Service Corporation International Aktie

Conference. My name is Joanna Gajuk. I cover healthcare provider companies, but also some other companies. So now it's my pleasure to have Service Corp with us and Eric Tanzberger, who's the CFO. It's not healthcare company, but there are a lot of actually common themes we want to talk about.

And actually, I want to start about that because there's still a lot of debates around the death rate and the call it, post-COVID overhang. So kind of bring us up to speed in terms of your latest thoughts. Are we kind of done with the overhang and kind of how we should think about the death rate going forward?

Yes. If you go back to COVID, just to lay the groundwork here, I just want to talk about SCI just for 1 second, largest in the industry. We are 1,500 funeral homes and about 500 cemeteries, a little under $4.5 billion of revenues, about $1.4 billion, $1.5 billion of EBITDA and predominantly in the U.S. and Canada. We're not -- in fact, we're not outside U.S. and Canada any longer.

So we perform about 350,000 funeral services a year as a very general statement. So what Joanna is asking about is in COVID, we obviously performed about an extra 130,000 above and beyond that 350,000, 130,000 more funeral services that were performed by us during the COVID, and that's over maybe a 2-year period, 2.5-year period, if you will.

Ultimately, those were pulled forward from future years, and it kind of, though not by us, but kind of the COVID pull-forward effect by a lot of companies that have been -- that were impacted similarly to the way I just described to you.

In addition, though, during COVID, we had additional deaths or excess deaths that weren't specifically related to COVID itself, but related to the environment that was going on at the time. So that's the type of things that we all saw a spike in, unfortunately, in our country related to drug overdoses and went into fentanyl and went to suicide rate of young persons and et cetera, et cetera.

So the COVID, except specific, the COVID virus pull forward, we generally think, Joanna, this is a very long answer to your short question. We generally think that, that's kind of been built in at this point, and we've lapped it and it's not really something material enough that we should talk about. What we do think, though, is there's still a little bit more to go as it relates to what we dubbed at the time as those excess deaths. Good news for everyone in our country. It sounds like that suicide rates in young persons is not necessarily coming down, but kind of reverting back to the mean is the best way to say it.

Same thing with maybe some increased elevated levels as it relates to fentanyl and drug overdoses and those types of things. So that's all good news. But that is still something that's putting a little bit of pressure on us. Our guidance at the beginning of the year prior to the first quarter was more like flat funeral volumes to maybe slightly down, call that down 1%. But what I'm sure has been the #1 question today is the first quarter started slower than that. So we've altered that guidance in the last few weeks.

Right. And I guess talking about the quarter, I know on the call, you kind of mentioned April, right, that it was not as bad as Q1. So any number you put out to understand what you mean by that in terms of like where it's tracking? And I guess, as you compare this through the month or through the quarter, like month-to-month and like March and then April, so if you don't give us a specific number kind of relative.

Yes. What I would say is, let me answer your question very specifically, and then I'll step back and say, how do we give guidance in an environment like that? So our first quarter ended up down about 6% it was something that was across the board for the industry. This is not any type of market share situation or anything along those lines.

The vendors were down, the competitors were down, very similar amounts. It was a little heavier than that, frankly, in January and February to start off, and it got a little bit better than that, maybe more in the mid-single digits type declines as it relates to the month of March. And I think that April has kind of continued that pattern.

So to be helpful, what we were trying to do is point to this situation and saying that this occurs in our industry every 4 to 5 years. And we pointed to 5 years in total, but we pointed to 2009, which is kind of the bookend analysis in 2019, which is the other side of the bookend. Then there's 3 years in between 2012, 2014 and 2016. As a general statement, when we start off the year in the 6% range, we get back in the following subsequent quarters about 2/3 of that.

So what we said is, we think we're going to get about 400 basis points of this down 6% back in the second, third and fourth quarter combined. And we believe that the funeral volumes will end up by definition through that math based on historical data, down 2%, and we called it officially kind of down 1% to down 3%. 2009 was a little bit of an anomaly, which is 1 of the 5 years that I mentioned was kind of a bookend of that analysis. That started off very slow, like down 9%, and it really didn't recover much. It recovered about 6% down for the full year of 2009.

2019 is the other side of that analysis. It started off down 5%, 6% and funeral volumes ended flat. So what we're trying to say is we've seen this before. What we tried to do as a management team is really drive the leverage that we could drive, which is the cost structure, hold cost during the quarter in the soft volume environment, which we did, and drive preneed cemetery sales, which really performed well, given the credit to all of our sales force and all the sales initiatives that we have underway currently to really create a quarter that was flat to slightly up from prior year with down 6% volumes.

And it's the small victories, I guess, but we're pretty proud that we were able to post that quarter, but we want to get back to more reasonable volume numbers so that we can continue on the growth trajectory, which is generally 8% to 12% from an earnings per share bottom line basis that we've been able to produce for significant many years under our management.

And when it comes to this range for the year, minus 1% to minus 3%, help us understand the EPS sensitivity in terms of -- what the impact would be if this ends up being minus 3% versus...

As a very general rule, first thing we do is give you a metric. As a very general rule, down 1% from an annual basis is about $0.10 a share. And the guidance -- the midpoint of the guidance is $4.20, just to kind of balance that in terms of how material this is. The guidance itself is $4.05 up to $4.35, which is the midpoint of $4.20. If we end up -- the original volume was going to be flat to down 1%, let's call it. So if we end up down 1%, we're not far off from the midpoint of our guidance at all. In fact, though, if cemetery continues to perform, we'll be solidly in that midpoint, if not, maybe even starting up in the upper part of the range.

So that's why we didn't really adjust guidance because a lot can happen in 9 months when we're just dealing with a subset of data of 3 months or the first quarter. So if we end up down 3% we still feel that we will be at the low end of that guidance range that I just mentioned to you. So it's not time to say to adjust that guidance. It's not time to panic by any stretch of imagination. If we end up less than that 1% to 3% down, we'll probably fall beneath that guidance. If we end up better than that, we may end up at the upper echelons of that guidance. More to come, but that's the math.

That's very clear. And then specifically, so we were trying to talk about how you were exiting the quarter and such. And I don't think we -- anybody brought it up on the call, but the Ching Ming festivities, how things were going. And I guess maybe talk about the Rose Hills, that is your premier location. I guess those facilities a bit there. And entire period, there was some disruption to that kind of very active selling season. I just want to hear how things were going around that?

So in a lot of our cemeteries, but in most of our cemeteries in the western part of the U.S. and Western Canada, there's a heavy Asian consumer that values what we do in the celebration of life and the memorialization, and that's a great consumer for us. One of the festivals that they have annually, which is generally late March, early April, it frankly crosses over quarters in a lot of the cases, is called Ching Ming. And that's when the families come out and they honor their loved ones and such. And that's a time where the families are very receptive and in fact, approach us at the parks to buy preneed cemetery property for other family members at that point in time. So that is what Joanna was asking about.

We had a pretty normal good Ching Ming season in the United States. A lot of the Canadian stuff may come more into April, frankly. But we had a normal good season, not just frankly, headquartered in California and up the West Coast where some of the Asian influence is more prominent. But even in places like Houston and other areas where we have large cemetery footprints, Ching Ming did quite well. What Joanna was asking about specifically was a very large cemetery and funeral home in Whittier, California, which is essentially East L.A. called Rose Hills. That is a very large park that is a very high-producing park and in fact, can be anywhere from 8% to 10% of our annual EBITDA at one location. That's a park which you haven't seen. I'd highly suggest if you're interested in our company, going to see it.

I believe Joanna is going to be your tour guide in a couple of weeks. Is that right?

Exactly, Yes.

So Joanna is going to tour some investors at Rose Hills. We've done that before quite successfully, and it helps pull everything together in terms of memorialization, celebration of our life, the preneed strategies, the differentiation between perhaps the Hispanic customer versus the Asian customer and those traditions. We have a stand-alone funeral home at Rose Hills, which is purely oriented to the Asian consumer and Asian customs. So it's very interesting for you to see that. And Rose Hills has done very well. They're right on plan. And I think so far, from what I understand, they're continuing their momentum from the first quarter into the second quarter. So more to come, but you'll be there.

Definitely in action. And then you mentioned funeral homes is obviously out of your control in a way that the deaths are what they are, but then you mentioned the preneed cemetery sales. This is really more in your control. And that quarter was actually exceptional, right, up 10% year-over-year. Comps get tougher later in the year, right? So that's why the question is like what gives you essentially confidence you're going to get -- because I guess now you're talking about what like mid-single digits for the year or low single digits.

Mid-single. The guidance was -- that's actually guidance that we actually raised in the last call. and that is low to mid-single-digit growth in preneed cemetery sales is probably more like mid. Now that's because we're coming off of a very strong 10% quarter -- quarterly growth over the prior year. And I think we have a lot of momentum, though, that we've been working on for a couple of years. I mean when you dive into some of our initiatives, I would say that we're getting a lot more into Salesforce CRM and those types of technology systems and using those to our advantages as it relates to leads.

So I think at this point, the leads are coming in a way where we could now start adding more people power. We could start adding more, whether we add 200, 300, 400 more sales counselors. This is a rough number. We probably have 3,700 to 3,800 sales counselors just as a feel for that. So if we could add net 5% to 10% more counselors. We have the leads now, in our opinion, to get to in a very efficient manner and in an effective manner. And that people power, we think, is going to help us continue to move this needle in a very positive way.

Another initiative we have that's kind of back, which is a pre-COVID initiative is seminars. These are going into retirement communities and such and you're going to restaurants and you're putting on presentations, but obviously feeding people at restaurants. And as we all know, during COVID, that just absolutely evaporated. And that really took us some time to get some momentum back as it relates to those seminars. And I'm glad to say that we can mention that now that we have some momentum back related to the seminar sales, kind of putting our shoulder behind that and moving it forward.

I already kind of talked to you about some of the technology we're using. But ultimately, what matters to us is taking friction out of the sales funnel, which is a way to say, how do we get our lead to sell rate to continue to turn positive and move positive quarter-over-quarter, year-over-year. And a lot of the things we're doing as it relates to technology within the CRM system and forcing behavior through that CRM system is really something that is starting to gain traction, even though we've been working on it for a year or 2 at this particular time. And the last piece that I'd mention that's in a way, Joanna, kind of decoupling, as you saw in the cemetery in the quarter, preneed cemetery sales from the at-need environment, atneed volume will always be probably the #1 lead to preneed cemetery sales because the family has just performed an interment perhaps at one of our cemeteries and then the family has a desire for the adjacent property around their loved one, and that's where the preneed sales come in.

But what we're trying to do is not just have that be the only lead, but really develop more and more as we go forward, utilizing that technology. But going back to large sales, admittedly, large sales have been about $45 million a quarter for the past 4 sequential quarters. And that was a nice bump, but we had an easier comp in the first quarter of 2025, where large sales are about 15% of our total sales, defined as greater than $100,000 and they can ebb and flow with high net worth families and individuals and the things that you would naturally think would affect that particular behavior, which is more in line with is there -- how is the real estate market doing? Is there a real estate bubble? How is the stock market doing? Is there a bubble there, perhaps? Those are the types of things that will continue to drive our large sales that we saw continue over the last 4 sequential quarters to be very positive, frankly.

Right. And just maybe staying on that breakdown, right? So you're talking about the large sales, but obviously, the vast major of the velocity of the volumes comes from what you call the core. So maybe walk us through kind of the performance and also how you think -- what are your expectations for the large sales versus the core for the rest of the year?

