly offset by a 4% increase in our fixed costs, impacted by increased maintenance costs, primarily due to damages incurred at locations impacted by natural disasters during the quarter. Now let's shift to discussion about our outlook for 2025. As you saw in our earnings release, we provided a normalized earnings per share guidance range of $3.70 to $4 for 2025, or a midpoint of $3.85. The 2025 range would be 5% to 13% growth, with a 9% growth at the midpoint. we anticipate that the effective tax rate for 2025 will be about 25.5%, some 180 basis points higher than 2024. So by neutralizing the tax effect, we would be guiding to a 12% growth at the midpoint of our range versus the current guidance midpoint of 9%. 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. We do expect to see higher general agency revenue generated from the favorable impact of our new insurance agreement, which should drive healthy profit growth for the funeral segment. Increasing the gross margin percentage by 80 to 120 basis points. We expect pre-need funeral production to be slightly lower in 2025 as we continue the transition of SCI Direct and as we focus on increasing the underwritten insurance product sales in our core channel. While down for the year, for some perspective, the $1.2 billion of pre-need funeral sales production this year is 27% higher than 2019, or a 5 percent compounded growth rate over the last five years. As we think out to 2026, we would expect pre-need funeral sales production to return to low to mid-single-digit percentage growth rate. For the cemetery segment, we anticipate that we can grow pre-need cemetery sales production in the low to mid-single-digit percentage range, resulting in cemetery revenue growth of about 2 to 3 percent. Continued focus on managing inflationary costs should result in reasonable segment profit dollar growth while maintaining our impressive gross margin percentages as compared to 2024. Below the line, we expect favorable impacts from slightly lower interest expense and a lower share count that will be negated by the higher effective tax rate caused by the loss of deductibility of excess tax benefits from stock option exercises. In conclusion, I want to acknowledge and thank the entire SDI team for their daily commitment to our customers, our communities, and to one another. Your dedication is the foundation of our success. Thank you for making a difference every day, With that operator, I'll now turn it over to Eric.