Service Corporation International

Good morning and welcome to the second quarter 2026 FCI 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 one on your telephone keypad. 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.

Good morning. This is Trey Bokaj, AVP of Investor Relations and Treasury. Welcome to our second quarter earnings call of 2026. We are going to have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, I will quickly go over our 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 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 it over to Tom Ryan, Chairman and CEO. Thanks, Trey, and good morning, everyone, and thank you for joining us.

I'll start with an overview of our quarterly performance, followed by some expectation setting for the back half of 2026, and then a deeper look at our funeral and cemetery results for the quarter. For the second quarter, we generated earnings per share of $0.90, which compared to $0.88 in the prior year. Cemetery revenue and gross profit increased, supported by high single digit growth and Preenid Cemetery Sales Production, and solid growth from cemetery trust fund income. This favorable impact was slightly enhanced by lower general and administrative expense. Funeral revenues grew marginally, but profitability declined somewhat, offsetting the favorable impacts, resulting in a two cent increase 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 offset by the net negative impact from interest expense and other income expense. While the first and second quarter earnings per share growth was muted by lower funeral case volumes and deferrals of cemetery revenue, we have some very positive momentum to carry into the back half of 2026. Comparable pre-need cemetery sales production grew by 8% and comparable pre-need funeral sales production grew by 7% for the quarter, while adjusted cash by operating activities increased by $71 million to $239 million, helping to fund our business capital needs and new growth capital investments while affording us the flexibility to be opportunistic, returning capital through share buybacks and consistently through dividend increases. As we enter the back half of 2026, we believe we are poised to deliver solid revenue growth as well as margin expansion in both the funeral and cemetery segments as compared to the back half of 2025, resulting in double-digit earnings per share growth Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues increased by $5 million, or just about 1% over the prior quarter. Comparable core funeral revenue increased by $7 million, or about 1.5%, primarily due to a healthy 3.3% growth in the core average revenue per service. This core average growth was achieved despite a modest increase of 60 basis points in the core cremation rate. Comparable core funeral volume declined by 1.7%, exceeding our expectations coming out of a challenging first quarter. We saw less meaningful declines in April and May as compared to the first quarter and slight volume growth for the month of June. Non-funeral home revenue increased by over $2 million, primarily due to a 9% 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 a higher average revenue per service. Non-funeral home pre-need sales revenue decreased by $5 million, primarily due to an operational shift to defer the delivery of urns on pre-need contracts to the time of need. This transition was completed late in 2025, so we are nearing the anniversary date All earned deliveries will occur at the same time of need as non-funeral home revenue. Then this segment line item will primarily report non-funeral home general agency revenue. Funeral gross profit for the quarter declined by approximately $7 million, with the gross profit percentage down 130 basis points to 18.5%. In a high fixed cost business model, revenue growth of less than 2% is always going to present a challenge to gross margins. In addition, gross profit was impacted by higher selling compensation associated with strong insurance-funded pre-need sales production. Selling compensation costs incurred or paid out were relatively consistent as a percentage of sales production dollars versus the prior year. We have shifted to a model that sells more insurance-funded contracts, both for core and SDI direct, and under GAAP, less selling compensation gets deferred versus a trust-funded product, resulting in a higher percentage of selling compensation being recognized against general agency revenues in the current period. Early July was the anniversary of the preponderance of our sales production shift to insurance products. Going forward, recognized selling compensation should stabilize and improve funeral gross margin comparisons in future periods. Pre-need funeral sales production increased by $20 million, or about 6.6%, over the second quarter of 2025, driven by an 8.3% increase in core pre-need sales production. Now shifting to cemetery. Comparable cemetery revenue increased by $23 million, or about 5%, primarily due to higher core revenue complemented by an increase in other revenue. Core revenues increased by $14 million, primarily due to a $15 million increase in total recognized pre-need revenue, of which $5 million resulted from higher property revenue, and 10 million from higher merchandise and service revenue. Merchandise and service revenue also reflects the positive impact from increased trust fund income. Other revenue was higher by $8 million compared to the prior year quarter, primarily from an increase in endowment care trust fund income based on market performance and higher total return distributions. Comparable pre-needs sales production grew an impressive $29.7 million or 8% in the quarter. Core sales contributed $24.4 million supported by continued strong underlying sales velocity growth in the mid-single digits. Large sales accounted for the remaining $5.3 million increase. This performance reflects the strength and effectiveness of our sales strategy and execution, generating high single-digit percentage sales growth in both pre-need funeral and cemetery by focusing on our four pillars, sales counselor headcount, driving lead effectiveness, seminars, and large sales, in the face of fewer leads generated from activities through our locations. Cemetery gross profit in the quarter grew by $7 million, or 4%, with margins relatively flat at approximately 33%. Gross profit was impacted by higher selling compensation reflecting the strong pre-need sales production growth of 8%. A large percentage of our pre-need sales production growth, particularly for cemetery property, was deferred relative to the growth and Preneed recognized revenue. On the selling compensation side, we recognized all of the fixed compensation in the period incurred. And because most of the growth came from core sales with a higher proportion of fixed compensation, the recognized revenues bore a larger burden of the selling compensation this quarter. You want the good news? The deferred revenues that went into the backlog to be recognized over the coming quarters will not only deliver revenue growth but lower associated selling compensation expense and therefore at higher relative margins. Now let's shift to a discussion about our outlook for 2026. The $4.20 midpoint of our annual guidance range for 2026 is confirmed as we narrow the range expected for adjusted earnings per share of $4.10 to $4.30. While the first quarter funeral volumes presented a near-term headwind, we saw the year-over-year rate of decline moderate and expect that to continue in the back half of the year. When combined with strong momentum in pre-need cemetery sales, average revenue per funeral, and continued disciplined expense management, we are confident and 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 SDI 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.