Yes. So I think the way to think about it is, let me step back and let's talk velocity and average sales price. We obviously have the ability through our tiering approach at our cemeteries, which are very high-end properties all the way down to the basic offering to be able to push through pricing that's reasonable for our consumers. There are a lot of barriers to entry in our cemeteries because these were started 50, 60 years ago in major metropolitan areas. And now you have hundreds and hundreds of acres in the middle of very large markets, which is an incredible asset that we have with, by the way, decades and decades and decades of land left for this particular type sale.

But what we do want to do coming out of COVID is get to the point where we have positive velocity again in the number of contracts that we are selling on a preneed basis in our cemeteries for the core consumer, which is the less than $100,000. And that's what Joanna was asking me about. And we've probably posted several quarters in a row.

In fact, last year's velocity was up low single digits. This year, what we want to make sure is that we can come off of that comp and maybe have positive velocity for the rest of the year. We started that way in the first quarter. I think you're right. I think the comps get a little bit tougher in terms of velocity as the year goes by. But we generally, to give you the guide, we generally think that we could go through the entire 2026 and end up with a situation with another year of positive velocity and you couple that with 4% to 6% type pricing that we have in our parks that's related to not just raising prices, but how you sell from a top-down perspective, turns out that we think we can get mid-single-digit growth that we talked about in terms of revenue, and that's going to lead to margin expansion.

When you can push through 4% to 5%, 4% to 6% type growth in your preneed cemetery -- excuse me, in your cemetery revenue growth, you're starting to get to 60 to 100 basis points per year of margin expansion. If you really, really, really want to go back just to see the powerful effect of that over a long period of time, I mean I remember 20 years ago, 15, 20 years ago when the cemetery margin was in the teens. And now it's generally 33% to 35% cemetery margins, and we think that will continue to expand as we're able to put throughput through these preneed cemetery sales in our cemeteries.

And you mentioned the seminars, right, and also your technology and it sounds like including the increases in headcount, sales force, right? And yes, looking at the velocity, yes, it sounds like things were actually growing pretty robustly. So is there anything else? I was also thinking like did you make any other changes in terms of your territory or maybe comp structure or kind of -- it sounds like these sales people are doing a really good job.

Yes. I think the metrics -- kind of the metric-driven philosophy that we started probably a couple of years ago has been a heavy lift. Anytime you're working with 3,500 to 4,000 sales counselors, it's going to be -- change does not come overnight. It takes buy-in, and it takes time to get that buy-in. But I think a lot of these initiatives continue to work well.

Now look, can it ebb and flow on a quarter? Absolutely. I mean we're a long-term management team with long-term guidance, trying to get our company to the positive effect that's going to occur to this industry in the next 3 to 5, 3 to 6 years, whatever you think it is in terms of baby boomer generation, putting more throughput through this. But it can ebb and flow by the quarters. There's no doubt, and large sales can ebb and flow by the quarters. But as a general statement, as we look out, over the next 3 to 5 years in preparation for the baby boomers affecting this and creating a really positive incremental margin environment, we're very excited about that over the long term.

And that was my other question on a couple of things based on what you said. On the baby boomers, right, kind of what's your latest thinking there? Because obviously, there's some implications for both businesses. But in terms of just the atneed business we're talking about...

Yes, atneed cemetery is huge. People forget about that. I mean it's not just the atneed funeral volume, but it's the atneed cemetery business that is going to be positively impacted. I mean the oldest baby boomer, it's a long generation. It's 18, 20 years of generation. The oldest baby boomers generally have entered their 80s now. And so the average number -- the average age, I should say, of when we are working with families because the death has occurred is generally around 83, 84. So that generally tells you that you're going to see something in the next 3 to 4 years.

But in terms of just solidly being in it and seeing the type of growth parameters where instead of saying funeral volumes are going to be flat to slightly down, where we could say funeral volumes are flat to slightly up and perhaps at one point, solidly in it into the 2030s, say maybe funeral volumes are up 1% to 2%. I think that's probably somewhere in the early 2030s or mid-2030s. What can move things are advancements in health care. And generally, at SCI, we are working with kind of middle to upper -- middle spend, upper spend, middle to upper middle to upper spend type offerings to our consumers in these particular markets.

So as a general statement, when you think of our company, which I'm not trying to speak for the entire industry, but if you think of our footprint and who we market to and who we service, there are families that could probably afford advancements in health care if those advancements come. And that is the type of thing that could maybe push a needle a few years out or not. And I'm not here to predict that by any stretch of imagination. You're the health care analyst, I'm not. But you just -- that is the type of thing where it's just not a perfect science in terms of throughput for SCI.

And you said that you have -- in terms of the cemetery property availability, you have decades. And then is there a stat or have you guys looked at this in terms of just like your market share with the senior population? Like I guess, what percentage of people over 65 have a cemetery property?

Well, I don't know the answer to that, but there's a tremendous amount of room is how we feel about it. I mean we have mid-teens type market share and the funeral market share is in the low teens and the cemetery market share is kind of in the high 20s. Now we have 1,500 funeral homes and 500 cemeteries when you kind of weighted average that calculation. But we have a nice $17 billion backlog of future revenues because we've signed that many people up early. It's been our #1 organic strategy for our company. What we hope happens years from now is that we differentially have -- perhaps have a market share play well into the future because we have gone out and tried to sign as many families up as we possibly could. And I think that bodes well for us into the future.

And since you mentioned the $17 billion, so obviously, that's great to have because you have visibility in your market share and so the exposure of the business going forward. The other dynamic around these dollars, right, is the trust funds, right, and the recognition of that returns.

Yes.

So maybe remind -- because that comes up sometimes in conversations, remind sensitivity right when things kind of change in terms of the market returns and such. And also remind everyone kind of the average length of the contracts in the backlog.

Yes. The average length of the contracts in the backlog are about 12 years -- 10 to 12 years, back up of the $17 billion or so, about half of it is in life insurance policies and half of it is more in the market; that we're managing? We're not. Professional institutional money managers managed that with fiduciary trustees.

But ultimately, that creates an accretive trust fund earnings over a long period of time where you put the original corpus into the trust fund. And on average, 10 to 12 years later, when those families need our service because the contract turns that need, then at that point in time, we go to the trustee and say, give us the original corpus and then give us all the accreted earnings.

Ultimately, the return that we've averaged over a long period of time is about 7% to 8% in terms of that. And with on average, 3% to 4% inflation over a long period of time, you have a nice positive real return that essentially is incremental cash flows and incremental margin to SCI at that time.

So it really works well. Most importantly, it gives that consumer and that family peace of mind. It's not really a financial decision that they're doing. It's a peace of mind decision that they've taken care of it and they funded it, and they're not passing the burden of that, whether it's financially or having their children or loved ones try to figure out what mom or dad wanted in that hypothetical situation. And for all that, it's a real positive thing.

When you recognize those earnings, you recognize them at that 12-year mark when that contract comes out of the backlog that's been invested for 12 years. So what Joanna was saying, for example, if you have a real tough downmarket, it's a very muted effect. to our company in our EBITDA stream for that particular year or that particular quarter. Remember, you may have had one bad year, but you also had 10 years that you had a real nice 7% to 8% return on average. So it ends up being a real muted effect in terms of what the market does to our EBITDA stream over a long period of time. And that really was tested to the end degree, so to speak, during the '08, '09, 2010 financial crisis and proved out very, very well for us.

And the very last question because I know the aspect of this business and the company we like is the free cash flow generation right? So maybe talk about the priorities in terms of using the cash.

Yes. So free cash flow will be somewhere around $700 million a year after $300 million of CapEx and $1 billion of cash flow. So wonderful 125%-ish conversion, a wonderful 6% yield on our free cash flow. We'll have a couple of hundred million of that $700 million go to our dividend. And then of the $500 million, it's going to be divvied up among M&A activity, new construction activity ourselves, both of which enjoy a really nice low to mid-teens type after-tax IRRs. And then we'll continue to shrink the equity with the share repurchase program.

So for those of you that don't know our history to that, -- in 2005, we had about 340 million shares outstanding. And today, we have about 138 million shares outstanding. So we've been very aggressive with our share repurchases over the years to really shrink the equity of our company to make our company that much more valuable as the baby boomer generation affects it with the large incremental margin activity that we would expect.

Great. This is all the time we have. Thank you so much, Eric.

Thanks, Joanna. Thank you.

Thank you.

Good afternoon, everyone. I'm Scott Schneeberger, the senior business services analyst at Oppenheimer. Thank you all for joining us today. It's our pleasure to have from Service Corp, Senior Vice President and Treasurer, Aaron Foley, to speak on the company's investment story. We're drawn to Service Corp's leading position in the funeral services and cemetery offerings industry, its opportunity to capitalize on the favorable demographics of an aging baby boomer population and its strategy of providing preneed contracts to gain advanced market share and garner a backlog to build its trust-owned portfolio.

We'll be using the fireside chat format today. I'll ask Mr. Foley some high-level questions upfront to get us an overview of the business. And later in the session, I'll facilitate audience questions. So getting started, Aaron, could you please discuss your overall business model and strategy?

Sure thing. Thanks, Scott. Thanks for having me. As you mentioned, we are North America's largest death care provider. We've got about 1,500 funeral locations, 500 cemetery locations. On the funeral side, I would say that generally, there are low barriers to entry on the funeral side. There are probably close to 20,000 operators in that space. We've got about 12% to 13%, I'd say, by revenue market share on the funeral side. Conversely, on the cemetery side, the 500 cemeteries that we have, high barriers to entry on that side. We're probably closer to 28% to 30% by revenue market share. And so combined, we have about 18% revenue market share in the death care space.

As I mentioned, funeral, low barriers to entry, cemetery, high barriers to entry over the last 40 years, we've really grown through consolidation and through clustering strategy, really leveraging the resources in kind of more tighter urban areas for the most part to be able to leverage our scale. That's one leg of our 3-leg strategy, really focusing on, one, growing our revenue, leveraging our scale and then deploying that capital from that free cash flow. I would say, really, over the last 25 years, we've followed the same sort of strategy over that time, that 3-pronged strategy. And for the most part, that's been targeting an 8% to 12% earnings growth framework, about 5% to 7% from organic growth from our existing businesses and then 3% to 5% coming from deploying the capital, whether it be acquisitions, new builds, or through share buybacks.

And obviously, during COVID, that kind of threw a wrench into certain things. But from 2005 to 2019, we were able to grow on a compounded basis by about 14%, so exceeded that. Since COVID, we went -- in 2019, we had $1.90 earnings per share, grew to $4.57 in 2021. And since then, with the pull-forward dynamic, we've pulled back on that -- those earnings per share. In 2025, we kind of rebased to a certain degree at $3.85. And as we sit here today, we generally have a midpoint of our guidance of around $4.20. But to your point, we've got about a $17 billion backlog, which is a little more than 4x our current revenue. So really, strategy in driving -- growing that revenue is putting our shoulder behind the preneed strategy, spending the capital, training the counselors to secure and build that market share on that front.

Great. Digging now a little bit on at-need funeral and cemetery. Growth was elevated during the pandemic. It was followed by a pull-forward reversion period, which you've outlined. Please share recent at-need funeral volume trends as well as perspective on the broader timing of demographic tailwinds.

Sure. So you're exactly right. We saw somewhere along the lines of 13% and 4% type growth in 2020 and 2021, respectively, in funeral volumes. And then '22, '23 saw drops of 5% to 6% each year, '24, we were down 2.5%. And as we entered 2025, we kind of expected that we'd be in this flat to slightly down type period. And we ended up being down 0.8%. And so we kind of came into 2026, expecting that we were fully back into our 8% to 12% earnings growth framework, which on the funeral side really expects a flat funeral volume with low single-digit growth on average. And so we came into the year expecting flat, maybe slightly down volumes.

