Service Corporation International

Good day and welcome to the SCI first quarter 2026 earnings conference call. All participants will be in the listen-only mode. Should you need assistance, please signal your conference specialist by pressing the star key followed by zero. After today's presentation, there'll be an opportunity to ask questions. To ask a question, you press star and then one on your touchtone phone. To withdraw your question, you press star and then two. Please note this event has been recorded. I would now like to turn the conference over to SCI management. Thank you and over to you.

Good morning. This is Trey Bokaj, AVP of Treasury and Investor Relations. Welcome to our first quarter earnings call. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me go over the safe harbor language. Any comments made by our management team that state our plans, beliefs, Expectations or projections about the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include but are not limited to those factors identified in our earnings release and in our filings with the SEC that are available on our website. Today, we might also 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 on our website. With that out of the way, I will now turn the call over to Tom Ryan, Chairman and CEO. Thanks, Trey.

Good morning, everyone, and thank you for joining us. I'll start with an overview of our quarterly performance, followed by a deeper look at our funeral and cemetery results, and then conclude with our outlook for the remainder of 2026. For the first quarter, we generated adjusted earnings per share of 97 cents, which compared to 96 cents in the prior year. Cemetery revenue and gross profit increased meaningfully, supported by double-digit growth in pre-need cemetery sales production. This performance was more than offset by lower funeral revenue and gross profit. driven by a mid-single-digit decline in case volume, resulting in a two-cent reduction in earnings per share from operating income. Below the line, the favorable impact of a lower share count and a slightly lower effective tax rate was partially offset by higher interest expense, which when combined resulted in an additional three cents of earnings per share growth. Despite a meaningful decline in funeral case volumes during the quarter, The company delivers strong underlying performance across several key operating metrics. Pre-need funeral and cemetery sales grew exceptionally well, reflecting continued success in building long-term customer relationships and future revenue visibility. In addition, average revenue per funeral service increased meaningfully, demonstrating the strength of our offerings in disciplined pricing execution. At the same time, we maintain strong control over our cost structure, effectively managing controllable expenses, minimizing the impact on margins in a challenging volume environment. Importantly, had funeral case volumes been flat for the quarter, we estimate earnings per share would have been approximately $1.12, representing roughly 17% growth over the prior year quarter. Taken together, these results underscore the resilience of our business model and our ability to execute strategically despite near-term headwinds. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues decreased by $17 million, or just less than 3%, over the prior year quarter, mainly due to a decline in core funeral revenues. Comparable core funeral revenue declined by $18 million, or just more than 3%, primarily due to a 6.6% decrease in core funeral services performed. The decline in services reflects the impact of a strong flu season in the prior year quarter and is consistent with broader first quarter mortality trends, as indicated by data from the CDC, as well as reporting from other industry participants. While we saw a notable decline in first quarter volumes, it's important to put that in historical context. Outside of the COVID-impacted era, over the past 20 years, we've experienced five instances where first quarter volumes declined from 4% to 9%. In each of those periods, we saw a meaningful improvement as the year progressed. with full year results improving by an average of 400 basis points relative to the first quarter's decline. While each year is different, this pattern reinforces our expectation that performance can improve as we move through the balance of the year. This unfavorable impact from funeral volume decline was partially offset by a healthy 3.5% growth in the core average revenue per service. This core average growth was achieved despite a modest increase of 40 basis points in the core cremation rate. Non-funeral home revenue increased by $2 million, primarily due to a 10% increase in the average revenue per service. We expect this impressive growth in the average revenue per service to continue as older pre-need contracts that are maturing out of our backlog have higher cumulative trust earnings. And more recent pre-need contracts written will mature with higher value in the backlog due to our operational decision to no longer deliver pre-need merchandise at the time of sale. Funeral gross profit declined by approximately $23 million, with the gross profit percentage down 300 basis points to just over 21%. This is primarily driven by a $17 million decline in funeral revenues. We also saw a modest increase in selling compensation consistent with higher pre-need funeral sales production and a greater mix of insurance-funded contracts, which accelerates selling expense recognition. Importantly, more than offering and offsetting this variable cost increase, the team held fixed cost growth to just over 1% for the quarter, well below inflation, which helped moderate the negative impact on margins. As a result, margins landed in line with expectations based on an 80% incremental margin framework and roughly 3% inflation on fixed costs. Pre-need funeral sales production increased by $18 million, or about 6%, over the first quarter of 2025. Core pre-need funeral sales production increased by $13 million, or 6%, Non-funeral home pre-need sales production increased by over $5 million or 9% over the prior year quarter. We feel great about our momentum in both channels as we have worked through the initial challenges of the insurance partner transition in the core segment. And as of the end of 2025, we have now rolled the insurance product into 100% of our SCI direct locations. Now shifting to cemeteries. Comparable cemetery revenue increased by $31 million or about 7%, primarily due to higher core revenue complemented by an increase in other revenue. Core revenues increased by $25 million as a $28 million or 10% increase in recognized pre-need revenue was slightly offset by a $3 million decline in at-need revenue. The recognized pre-need revenue growth came from a $20 million increase in property revenue and another $8 million in higher merchandise and services. Other revenue was higher by $6 million compared to the prior year quarter, primarily from an increase in endowment care trust fund income. Comparable pre-need cemetery sales production grew an impressive $32 million, or 10% in the quarter. Large sales drove $20 million of that increase, with core sales contributing the remaining $12 million, supported by continued strong underlying sales velocity. This performance reflects the strength of our sales organization, which continues to expand pre-need production despite lower first quarter funeral volumes. Ongoing investment in sales force retention and growth particularly in our community-based teams, has broadened our reach beyond location-generated leads. Cemetery gross profit in the quarter grew by $15 million, or 11%, with margin expansion of 120 basis points to approximately 33%. The increase was driven by higher margin trust income, which lifted overall profitability. This was partially offset by above inflation growth in fixed cemetery maintenance costs. Even so, margins came in as expected, consistent with our 75% incremental margin framework and roughly 3% fixed cost inflation. Now let's shift to discussion about our outlook for 2026. As we look ahead, we are reaffirming our 2026 normalized earnings per share guidance range of $4.05 to $4.35. While the first quarter funeral volumes presented a near-term headwind, we expect the year-over-year rate of decline to moderate as the year progresses, resulting in a 1% to 3% decline for the year. When combined with strong momentum in pre-need cemetery sales, average revenue per funeral, and continued disciplined expense management, we are confident in our ability to deliver within our stated earnings range. In closing, we remain firmly focused on building long-term value for shareholders, growing revenue, leveraging the strength of our scale, and allocating capital with discipline to the highest and best use. As we move into a period of meaningful demographic tailwinds, we are exceptionally well-positioned to expand our reach, serve more families, and deliver sustained growth over time. In closing, I'd like to recognize and thank our entire SCI team for their ongoing commitment to our customers, our communities, and each other. Your dedication continues to be the foundation of our success. With that, I'll turn the call over to Eric.