And as we got into the first quarter, as Tom mentioned on the call back in February, we did see sluggish volumes as we got into January. And as we exited the first quarter, and as honestly, the first quarter was transpiring, I think hindsight 2020, we gained a greater appreciation for just how strong the '24, '25 flu season was and that it spiked really in January and February of 2025.

And then conversely, as you look at the '25 and '26 flu season, just how weak the '25 and '26 flu season has been and how there was really just a very short acute spike that occurred really towards the end of December of 2025. And so those 2 factors combined really drove more of a downside performance, if you will, on volume, essentially getting us to a 6% decline in volume. As Tom mentioned on the call, we went back 20 years of history, looking at a same-store basis in each individual year to get a sense for how have we seen other years similar to this transpire? And we picked 5 years where we've seen volume declines of over 4%.

And in those situations, we watched that cadence for the balance of each of those years. And in each one, we saw an improvement from what that first quarter decline had been. So let's say, in our scenario right now, the 6% decline based on that analysis, we're expecting to be closer to a 2% decline on a full year basis. Tom mentioned on the call, 1% to 3%. So we looked at it with our own personal experience for our own location type data. We also looked at it from a broader CDC perspective, kind of doing a similar type analysis, correlating the volume trends and trajectories following years in other weak first quarter type years.

We did some time series type forecasting analytics where we brought in different factors, including COVID and other dynamics in to look at volume trends. And then we also utilized AI, ChatGPT and Claude and basically said, look, "I'm a mortality statistician or an actuary. These are the dynamics using historical data, knowing we've had this COVID experience as we kind of unfold and see some of these dynamics play out, what does it look like"? All of those models spit out between 1% and 3% and on a weighted basis, kind of got us to the midpoint there. And so I think for the full year, we're relatively comfortable with the 1% to 3% down. I would say anything could obviously happen to the good or to the bad anytime you're trying to model mortality.

But -- in the past, when we've looked at this experience, the actual quarterly cadence, and Tom mentioned this, but a 6% down first quarter, you're likely to expect about half that down second quarter. Third quarter, we're at this point kind of expecting maybe about flattish and then in the fourth quarter, seeing some growth in the low single-digit type growth perspective. And so that's a big long explanation for kind of how we are thinking about volume now and trying to get comfortable with it as we're kind of planning out our business.

And yes, that's logical. And it's uncommon to have large swings in at-need funeral, but it does happen quarter-to-quarter. And as you mentioned, you have the flu comp. So a kind of a reversion to a status quo seems logical. A second part to that question is just what do you see for the at-need funeral level on a longer-term basis. We obviously were just talking about the near term. So just some thoughts on that, and then we'll move on.

Yes. I mean, I would say in the near term, for the duration of this decade, as we think about the baby boomer demographic, the oldest baby boomer this year is 80 years old. And so they're getting closer to that more normalized at-need period, unfortunately, but that's just a dynamic. But our view is that we're probably until the latter part of this decade going to be in a flattish type volume experience until we start seeing more of a pronounced impact from that baby boomer demographic impacting the industry. Now once that occurs, that flattish is probably in the next 2, 3, 4 years in the early 2030s, going to grow to 0.5% to 1% up. And then as we get beyond that, kind of the mid-2030s to probably mid-2040s -- mid- to late 2040s, we're expecting to see a 1% to 2% type growth in that volume over that time period as more of the bolus of the demographic really is impacting the industry.

Yes. It seems logical. And just real quick for the audience, I apologize for the late start. We had a bit of technical difficulty. So I'm unable to see questions from the way I entered this. So if you do have questions, please send it to my e-mail at [email protected]. Next question is, Aaron, we just talked about funeral at-need volume. Let's talk about funeral revenue per service. It's been solid, growing above 3% year-over-year. If you could speak to the drivers and the sustainability there.

Yes. I mean, as I mentioned before, when I was talking about the industry, it's a very highly competitive with 20,000-plus locations that are competing for business. And prior to 2022, 2023, I've been in the industry for 18 years, but I've always been told that the funeral business has inflationary type pricing power. Now pre-COVID, pre '22, '23, when we did see inflation grow, that really kind of been in that low single-digit type range. Come '22, '23, when inflation was high and we started seeing interest rates increase, we as well as the other 20,000 or so participants out there in the industry started getting pressure, and we did see the dynamic of the ability to pass on more inflationary type pricing increases. I think that, that is going to continue.

Obviously, inflation for the most part, has come down from those significantly elevated levels that we saw. But in the first quarter, we continue to see strength from the base business growth from the products and services pricing that we have. That was nice coming through. Another source of strength came from the trust fund income. If you look over the past 12 months, the market returns have generally been pretty high, even though the first quarter came out 70 basis points down, the last 3 quarters of 2025 were strong, and that helped support the year-over-year growth in trust fund income.

The cremation mix, we now are guiding to 50 to 100 basis points of cremation mix shift in any given year. In the first quarter, we saw 40 basis points of growth. So the suppression that might come from that has been moderated some. And then specifically on the non-funeral home side, what we're seeing now is more -- or more contracts maturing out of the backlog where we deferred the urn kit. Keep in mind, 2 to 3 years ago, we would deliver the urn kit at the time of sale and recognize those earnings at that point. Over the last 2 years, we've been transitioning the business to now defer the urn kits. So we're not recognizing it at the time of sale, only at the time of maturity when we're provided. And we've seen over the last 3 or 4 quarters, the average in that non-funeral home business growing at this first quarter was at 9%. Last year, we saw 12%, 13% over the last 2 or 3 years. And we expect that aspect of the growth to be somewhat outsized over the next few years until that backlog really kind of builds itself in.

Great. Appreciate that. Lastly, we're going to round out funeral and then move over to cemetery. But funeral preneed sales, could you discuss how they -- the potential to impact revenue and market share in future periods? Additionally, please address recent developments impacting this category and the long-term perspective on the potential growth?

Sure. So we've got about $17 billion, $18 billion of backlog right now and actually 70% or so of that is on the funeral side. And when you look at the maturities coming out of the backlog today, about 40% of all of our services that we perform have some type of preneed contract backing them up. If you go back 10 years, that would be closer to 30% to 35%. So we are putting our shoulder behind this strategy to go in, and we expect to, at the very least, secure market share to make sure that those consumers stay within our network. But then on the fringes, we do think that there are opportunities to see market share expansion by us going into the backyards of our competitors and locking those consumers up for the future.

And so as we are driving this production on the funeral side, now that we have our transition from TruStage to Global Atlantic complete, now that we have the SCI Direct transition from trust to insurance as well as from delivering the urn kit to deferring it, we've got this new stable base. And as we continue to grow funeral production, we're going to not only get the general agency commission benefit in the year of sale. But as we continue to grow and see that improve that backlog, we're expecting future continued revenue growth on that side as well.

Great. Over to cemetery. Recognize cemetery preneed sales have historically been a P&L growth driver for Service Corp. Please discuss the drivers of growth that you've experienced in this category as well as how is it trending here at the start of 2026 and your outlook for it over the balance of the year and then for the longer term for that matter?

I'd say coming into the year, we had expected kind of a low to single -- low to mid-single-digit percentage growth in cemetery preneed. And the first quarter came through that was an outperformance from our expectations. I'd say that 10% growth, $32 million equates to $32 million, $20 million of it relates to large sales. And we've expected some amount of that growth, let's say, half of that from our initial expectations because we recognize the first quarter of last year was somewhat of an easier comp, but we were able to blow through that as well as the teams continue to execute well.

On the core side, the other $12 million of increase, that really continued to be driven in large part by the velocity or number of contracts that are coming through. So that's really the fourth year in a row that we -- or I'm sorry, fourth quarter in a row that we've seen velocity as a positive driver to cemetery core production. Again, that's splitting core from our large sales. If you take our -- in the first quarter, it was $330 million of cemetery production or so. About 90% of that is our core business and then 10% is that large sales. So around $40 million were large sales and the balance was our core business.

Now in the past, we've talked about how the number of deaths as those transpire on the funeral side are highly correlated with the number of contracts that -- the velocity of contracts that we're selling. And so for us, over the last 4 quarters to witness increasing velocity of sales in light of weaker volume environment, to me, that shows that, one, I think that the 4 initiatives to really drive sales, not only on cemetery, but funeral as well are going well. So one, the marketing team is doing a good job of developing and generating more and better leads for our sales counselors to work off of. That includes seminars. That includes online offerings and advertising to make sure from a preneed perspective, that they're being considered.

Also from a headcount perspective, on the sales side, making sure that we're doing some tweaks we've talked to you about over the last couple of quarters, shifting a little bit more of the salary from variable to fixed. And what we're finding there is that's increasing the retention and the longer-tenured counselors have better production metrics than the shorter tenure counselor, and they also have a better quality of contracts, so less likely for cancels to occur. So you've got those dynamics. You've got us utilizing the tools within our CRM system to -- as it relates to those leads and shift those and make sure that they're pointed to the more productive counselors and making sure that our sales teams are affecting those.

And then on the large sales side, this is kind of the fourth leg of our strategy to drive the preneed sales, really making sure that the teams and parks that we operate have the inventory available, have this large sale type inventory available. So when people come in, we can show it as an option and they know what the art of possible, if you will, is to be able to affect those sales. So I think as we've really put our shoulder behind those strategies over last year and into this year, we're seeing the benefits of those and a little bit of a divergence from that correlation to at-need volume.

And as we look to the balance of the year, I think we're expecting continued strength on that velocity side, granted, as I talked about earlier, with funeral volume in the second quarter expected to be about half or 3% down, that could be closer to flattish from a velocity perspective, and it may be a little bit more of a comp type headwind, if you will. So I'd expect cemetery preneed likely in the second quarter somewhat flattish. And then as you look to the second half of the year, probably in that low to mid-single-digit type growth range.

Just wrapping up on the sales side of cemetery. We were fortunate enough to conduct a field trip with Service Corp last summer to Rose Hills in Los Angeles, not only the largest Memorial Park in the company's portfolio, but the largest in all of North America, possibly the world. Could you please discuss some of the interesting attributes of that property? And I think you did a good job speaking about the seminars and the retention for your staff, but a lot of focus there on large and small. I kind of want to key in on the large and tie it into Rose Hills as well and just kind of discuss the aspect of some of your larger properties with really nice features.

Sure, sure. No, thank you for that and really appreciate hosting you out there. It really is a beautiful park, and I'd encourage the participants given the opportunity to make it out there because it really helps to kind of crystallize a lot of the strategies that we do talk about, highlighting the tiering of our cemetery property from the homogenous all the way up to private mausoleums that you'll see multimillion dollar type beautiful mausoleums that you see. But to your point, Rose Hills makes up about $100 million of our $1.3 billion, $1.4 billion of EBITDA. So very significant proportion of our EBITDA.

We serve a large proportion of both Hispanic and Asian consumers at the Rose Hills cemetery. And those are consumer groups who greatly value the services and products and property offerings that we provide. Their cultures very much appreciate memorialization and having a place to remember their loved ones. And I think Rose Hills has done a fantastic job of cadencing out development opportunities across the park to make sure that we continue to have the large sale inventory available.

Again, it's one of the 4 main focus areas of our sales and marketing teams to continue to drive that large sale opportunity. And I don't think Rose Hills is really going to be different than much of the rest of our footprint. We're going to be focusing all around, granted, they are a larger proportion. So we will make sure that they have that inventory to offer to those consumers. But I think that we're continuing to ideate great ideas and great plans and working our community outreach to make sure that they know that they're going to have a great place to go to.

Excellent. One more, I want to go down the margin line, Aaron, in cemetery. And that could have a meaningful impact on Service Corp's reported EPS. Could you please discuss some of the primary drivers in cemetery of cemetery margins and particularly what investors should be watching as we progress over 2026 and beyond?

Yes. I think, honestly, Tom did a really great job of kind of highlighting for both funeral and cemetery, the margin dynamics. So on the funeral side, he basically indicated, look, if you assume essentially 80% of any incremental or decremental revenue coming through and then normalized type inflationary type growth rates, on our fixed cost structure, you should generally be able to hone in on the margin dynamics on cemetery. It's about 75% hitting the incremental decremental bottom line and then, of course, a little bit higher fixed cost expectation on the cemetery side. But in the first quarter for cemetery, when you have a 6%, 7% growth in revenue coming through and then putting on top that 75% margin dynamic and then the fixed cost growth kind of what we saw, we witnessed about 120 basis points of growth in that cemetery margin for the first quarter.

And I think as you look forward, kind of as I mentioned, with flattish preneed expected for the second quarter with that fixed cost growth, you're likely to expect probably some contraction as you look at the second quarter. But then the third and fourth quarter, where we're expecting low to mid-single type growth, you're probably really kind of in our normalized framework, if you will, as it relates to margin opportunity where we generally expect a 50 basis points or so type growth with that production type dynamic backing it up.

And so as we take cemetery as a whole for the full year, at this point, given kind of a lot of the outperformance that we saw in the first quarter and then understanding the trends looking to the back part of the year, probably in that 80, 90 basis points of growth type area for cemetery margins coming through.

Great. Thanks. Appreciate that. We only have about 2 more minutes. And because of the time crunch at the front end, I'm probably not going to be able to get through. But we do have a question coming in and it's on this theme. So I'm going to pop it in here, Aaron. It's on basically managing profitability. What are some of the activities that you do or levers you pull to manage the cost side of the business? And please discuss how technology is used to manage margins.

I would say that we have a wealth of data now that we have never had before and broken down into more detail than we've ever had before to help affect intelligence about what things are going well and what things are not going well and how do we expand on the things that are going well and try to correct the things that are not going well. And so over the last 40 years that this company has 50 years that has operated as a consolidator, both the funeral and cemetery segments have had these large fixed cost structure. So it's really embedded in the culture of the organization to be focused on continuous process improvement.

We have margin committees that have both corporate as well as field representatives that help dig into these business trends to really understand and wrap our heads around what the dynamics are and how we can affect any change one way or the other. I think on the funeral side, some of the things that have been very effective for us as we went through the COVID experience and have come out is really being more metric-driven, a focus on the number of services per FTE. So if we locate certain markets that may have -- do really well on that front, we're going to dig in and understand what is driving that and see if we can cascade that around. And conversely, if they're doing poorly, we're going to go focus on that as well.

On the cemetery side, the lower skilled workforce, particularly as it relates to the cemetery maintenance, that has been somewhat of a challenge over the last 3 or 4 years that we've been working on and focusing on with our supply chain groups and working with our contracting with our vendors to manage those cost increases and try to put caps and look at each park individually and understand what the structures and what the climate zones might be to make sure that we're operating those as cheaply as we can, but still be able to showcase a premium property that consumers are going to want to come to.

Great. Aaron, we're at time, but I think I have a great wrap-up question. Just on your adjusted EPS profile. What are you expecting for 2026? And what are your longer-term expectations essentially for EPS growth?

Yes. I mean I would say this year, we're still in that 8% to 12% type range. Obviously, if volume continues down at the 3% or 4% for the balance of the year, we're going to be below that range. But with the 1% to 3% down expectation with offset a little bit by a little bit better average, a little bit better fixed cost trends that we've been seeing on the funeral side and then pulling in the cemetery production, now expecting in that mid-single-digit type production growth range for the year. I think we're still in that 5% to 7% earnings growth on the base business. And there's nothing right now on the inorganic side, acquisitions and new builds and share buybacks that tell me we're not going to be within the 3% to 5% on that side.

So I think we're still comfortable with the 8% to 12% earnings growth framework. And in the midterm, with that flat volume, low single-digit growth in average, on the funeral side and then both funeral and cemetery being low to mid-single-digit growth in production, I think those 2 dynamics, again, are going to keep us or put us in that 8% to 12%. We're working different initiatives like the cremation initiative we've talked about on the cemetery side to try to boost that and help push us toward the upper end of that. And obviously, when the baby boomer demographic starts impacting this business, I'd expect us to be at or north of the 12% as we think about that earnings growth framework.

Excellent. Great wrap-up, way to put a bow on it. It sounds like a very good, solid, consistent story, and we're going to wrap it with that. So thanks, everyone, for listening in. And Aaron, thank you. Great job delivering the messaging.

Thanks, Scott. Really appreciate your time and everyone else's.

Take care all. Thank you.

Good day, and welcome to the SCI First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management. Thank you, and over to you.

Good morning. This is Trey Bocage, 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 $0.97, which compared to $0.96 in the prior year. Cemetery revenue and gross profit increased meaningfully, supported by double-digit growth in preneed 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 $0.02 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 $0.03 of earnings per share growth. Despite a meaningful decline in funeral case volumes during the quarter, the company delivered strong underlying performance across several key operating metrics. Preneed 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 and disciplined pricing execution.

At the same time, we maintained 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 revenue. 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 have experienced 5 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.

Nonfuneral 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 preneed contracts that are maturing out of our backlog have higher cumulative trust earnings and more recent preneed contracts written will mature with higher value in the backlog due to our operational decision to no longer deliver preneed 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 preneed 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.

Preneed funeral sales production increased by $18 million or about 6% over the first quarter of 2025. Core preneed funeral sales production increased by $13 million or 6% Nonfuneral home preneed 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 cemetery. 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 preneed revenue was slightly offset by a $3 million decline in at-need revenue. The recognized preneed 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 preneed 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 preneed 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 preneed 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.

Thanks, Tom. Good morning, everybody. Thanks for joining us today. And as Tom just finished, I'm going to start that way and take a moment to really sincerely thank our more than 25,000 associates across the entire SCI network. We are truly grateful for all of your dedication and most importantly, the compassion that you have for our client families. And we are very proud of the positive impact you continue to make in all the communities that we serve at SCI.

So today, I'm going to start by reviewing our cash flow results and capital investments for the quarter. Then I'm going to take -- make a few comments on corporate G&A and our trust returns, and I'll conclude with an update on our cash flow guidance for the full year of 2026 and then talk a little bit about the overall financial position. So during the quarter, we generated very impressive adjusted operating cash flow of $335 million. This, by the way, was in line with our expectations and was an improvement of just under $20 million or 6% over the prior year. So a little bit more color on that because some of this is timing. So adjusted operating cash flow was positively impacted by a $20 million source of working capital related to an additional payroll tax payment that was made in the first quarter of last year.

So additionally, though, there were stronger preneed cash receipts and other working capital that provided an additional $7 million source. But partially offsetting these sources were lower adjusted operating income of $4 million and $4 million of higher cash interest, which is primarily due to higher average balances on our floating rate debt, partially offset by the lower floating rates. We believe this growth in adjusted operating cash flow despite the softer volumes that we reserved in the first quarter really highlights the resiliency of our cash flow at SCI.

So shifting to capital investment. We invested $108 million of capital into our existing funeral homes and cemeteries and real estate -- business and real estate acquisitions and of course, construction of new operating locations. So I'm going to break that down a little bit for you. We invested $66 million of maintenance capital back into our current businesses. Included in this maintenance spend, we invested $41 million into new cemetery development projects, $20 million into our current funeral home and cemetery locations, which improves the overall customer experience and about $5 million into our digital strategy and some other corporate investments. We also invested $17 million of growth capital in the quarter towards the construction of new funeral homes as well as the purchase of some real estate for future new build and expansion opportunities.

Turning specifically to acquisitions. We invested $24 million into business acquisitions in the quarter, adding locations in several states, including Texas, Massachusetts, Alabama and North Carolina. We are excited about these high-quality funeral homes and cemeteries that are now joining our company, and we're very happy to welcome all of those associates to the SCI family. We have seen continued momentum in April and remain optimistic about the acquisition pipeline and believe we are on pace to achieve our $75 million to $125 million acquisition investment target for 2026.

So now let's move on to capital distributions, primarily to our shareholders. We returned $190 million of capital to shareholders in the quarter through $143 million of share repurchases and $47 million of dividends. We repurchased just under 2 million shares during the quarter at an average price of about $80 per share, bringing the number of shares outstanding at our company to just over 130 million shares at the end of March. So shifting gears now, let's talk about corporate G&A, which spend of about $44 million in the quarter was down $1 million over the prior year but higher than our quarterly guidance range. This is primarily a result of higher accruals related to our long-term incentive compensation plans, which, by the way, was driven by outperformance in total shareholder return versus our peer group. We expect that corporate G&A expense going forward will average around the $40 million to $42 million per quarter.

But as a reminder, this rate could be impacted by timing of these accruals related to the short- and long-term compensation plans, just like you saw this quarter. And finally, before transitioning to our cash flow outlook, I wanted to update you on our trust fund returns. So as you saw in the release yesterday, we ended the quarter with a 0.7% decline in our combined trust fund returns. However, importantly, in the month of April, we observed a market recovery with an estimated 4% to 5% increase in our combined trust fund returns, which really gives us confidence to say bring us back in line with our full year expectation of about a 7% trust fund return for the full year.

Now let's talk about our outlook as it relates to cash flow. So as we talked about in the press release, we are confirming our 2026 adjusted operating cash flow guidance range of $1.0 billion to $1.06 billion. And as I really mentioned to you in February, we anticipate full year cash taxes to be about $120 million at a normalized cash tax rate of around 15% to 16% as again, we are benefiting from an investment we made in renewable energy projects in the current year. As we look beyond 2026, we anticipate returning to a normalized cash tax rate of about 24% to 25%. That would be absent any additional tax planning strategies or any regulatory changes that we don't know about.

From an effective tax rate perspective, consistent with the guidance that we've talked about before, we expect full year 2026's ETR to trend in the line with 2025 at 25% to 26%. So in closing, I'm now going to provide some commentary about our liquidity and financial position. We continue to benefit from a favorable and disciplined debt maturity profile, complemented by robust liquidity. We ended the quarter with liquidity of about $1.7 billion, consisting of approximately $260 million of cash on hand and approximately $1.45 billion available on our long-term bank credit facility. We ended the quarter with a leverage ratio of 3.68x net debt to EBITDA. This is very similar to where we ended last quarter and again, at the lower end of our long-term leverage target range of 3.5 to 4x.

So in conclusion, our solid balance sheet, enhanced liquidity position, consistent and predictable cash flow stream continue to bolster our capital deployment program, giving us significant flexibility to invest opportunistically for the long-term benefit of SCI, our associates and our shareholders. So with that, operator, this really concludes my remarks and Tom's remarks. I'm going to pass it back to you, and then we'll go ahead and open the call up for questions.

[Operator Instructions] We have the first question from the line of Parker Snure from Raymond James.

On the funeral volumes, it'd be great just to hear how volume growth progressed throughout the quarter in kind of January, February, March? And then what are you seeing in early April, early days in the second quarter?

Sure, Parker. This is Tom. Thanks for the question. What we saw was out of the gate, really all 3 months were down. I think January and February were a little steeper and March was slightly better, but still down. And what we're seeing, Parker, and it's not unlike when we study the 5 years before, what typically happens is the first quarter is the worst, the second quarter is still not great and you tend to start trending in the back half of the year and seeing that volume come back. That's what we've experienced in the previous 5 times.

And I'd tell you right now in April, we're seeing the same thing. April is still down. It's not as bad as the first quarter, but we're still kind of facing a little bit of a headwind. And again, we, I think, anticipate that, that would get better throughout the quarter and really see -- maybe get to see some positive comps in the back half of the year.

Okay. And then in terms of the guidance range, I may have missed this. I know you said that you now expect comparable funeral volumes down 1% to 3%. But on the preneed cemetery side, I think that's going to be kind of helping to offset that. It was up 9.7% in the first quarter. But just how are you guys thinking about that throughout the course of the year? The comps do get a little bit tougher, but just how are you thinking about preneed cemetery production within the full year guidance now?

Yes. I think Parker, this time, it's always hard to tell through 3 months. We're very pleased with the first quarter. But we still -- if we talked about guidance before, remember, I think I told you to steer you towards the low to mid-single digits. I think with the first quarter in the bank, we feel pretty good about mid-single-digit growth for the year. 10% is high step in it. But we do still feel very good about our momentum. Jay has got the team really focused on KPIs in the 4 of those.

One of the channels is large sales. One of them is headcount. And so what we're seeing today, and I touched upon it a little bit on the call, is that we're growing the headcount. Part of that is we're trying to retain more of our employees, and that's being successful and then hire new ones. And we believe we've got better leads. Our next KPI is our lead-to-sale ratio. And so that's really focused on the quality of leads and our ability to follow those up. And then the third bucket before large sales is seminars. We found that seminars are a way that we can educate the consumer, get in front of them. And so Jay really pushed the initiative to say, let's expand the number of seminars we're doing, and we're seeing great success with that.

And those are the types of things where you're out in the community, you're not getting your leads to the funeral home. And that's why I think we can say we grew velocity in a quarter even though funeral volumes were down. And by the way, funeral volumes are a great lead source, but we're finding other ways to get out to the consumer and seeing real success there. So we feel great about the momentum. You're right, the comps get a little tougher as we go along the year, but still very confident that we can get to that mid-single-digit growth for the year.

Okay. Yes. No, that's great. And then if I can just squeeze in one last one, kind of more of a math question on EPS seasonality. So if I look at the first quarter, $0.97. And then if I just kind of look at the last couple of years, 2Q is down somewhere in the range of $0.08 to $0.10. So that would imply something like $0.88 in the second quarter. That gets you to $1.85 for the first half. And if I look at the last 3 years, the first half seasonality is somewhere around 50%, maybe just below that. So that would kind of imply something in the high $3 of EPS, maybe $3.70 to $3.90. So I guess the question is like what is different this year in terms of like the second half ramp than a normal year that kind of gives you confidence in getting to the guidance range?

Yes. I think the real difference is, of course, just this down volume. And so I'd say if you can get that volume back, you're going to shift quite a bit of profitability to the back half of the year. So in your instance, it would probably assume where you get into those low 3s that you keep the volume at down 6% for the year. We believe because history tells us, and we believe, again, that, that's going to trend back the other way. So you're just going to push some of that funeral profitability that was in the first half of the year to the back half of the year. And that's how we're looking at it. We're modeling a couple of different scenarios like we said, it's hard to be precise, but we think 1% to 3% is a fair estimate at this point in time. And obviously, at the end of the second quarter, we'll have better data to make that a little more finite for you.

We have the next question from the line of Tomo Sano from JPMorgan.

So regarding funeral volumes, I believe the main reasons for the decline in the first quarter was tough year-over-year comps due to last year's strong flu season. Was this trend seen across the entire industries? And do you believe it had any impact on SCI's market share?

Yes, Tomo, we do not think it's market share. We don't have a lot of public competitors, but we do talk to a lot of our friends in the private world, and we've got suppliers in different places. And so -- and then you add that with -- I've mentioned CDC data, we've got January and February, and they're kind of right on where we see -- some of our other competitors actually have worse comps. Some of our suppliers have worse comps. So we feel, number one, that it's not a market share issue, and therefore, we believe it will bounce back.

And the other checks that -- my sanity checks that I use, Tomo, is typically, our SCI Direct business, I can't remember when we had down volumes in SCI Direct. It's always a leader, and we may be a drag in the core. The other thing is pre-need going at-need is typically a lot better than the walk-in business, what we call the pure at-need. And in both those checks, for the first time in a long time, SCI Direct has down volumes in low single digits, but down volumes. And again, that just tells me that this is real, this is a death rate thing. Hard to predict all the reasons why. But it is a tough comparison.

We did have a bigger flu season last year. And history tells us it's going to work back. And I tried to point out on the call that if you just give us flat volume, this would have been a 17% earnings per share growth quarter. That's how good we performed in other metrics. Unfortunately, we didn't get the volume. So it wasn't 17%. But we're optimistic that we're ready for that. We're working hard, doing things to have better advantages in competing on the funeral side, competing on the sales side. So anyway, hopefully, that answers your question.

Yes, it's very helpful. And just a follow-up on the -- in the face of declining volumes, what specific actions or initiatives were implemented at the field level to address these challenges in terms of the cost to control, the labor retentions and managing input costs, please?

Yes. So a lot of them are just in place. We -- I think I've spoken before that the field has the ability when volumes are down to manage labor costs. How many people we're bringing in, part-time help versus full-time help. And so they're really good at leveraging that model without us having to say anything. So a lot of that is built into the DNA, built into the systems that we utilize. And so they're very good at leveraging those costs, and we really don't have to say a thing. So I feel good about the team's ability to pivot.

And when you get that volume back, it's going to be -- the incremental margins on these things are huge. And so I look out at the rest of the year and say when that comes, we're going to have some nice comps to go back against the prior year quarter. So that's predominantly it. Clearly, we'll talk about you can manage travel costs, you can do different things, but we're really focused on the long term in making sure that we've got high-quality service that we're taking care of our customers and taking care of our employees and the volumes have come. So that's our position.

We have the next from the line of Scott Schneeberger from Oppenheimer.

I have 2 preneed questions, one cemetery, one funeral. I'll start with cemetery. You guys outlined a bunch of initiatives, Tom, you did about what you're doing headcount and seminars, and it sounds like a lot of good progress on that front. So question -- a 2-part question. What's the sustainability of it? And then historically, you guys have provided what large sale contribution is and maybe what non-large sale contribution is in the quarter. Can you share a little bit about that in the first quarter and how you see that shaping up over the balance of the year as well?

Sure. So Scott, the -- if you start with the cemetery, I think I mentioned, we had $32 million of production growth. $20 million of which was year-over-year improvement in the large sales and again, defined as $100,000 sales or better. And then $12 million of it came from what we call the core business. And the preponderance of that was in velocity. So we didn't have -- I think our average revenue per contract was slightly up, but most of it came from velocity. So that's kind of the breakdown. I think if you're talking about large sales, I think we ended in like the low $40 million for the quarter, and that's a solid quarter for us, particularly with the new -- we used to use $80,000 as our limit, now it's $100,000 -- so that was a big win.

But I think the bigger win, like I've said before, the large sales are going to come when they come. It's hard to -- sometimes they're going to push into a different quarter, sometimes not. But what I'm really pleased about is I think we've now had 4 or 5 quarters in a row where we've seen contract velocity increase. And I again put that back to what I mentioned before is Jay and the team focusing on the key metrics that are going to drive those contracts. And seminars is a key thing, headcount is a key thing and really pushing the lead sources outside of the funeral home to be able to grow even when you have challenging volume environment.

The other thing I'll mention, and we talked about it earlier since you asked, the cremation cemetery strategy. I think we talked to you guys a while back that it's our belief based upon some studies and surveys that we did with consumers that there's a real lack of understanding of what we have to offer to the cremation consumer on the cemetery side. So we were good at the funeral side, but we weren't getting the point across, at least consistently. So we worked really hard, and we actually piloted 10 markets in the first quarter. And I would tell you that it was very successful.

And again, it's only 10 markets, so I don't want to get overly excited, but it's really focusing on communicating with the consumer through advertising, through in-lobby presentations, different types of media and presentation materials. And what we're seeing was a real difference maker in those 10 markets versus what we saw in the other markets. So that's just on its beginning, and we're intending to roll out, I think, another 80 or so markets in July. So really, really happy about that, that we feel like that's a market that we haven't addressed as aggressively as we should have been, and we're on it now. So a lot of good momentum on the cemetery sales side and feel good about directionally where we're headed.

Great. Appreciate that color. The second question, the funeral -- is funeral at preneed -- excuse me, funeral preneed. And just curious, I mean, this is not a 1-quarter dynamic. This has been ongoing, but you're delivering very strong preneed funeral growth in an environment where volumes in at-need funeral are challenged. So maybe there's a bit of overlap in what this answer is going to be, but how have you been doing that? Can you just speak to what's the strength behind the preneed funeral?

Yes. I think a couple of things. First and foremost, you're exactly right. I'm going to say the same thing, particularly the seminars. The seminars are put on in markets. They probably are not at one of our locations. They're probably at a restaurant, somewhere, a hotel. So the draw that you're getting for the attendees has nothing to do with your funeral home traffic. So over time, I think we're pushing more and more of these leads outside of our locations. And therefore, we're less sensitive to volumes as they walk through the door. So I think our focus on that particularly probably has driven a lot of it.

The other thing that I wouldn't, not point out to you is we had a lot of change in our preneed funeral, right? We had a new partner in our insurance core business, and we had SCI Direct last year that was transitioning from a trust product to an insurance product. So just think of the forms, the explanation, the presentations. There's a lot of detail that goes into that, and it was a bit of a distraction over, call it, a 12- to 18-month period. And I think what I'm pointing out now is, hey, that's behind us. I mean, obviously, we'll get better and better at utilizing the new contracts, the new tools, the new payment plans. But we're really starting to see that stride take. And then again, I would point back to the lead sources are more outside the funeral home, and we're able to generate better leads, have better closing rates. And so some of the same things we talk about on the cemetery side.

We have the next question from the line of Tobey Sommer from Truist.

This is Tyler Barishaw on for Tobey. Just wanted to double-click on the cremation in the cemetery point you just made. When you think about maybe run rate when this is at full implementation, do you have a sense for how much this could contribute or margin opportunity maybe?

Yes. I think where it's going to show up is in the revenue growth and pretty high-margin products. We really don't -- and I hesitate to do that, Tyler, because like I said, 10 markets does not make an initiative. So feel free to ask me as we continue how successful it is. But I would just tell you, we're very excited because in each of these 10 markets, it exceeded the average of everybody else in some markets by quite a bit.

And I think it's just -- it's an obvious -- we woke up one day and said, we're not -- we don't have a way to get in front of the consumer in a consistent way to educate them about it. And again, when we did this consumer survey research, it really was eye-opening to us, and we learned a lot about, hey, maybe we're focusing too much on funeral and burial, and we've got to have the tools and the resources to educate these consumers. So I don't have a number for you yet. I think it will just be a nice complementary growth to all the other things that we've got going, as I mentioned before, with lead sources and growing the sales force numbers. So a lot of good momentum.

Makes sense. And then just thinking about the funeral segment, how should we think about margins for the year on a gross margin basis despite the funeral volume contraction?

Yes. I mean if you obviously, out of the gate, I think we talked before, if we got to flat funeral volume, we think we could grow margins, call it, 40 to 60 basis points going forward. And we talked about the sensitivity, right? So if you back into 80% gross margins on funerals lost, you can back into the number. So at this point, we'd be forecasting that margins are going to be slightly down for the year versus what we experienced in the prior year.

Having said that, once again, comps are a weird thing. I like our comp first quarter of 2027, right? I mean I think we might have a pretty good one. So it is what it is. But I think for this year, you'd anticipate that our gross margin percentage will be slightly down as compared to the prior year number. And then go back to that, can we grow it at 40 to 60 bps? I think so. Give us flat to slightly up volume, and we'll do that. And if you give us a little bit more volume, it will be a lot more.

We have the next question from the line of Joanna Gajuk from Bank of America.

So I guess maybe just a follow-up on the cemetery because clearly, that's where the outperformance was. And I'm sorry if I missed it. So how are you kind of thinking about the full year now versus your prior expectations for growing low single to mid-single digits? And I guess, can you also break it up for us, if you can, expectations for the large versus core sales performance for the year?

Sure, Joanna. So I think on the cemetery, you're right, we guided to low to mid-single digit. I'd say based on the performance we saw in the first quarter, we're confident in saying it's mid-single digit. And that would be somewhere between 4% and call it, 7%, depending on how the year shakes out. That's kind of where our head is. Then if you go to -- when you think about the breakout, we obviously had quite a good comparison in the first quarter. It was an easier comp. If you go back to last year, we didn't have a great large sale quarter. So we beat it by quite a bit.

But I think both -- we expect both channels to end up being nice growth trajectories. Obviously, we've got quite a great growth trajectory in the first quarter, and that's going to come down over time as we got tougher comps. But we still feel like we can grow both channels in the remaining 9 months on a year-over-year basis. And again, large sales are harder to predict because they come when they come. And sometimes they slip from June to July or they slip from September to October, and that's okay because eventually, we'll get them. So we feel good about both channels. And I think overall expected growth rate is in the mid-single digits.

Does that answer your question, Joanna?

So yes, I have a follow-up. Actually, I was talking about -- I was muted -- to things. So yes, I was asking, so with this growth now for the cemetery just more like mid-single digits, how should we think about your assumptions around the gross margin in that segment? It sounds like the funeral segment while with the volumes being down, the gross margin will be lower. So should we expect better, I guess, margin here given the kind of the elevated growth?

Yes. I mean if we get the growth rates we think, you probably should see gross margins grow anywhere from 60 to, call it, 100, 120 basis points for the year. If we can get 4% revenue growth on the cemetery, we can grow at about, call it, 50, 60 basis points. So if we end up in the 5 or 6, you see a little better. So we got 9 months to go. We'll see. But overall, we'd expect cemetery margins to go up for the year. And like I said, funeral to be slightly down.

And if I may, last question on the capital deployment and specifically the acquisitions. So are you seeing sort of more interest, less interest, any competitive dynamics around multiples and such? And it sounds like you mentioned before that the volume decline, the funeral volume decline of Q1 was kind of [ real behavior ]. But I think if I read it right, you said something along the lines that some of your competitors are actually doing worse. So is it changing sort of your outlook in terms of consolidation opportunities?

Joanna, this is Eric. I think we'll continue to be very excited about the pipeline. We have a lot in the pipeline right now. We closed about $25 million so far in the first quarter, a couple more in April as well. And it continues to build. It takes time to make sure that we have a win-win situation with the third, fourth, fifth generation families, but we continue to be excited about it, and I think it will be a good story the rest of the year. In terms of funeral volumes, we just have -- we have the CDC data like you do. We obviously have heard our vendors and other vendors and such.

And it sounds like that maybe we're a little bit better than what some of the other figures that are out there, including the CDC, probably a little bit better in January and February, which is out there in the public realm. So that's all we're saying. It's clear to us that this is not a SCI market share issue during the first quarter. We've definitely seen it before. But ultimately, these volumes, I don't think short term like this is going to affect the M&A program to come full circle back to the original part of your question. It's a long-term process with long-term relationships. We'll continue to work those long-term relationships, and we feel pretty good about what's ahead of us in terms of the pipeline.

Okay. Great. And if I may squeeze in a last one and sorry, going back to your outlook for the year. So just to make sure, right, you kind of talk about the funeral volumes worse, and I guess that comes with lower margins, but the cemetery better and then potentially, if this gets closer to like 6%, 7%, the gross profit margin would be even better. But your guidance range for your EPS is pretty wide. So is there something to be said about orienting us towards one end or the other of that range?

No, Joanna, I think, obviously, with funeral volumes the way they are, we didn't perform at a level we originally wanted to do. So it all kind of gets back to how much comes back in the back half of the year. And so we still feel comfortable about it. I think what you're saying is it is a large range. Right now, with the funeral volumes the way they are, you're probably more likely to be in the lower half of the range versus the higher, but we're not there yet because, again, if these volumes come back, if we continue the trends we're seeing in cemetery, we could push in the upper half of this, too.

So that's why we left it where it is. We honestly have a couple of different -- a variety of models and some of which if we get some funeral volume back, we can do really well this year. If you don't, clearly, you're going to be on the lower end of that range.

All right. So you're still standing by the -- by the range, right?

Standing by.

We have the next question from the line of A.J. Rice from UBS.

Just a couple of things to tie it all up. Just you mentioned a couple -- been asked a couple of times about the large sales. I know you've got a lot of initiatives in the cemetery side, sales and marketing initiatives. Do you think that there are any of those that are particularly directed toward the large sales so that this level of performance might be a more sustainable thing? Or is it still going to be more quarter-to-quarter volatility depending on what comes in, in any given quarter?

Yes. I think, A.J., a couple of things to answer that. And overall, let me just say it's a positive. I think the large sale concept, we now have in a lot more areas of the country. So we really -- obviously, Rose Hills and some of the California parks in Vancouver, we've had large sales for a long time. Now we continue to, I think, build even more spectacular properties that are higher level. I think what we find is as we build bigger and better things, you're surprised by the people that will buy them. So the average ticket will go up. And that's one way to drive your sales and then the other is velocity.

And one of the things we've done, particularly in the Asian communities and the Chinese and Vietnamese in particular, we take Qingming as an opportunity to present new inventory. I think we did Qingming in 3 markets, if you go back 10 years. And now, Jay, we probably do it in 30 markets across the country. So I do think there's a likelihood to have more consistency in these numbers. And so the only thing I caution, A.J., I think it's going to continue to grow. It's going to get better is you could have a quarter where it's down $10 million this quarter and then you're up $15 million next quarter. So I never get that excited about large sales. It's a little bit like Eric is talking about visibility on acquisitions. We know the pipeline. We know the discussions that are happening.

When someone is going to spend $5 million, $10 million, Jay knows about it, and he's telling me about it. So we're talking about it. And these aren't sales that happen in a day. They've got attorneys involved. They've got -- I want to design a particular building. So we're seeing the customers that are out there interested in our creative inventory, interested in personalizing it. And so that's why we feel highly confident. We've got more inventory on the ground to sell, and we're getting better and better at it, and we're doing it in more and more places. It's not just in California and Vancouver anymore. We're getting those sales in Missouri and obviously, Florida, North Carolina, Tennessee, Nevada, obviously, Texas, too. So just seeing it in more locations, more pockets and excited about the future and the things that we can continue to do in stretching the imagination. And I'd love to have a $20 million private sale one day, right? I mean it sounds incredible, but it will happen. Somebody will get it.

Yes. Yes. And then I appreciate Eric's comments on the trust fund earnings, returns and that dipped in the first quarter, but has rebounded early in the second. Is there anything -- I know that, that volatility in the trust fund returns tends to take a lot longer to show up in the results. Is there anything you're trying to signal with respect to the impact it may have had on the first quarter or positioning us for the second quarter to think about that? Or are you just making note of the fact that it's been volatile?

I mean more of the latter. It's a lot like predicting volume with what's going on in the world, A.J., right? I mean I think trust fund income will be somewhere between $300 million and $350 million, call it, $325 million at the midpoint. That's a pretty wide range for me to say 3 months into it, but that's the volatility that we all know that we have out there in the markets. But we're marking to market every month. So we're pushing stuff through every month. But the contracts have to mature out of that backlog that's mark-to-market is why it becomes a muted effect over a longer period of time.

Right. No, that makes sense. And then just an interesting comment you had, and I'm just wondering how much of an impact that's having? And is this just sort of an unusual thing in the quarter or not? You said that you had above inflation fixed cemetery maintenance cost. Sort of what's going on there? Was that just sort of a 1 quarter phenomenon? Or is there some level of incremental spend you're having to do on cemetery maintenance that's going to persist?

Well, I think we -- this is the category that's hardest. And again, it's very labor-intensive. You're talking about water, you're talking about fertilizers, you're talking about equipment. It's a big, big expense. Some of it's outsourced, some of it's in-sourced. And it just tends to be the one that's hardest to control. And also, I think it's a reflection of how does your park look. And for us, because we've got great cemetery sales, we've got all this high-end inventory, we're spending money to make it special. And so I'm not surprised by it.

It's just sometimes we'll manage to say cemetery maintenance could be 3% to 4%. Well, if it comes in at 5%, it's a little bit over, right? So that's the kind of thing, A.J. I wouldn't expect it to trend down or anything like that. But I think we're getting better at controllable buckets of that cost to where it will look more like inflation that's in the marketplace versus slightly ahead. So it's -- we're getting there.

We have the next question from the line of Parker Snure from Raymond James.

Yes. Just one more follow-up. Can you just remind us on the timing of Qingming and when that selling season kind of ends up flowing through your numbers? From my understanding, it's kind of late first quarter, early second quarter, but just how much was Qingming attributable to some of the preneed cemetery sales in the first quarter? And just kind of how do you expect that overall season to kind of play out?

It's usually late March and early April, Parker. So it actually crosses over the quarter. And it depends on -- each market has events for the community, community-facing events, and it kind of depends on when they plan it, to be honest with you, and where the end of the month lands. I don't think this was any out of the ordinary of a prior year or anything like that. I don't think it was a huge larger piece or a much smaller piece in the first quarter of '26 than the first quarter of '25. So I think it's just kind of right on pace. Tom's comment was more about that's a great opportunity to lay out your new larger sales though and your plans for that, which we utilize a lot across some of our larger cemeteries.

This concludes our question-and-answer session. I would now like to turn the conference over back to the SCI management for closing remarks.

Thank you, everybody, for the time today. We appreciate you. We look forward to talking to you with our second quarter results in July. Have a great week.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

All right. Thank you for coming to Service Corp. International, SCI. We have Aaron Foley. Senior Vice President, Treasurer; and this is Tomo Sano, mid-cap Analyst at JPMorgan.

So to set the stage, I wanted to highlight why SCI is here with us today. SCI is North America's largest provider of funeral and cemetery services, uniquely positioned to benefit from demographic tailwinds and robust preneed backlogs.

This scale brand and leadership and transformation towards a customer-centric experiences driven platform have delivered constant growth and strong free cash flow. That's one of the reasons we wanted to have you. So thank you, Aaron, to come to our conference. So kick things off. I think Aaron, it would be helpful to start with introductions of the SCI, who the company is, what you do and your story, please?

Sure. Thanks, Tomo, and thank you all for your time and yours as well. Aaron Foley, as you mentioned, SVP and Treasurer of SCI, have been here just over 18 years, actually came from Moody's Investors Service and started running our forecast and budgeting process at SCI and kind of just work my way up there, but kind of started at a very interesting time in the company's history and companies if you follow or understand the history of the company, it's grown through acquisitions. We went through a hyper acquisitive period during the 1990s, where at one point, we were in over 20 different countries with 4,500 locations.

We did so with no focus on return on invested capital. It was just trying to get as many acquisitions under our belt as possible. And we've all seen how that unfolds in one way or another. We came up with about $1 billion worth of debt coming due in the next 12 months with negative free cash flow. And so we had to make some tough decisions. We ultimately had to liquidate all of our assets in those other 20 different countries to remain solvent, if you will. But really, since 2002 to 2005, then changed out the management team, really integrated 40 years of acquisitions that had never been integrated. And to get our footing under us.

And really in 2005, kind of started the strategy that we're at now, following this 8% to 12% earnings growth framework, we did our first major acquisition after that time period and getting our feet under us in 2006 with Alderwoods, the next largest competitor. And so I was able to join right after that.

And over the last 18 years, really helped to manage the capital structure, help with acquisitions, larger acquisitions, financing those over that and get more involved in the Investor Relations world over the last 12 to 15 years.

Thank you, Aaron. So SCI has transformed from a traditional funeral and cemetery operator to our customer-centric experience-driven platform, with a focus on operational excellence and talent development. What have you been the most important culture or organizational changes driving this transformation?

I would say that the business itself really you should split between a funeral and cemetery business. And I would say, to some degree, it really hasn't changed fundamentally through this transitional period. The funeral industry is truly a caring and compassionate industry. People come in as a calling to help people in their toughest times of their lives, to manage through the death of a loved one.

Cemetery side rather, is really more of a sales-centric sales-focused type business. It's kind of a real estate play going out and selling individual lots of lands to our consumers. What I think we have come in and how we have changed the business is really through the scale that we have. Being able to leverage that scale to go out, we've got a 3,800 person sales force, go out and radiate into our competitor's backyard to build that backlog that we currently of $17 billion to drive the sales, continued cemetery property sales and go along on that front. As I mentioned, through the clustering approach that SCI has, we're able to go in and purchase caskets cheaper than anyone else.

We're able to centralize resources as it relates to processing the entirety of the stream of operations for the death care cycle as it occurs. And so we're able to do that. We're able to go in and really tier the cemetery property, as I'm sure we'll talk about later. We've got the capital to go in where a cemetery had been a homogenous, just lots throughout the cemetery. We're able to go in and really dig out holes and create lakefront property. We're able to parse out property and create private family estates, private mausoleums and create from that base level entry-level type inventory all the way up to very customized type inventory as well.

So we've got the capital to be able to do that. But also we've got the resources to cascade down from the very top, a very systemized and really consistent platform that we expect our employees to follow to ensure that we're able to maintain that customer-centric, that caring and compassionate approach to managing our business, but also taking advantage of the scale that we have.

Sure. And then how do you ensure the operational discipline if it comes to service quality and people-first culture remain embedded across such a large geographical like [indiscernible] network?

So I think I would say that the tone starts at the top with our CEO, Tom Ryan, cascading down to the President, Jay down to John, our Chief Operating Officer; Jerry, Head of Sales. But we've got a Dignity University as a platform, digital platform that we have that has tens of thousands of hours of online training that are available to our associates depending on their roles and responsibilities within the organization. They're required to take a certain curriculum of courses. And so we've got that requirement in place they follow to help create some of that consistency.

There's also reporting. As you would expect, we make sure that from an operational perspective, all of our locations have P&Ls. And so we track those P&Ls. We monitor them. We ensure with the breadth of our operations, where there are outliers, whether it be positive or negative, we understand what is going on at those outliers, and we target into those to give them assistance or learn from them, how they're doing things differentially better and how we can cascade that throughout the rest of our organization. We also monitor online Google Stars to make sure that the Google Star ratings for the locations where we see, again, the outliers, whether positive or negative, how we can go in and just make sure that we can manage those instances, particularly where we're seeing lower Google Stars.

As you know, in this type of industry or would expect, reputation is paramount and making sure that our reputation is true. Most of our locations, they really retained the name of the former owners on the side of the locations, but we do brand them as Dignity Memorial. Many of them as Dignity Memorial. So making sure that, that brand is upheld to a certain standard, and people know that when they come to one of our locations, what should expect from a service perspective.

You talk about branding and also the reputations, like to what are the key elements of your people power and talent retention strategies? And how do you maintain consistency and accountability across the 2,000-plus locations?

Yes, I'd say in addition to like that Dignity University, I was talking about and monitoring the Google Stars, we've also got internally a survey through historically had been great place to work. Now it's a we listen type survey that's performed through Workday. But we cascade that survey out to our 25,000 associates to better understand what we're doing well and what we may not be doing as well as an employer within the space. And so we will listen to all of that feedback. We will internalize it and try to figure out how can we make sure that we are doing the best that we can for the associates that we're working with. They are truly the lifeblood of our company, and they are the face of our company to make sure that, that reputation remains intact.

So we definitely are monitoring that and that that's being reacted to, if you will, something that we've done more tactically, more recently that I would point to, and Tom actually mentioned it on the call recently is in our sales force, a 3,800 person sales force. We've gone and shifted a portion of our compensation. The cash portion hasn't changed, what's generally getting paid out for each sale. But we're shifting from a very more heavily focused variable component to slightly more toward a fixed component of salary. And the reason why we're doing that is, we have noticed that as we've made some shifts in certain different states to a more fixed structure, that the counselors do have more of a retention. The turnover does get reduced. And when you see lower turnover within a sales organization, which historically do have large turnovers, they are more productive. They're able to explain the services and products that we're selling better to the consumers, and they're better able to transact.

But you're also -- we also noticed that we have a better quality of sale coming through, that there are fewer cancellations that come from counselors who've been on for a lot longer. And so we utilize those strategies. We try to figure out how to tweak tactically on the fringes to maximize the retention and ensure that we're managing the organization as well as we can.

And then moving to growth strategies. So SCI's strategy leverage demographic tailwinds, such as the aging baby boomer generation, robust preneed backlog and shift toward more personalized experience oriented services. So what are the main drivers to -- for a sustained revenue and margin growth as you convert pre-need to at-need contracts?

So as I mentioned earlier, we've got a $17 billion backlog of future revenue that's coming through that's a little over 4x future revenue. And you really kind of have to step back and split those between a trust contract and an insurance contract, particularly on the funeral side. On the cemetery side, it's really a 100% trust. And it's just the merchandise and service pre-need sales that are going into trust because the preneed property, which is really about 60% of our pre-need cemetery sales is really recognized at the time of time of purchase, so there's no need to trust those funds.

But what I would say is right now, we're probably about half and half between trust and insurance, when you combine our funeral and our cemetery businesses. And on the trust side, we've got exposure to market risk, the ups and downs of market risk. And we always like to mention that it's really a muted impact for current period, any current period market drivers because we're only recognizing and pulling those funds out of the trust funds when we are performing the service or providing the products. And historically, those contracts have been in our backlog for a little -- around 10 to 14 years. And so in any given year, where there is a decline in the markets or an increase in the markets, only those contracts that are maturing during that time are going to be impacted immediately, but they've also got 8 to 9 years of embedded returns that they've benefited from or detracted from over the last 10 years.

Usually, it's higher. We do have a 4% to 6% real return target on our trust funds that we've been able to exceed 70% of the time over the last 15 to 20 years. But we have market risk on the trust side. On the insurance side, we have credit risk with the preneed insurance provider that we work with. And so there's more stability there. We do garner a -- currently, it's about a mid-30% general agency commission on each of those sales that comes at the time of sale. And then over the time that those contracts are in the backlog, they're growing at about -- or creating about 1% per year of earnings on those. And so you've got these 2 different frameworks there for trust and insurance that are appealing out of the backlog as we provide these products and services. But specifically on the funeral side, what we do is we index our -- what's going into the backlog, our preneed average to our at-need average.

And what you'll notice is our -- what's going into the backlog is about 4% to 5% higher than what we're currently selling an at-need funeral contract for. And then on top of that, what's coming out of the backlog, benefiting from the insurance accretion, benefiting from trust returns, what's coming out of the backlog maturing is about 8% to 10% higher. And so us seeing that we're able to exceed what we're doing on a current period gives us confidence that our preneed strategy is working. If you were to see those be the opposite way, it would not be as comforting of an approach to be taking from a strategy perspective. So on top of watching that backlog peel out, we've also had to -- for the history of the company, manage our fixed cost structure. We do have a very high cost structure, so making sure that those stay at or below inflationary type trends are very important to ensuring as those preneed maturities occur, we have a managed cost structure. So the margins that are benefit the company has maximized as possible.

And then how do you see the balance evolving between traditional burial cremations and new memorialization offerings? What are the most important growth opportunities in the next 3 to 5 years?

Sure. So I'd say right now, we're probably as a company, 62%, 63% cremation. So I like to say we're already the largest cremation provider in North America. And I think we have effectively manage the transition that we've witnessed over the last 30 years from more focus on burial to cremation. It's historically been around 100 to 200 basis points of shift that has occurred over the last 20 to 30 years. We're starting to see that moderate some, where we've seen cremation mixes stabilize in other countries around the world, that seems to be around 75% to 80%.

So as we get closer to that full saturation point, if you will, you would expect that slope of increase to decline. And also, if you look at our top 15 markets or so that we operate in, there are several that are already at that saturation point. And so we've seen that 100 to 200 basis points of growth last year, it was closer to 50 basis points of growth. And I think that, that's going to ebb and flow some over the next several years as we do get closer to that. And -- but I think 50 to 100 basis points of growth is probably a fair expectation for change. Every 100 basis points of change is about a $13 million headwind to EBITDA on a $1.3 billion, $1.4 billion EBITDA company that's that's an impact, but I think it's a manageable impact. And to your point about how we are reacting and how we are evolving, the cost structure or a business that may have 80% cremation is much different than a business that may have only 30% cremation. You don't need as many people or necessarily as big of facilities.

So as we see these changes evolve over time, we manage our cost structure accordingly. And on top of that, I think you've also heard us talk more recently about how we're putting our shoulder more behind a cremation opportunity on the cemetery side. So when you think about our business of about 2,000 locations, 1,500 funeral homes, 500 cemeteries, there's an overlap of about 300 locations that we call combo locations where there is a funeral home that sits directly on a cemetery. And some of the metrics that we've looked at, say that about 1 out of every 4 cremation services that we do at those combo funeral locations gets incurred at our cemetery. Whether that's through a cremation niche opportunity, which is basically a glass front box that people can put their urns as well as keepsakes in, the family can come back and remember their loved ones. We have columbariums, where the urn can be effectively interred. We've got scatter gardens and such. But we think that people don't really know that, that opportunity necessarily exist out there for the cremated remains.

So we think that there may be an expectation or an impression that there remains just need to be taken home, that they may be left on the mantle for some time. But many times, they transition to a closet or something like that. And so if they knew that they had an opportunity to inter their loved one in a place that they could be remembered, we think that, that can be very much desired. And so we've started a strategy of really creating media and putting our shoulder behind it to see what this opportunity could grow to. Can that 25% that go into our current cemeteries currently? Could that grow to 30%, 35%, 40%? And again, we're at the very early innings. I can't say anything as it relates to what I expect the full impact of the company can be, but we're seeing some very promising results there.

And Aaron, I was impressed when I visited your Houston Memorial Park with the cemetery sometimes like over 2 million levels of offering that you have in the real estate. How do you plan to further unlock the value from your premium real estate portfolio and tiered cemetery inventory?

Sure. So we currently spend about $165 million every year call cemetery development CapEx. And that's where we go in and we'll look at our 500 cemeteries and see what inventory is available at these cemeteries and we will incur capital to develop sections of those cemeteries. We've got several thousand acres of undeveloped property and we'll either go through and develop that property or take existing property, develop property and put these private mausoleums on if there is a desire by our customer for that. And to your point, we've seen private mausoleums go for upwards of $5 million, $6 million, in some cases, from an inventory perspective.

So you're going to continue to see us spend that $165 million to develop inventory at our cemeteries as we see the consumer velocity come through and the desire come through. I think to, again, our 3,700, 3,800 sales force out there, giving them the tools, giving them the training necessary to continue to get in front of those consumers to truly champion, hey, this is -- this facility is where you want to come and remember your loved one. We've spent the capital to maintain these to be the most beautiful parks, we believe, in each of the cities that we operate in.

But what we're focusing on more tactically currently is focusing on increasing that headcount somewhat. We think that we've stabilized on a production per head count level. And we think that we can increase the number of head count while increasing production, not kind of reducing it across. So focusing on headcount, focusing on more seminars. We've kind of gotten away during COVID from doing as many seminars because, again, it's a gathering of people, eating food and advertising our products and services. And we're bringing those back. Those are some of our best leads that are out there. So increasing those more and we're seeing more impacts from doing that already. Working with some of our tools within our customer -- our CRM system to utilize more AI modules, to route the leads that we do receive. And if we expect them to be better type leads, those get routed to our better counselors to as quickly as possible, follow up on and make sure that we're able to convert that sale.

And then finally, the fourth thing and Tom mentioned these, was focus on large sales really getting out there and making sure that the community knows that, hey, you don't need to just have homogenous lot. You can come through, and we do have this customized inventory. And we do find that there are many customers who do want that. So just continuing to focus in on that and ensuring that our team are able to sail as effectively as possible.

You talked about CRM and think it's Beacon platform. How are digital investments are, I would say, AI investments in data analytics supporting both growth and margin expansions for SCI?

Yes, I'd say that because we have the scale to incur capital to develop these tools that I think we're able to differentially benefit from versus our competitors. We're able to, for example, at the pre-need facility, take a tablet in there and go through the entire sales process, showing all the products and services that we offer to -- for the consumer to consider. They may not take it all, but it's kind of a choose your own adventure type book. You can choose a cremation or choose burial. You choose burial, it shows all the burial options, choose cremation, all the cremation options.

And at the end of the process, what used to take a 3- to 4-hour type process of someone filling out by hand, all of the different selections that a consumer may desire, we've transitioned that to now a process that may take 1 to 1.5 hours. And so from a customer experience type perspective, it's much better. And we think that, that also enables us to be more competitive from a counselor perspective that if they know that they're not going to have to these processes, 3 to 4 hours to convert a sale, we're going to be the employer of choice in this industry from a sales counselor perspective.

So I think utilizing technology from that perspective, utilizing it even in the back office to make it more efficient. We've gone through and taken a process that may have had 80, 90, 100 different forms that needed to be filled out across the process from picking up the loved one through the final disposition, we've been able to kind of aggregate that into 40 or 50 type forms and try to prepopulate as many as possible with the data that consistently needs to be included in each of those forms. And so I think all of those efforts that we're taking are trying to make a more efficient back office, more efficient structure for our sales counselors and our frontline employees dealing with the -- and working with the families. I think like many companies, we're kind of at the early stages of scratching how AI can benefit the company.

Now there are a couple of places. We've already seen it, and it's not amazingly dramatic, but from an obituary writing perspective. A lot of those obituaries are currently written by our funeral directors. And historically, that may have been a 4- or 5-hour type process to truly thoughtfully sit down and write an obituary for someone's loved it. We can now take AI and take a conversation that we've had with the family to understand their loved one, what their loves were and put that into AI, and it can draft something really nice that can then just be tweaked. So something that used to take 5 or 6 hours now may take 30, 45 minutes. And so that's savings.

We're seeing it on building websites as well, where we may not have a ton of media for a specific of our 2,000 locations that we operate in. But to build a website, we can put into AI, say, "Hey, we're looking for dryer climate-type photos, look through our library of media that we locations that we already have photos and help us build out a website that truly represents what this location would look like from a customer experience perspective. So that's helped out. But I think there are further opportunities that we're evaluating in the back office. There's -- I don't think that there's going to be something transformational in our industry like potentially in other industries.

I think that people are going continue to want a caring and compassionate person to deal with in this industry. But I do think that from a financial analytics, financial processing type perspective, there are going to be more opportunities that we're continuing to explore and figuring out how we can best employ.

Thank you. So before I open up the questions, capital allocations and M&A, what are your criteria for evaluating M&A opportunities? And are there any specific geographies or service lines you're prioritizing?

I would say we -- as we've talked about the leveraging our scale dynamic, we truly try to find areas that are larger urban type markets, where we're able to get in and really use or share the usage of hearses, share funeral directors. The average funeral home in America may only do 100, 150 services per year. So you've got someone who's working for 1 day, but may just be waiting for something to happen the next 2. And so if you're able to cluster and leverage that scale, you're able to share cost a lot more effectively and maximize that margin.

I think that we've got that benefit that's helping us out in that regard and excuse me, the M&A. We also look at markets that the consumer appreciates and values our products and services. And where we've seen a lot of our growth recently is more in the traditional Hispanic and traditional Asian communities on the West Coast in South Texas and Florida. So those are going to be where we're going to want to focus on. We generally -- we don't have hard and fast rules of thumb, but generally, a location that does at least 150 services per year that at least $2 million in revenue. So looking at opportunities there. I think in the U.S. and Canada, we -- the larger consolidator opportunities aren't necessarily as great. A lot of the acquisition opportunities for the larger consolidators. We've sold them either locations that we didn't want or we were required to sell from an FTC perspective.

So to acquire those types of operations, I think we would ultimately be liquidating a lot of our existing or a lot of those locations that we couldn't ultimately have going forward. I think we're -- you've seen us spend more capital for growth perspective, filling out our footprint in areas where we may already have saturation, but we've seen the population shift or grow in one way or another. And we did that more recently in 2021 or so, we opened a cemetery on the west side of Houston. And historically, we haven't really opened cemeteries because of the cost of capital constraints associated, but we opened that cemetery. And within the first 2 years, we'd already achieved our year 7 or 8 projection of revenue turnover coming through.

And then actually just this week, we've now opened a funeral home on that cemetery. Usually, we have to have a certain amount of interments coming in per year on a cemetery before we'll consider building a funeral home on that cemetery. And it's just been so successful. We've decided to go ahead and accelerate that as well. So we've probably identified a handful of other geographies around the U.S. where we're going to be deploying capital to drive that growth.

Thank you. I would pause here if anyone has any questions from the audience. All right.

For the last a couple of questions, Aaron. Are there any aspects of SCI's business, such as your real estate portfolio, digital transformations and people first culture that you believe are underappreciated by investors?

I think it's been more of a near-term dynamic, but I think just the consistency and strength of our earnings and our cash flow. The last 3 or 4 years have been somewhat turbulent as we kind of went from $1.90 in 2019 of EPS, all the way up to $4.57 in 2022 with the impact of the COVID experience impacting our business. Now the last 3 years, we've seen an expected decline in volume that has been a headwind. We've also seen increases in interest rates that have been a headwind for many different companies.

We've seen an increase in tax rates as well as some of the 2017 Tax Cuts and Jobs Act dynamics have flowed through. And then we've also kind of intentionally derisked our business and had some business changes at SCI Direct, our nonfuneral home business, where we're now deferring earns that we had historically been delivering and recognizing at the time of sale. Now those will be recognized into the future. I think what may be missed is we've got all that behind us. I think 2026, we're kind of getting into a period of renewed growth, and we feel that we're confident that we're back in this 8% to 12% earnings growth framework.

When you look back from really 2005 when the management team really started the growth and 8% to 12% dynamic. We've been able to grow during that time by about 14% EPS growth. So above that 8% to 12% growth. I think that we're back. I think that people are kind of want to see that those dynamics are truly playing out and we're seeing that take place. But I think that that's an underappreciated aspect currently. I think that, that's -- as we continue through 2026 we'll see that come through. I think, too, that the $17 billion, $18 billion backlog that we have. Just the strength and consistency there as we believe that we're growing on the margins, we would be foolish to think that we're expanding market share with the entirety of our backlog. But I think we're expanding some market share on the margins. I think that that's underappreciated.

And I think that as we get closer to the baby boomer demographic impacting our industry, it could be the latter part of this decade is kind of what we expect. The oldest baby boomers are 80 years old this year. Usually, when you've reached an 80-year-old type age, it's about 82, 83, kind of the average age. I think that once we start seeing that impact our industry, that's going to be pretty strong and powerful.

Thank you, Aaron. Aaron, thank you very much, and thank you for everyone joining. So this is it. Thank you.

Thank you, Tomo. Thank you, everyone.

This is the 47th edition of this conference. My name is Parker Snure, health care service analyst here at Raymond James, and I'm pleased to be joined by the CFO of Service Corp., Eric Tanzberger.

I think Service Corp. has been coming to this conference ever since I was in elementary school, I think. Historically, you've had JR up here with you. We're going to switch it up this year. I think he would say that we're switching over to the A team. I think the jury is still out on that. I'll try to be as handsome and charming and quick with it as JR, but I can't promise that, but I'll try my best.

So, you're a well-known name, but I think just for people that are newer to the story, maybe just give a brief history lesson on the company. You have a long history some big changes. Maybe just kind of go through that and what got us to where we are today.

Sure, Parker. Thanks for having me. I anticipate that it's probably a good thing for me to put my bio that I got fired by Ransom, probably a badge of honor.

We are trying to figure it out. I think we've been here -- coming here for probably 26, 27 years. So it's been a while, and we appreciate you having us every year. It's a great conference for us and has been really efficient for us and effective as well.

Ultimately, the company, Service Corporate International, it's the largest in the funeral home and cemetery industry, about 2,000 locations in North America, just under 10% are in Canada. Everything else is concentrated in the United States, has a long history that goes back many years where we were in North of 20 countries. And it was an EPS accretive roll-up model that kind of stopped like a lot of those models do back in the late '90s. We took over as executive management in the early 2000s. And have really run a free cash flow-oriented return on investment type strategy. It's a great, stable cash flow stream with a growing business that is going to continue to get better grow and expand margins as the baby boomer generation affects this industry in the next coming few years.

In the meantime, we have a very active program with about 4,000 sales counselors where we're signing consumers up early, and they're actually funding it either through a trust product or an insurance product. That's built a $17 billion, $18 billion backlog for our company of future revenues that we're very, very excited about as it relates to the future.

In terms of the actual business itself and the properties, 1,500 of those 2,000 locations are funeral locations, they're generally is a very general statement concentrated in major metropolitan areas as opposed to rural areas and are targeting kind of middle to upper middle to upper spend categories as opposed to across the spectrum.

We do have a smaller direct cremation business, which is about $250 million of production -- preneed production a year and the big scheme of things. On the cemetery side, we have a tremendous network that's just not going to be able to be duplicated with about 500 very large cemeteries, and those cemeteries are in major metropolitan areas, and were really built or purchased decades ago, which allows us to have a network that you just can't duplicate. A lot of times, we'll have 500 acres, 1,000 acres in the center of larger metropolitan areas, which are just impossible to duplicate and really give us some really nice economics as we move forward.

The growth engine right now in the funeral segment is kind of flattish to slightly down type volumes. Obviously, we have a whole story going on with COVID there that we're pretty much through. Ultimately, the baby boomer generation will turn those same-store volumes into a positive situation, which will help us grow revenues. Right now we're growing revenues really from the ASP side, which are low single-digit percentage type growth from the average sale.

On the cemetery segment, a lot of what we're doing in the meantime is selling cemetery property itself, which are the lots and the lawn crypts and the mausoleum crypts and such that are able to be delivered in the near term, and therefore, recognize those revenues. And prior to COVID, we still had a very strong sales program, but now we're up to selling about $1.4 billion of preneed cemetery a year. So that's really been a nice growth driver, which caused that revenue stream to grow more low to mid-single digits.

And overall, our algorithm on an earnings per share basis has been about 8% to 12%. And from pre-COVID trailing 10 years, let's call it, 2019, trailing 10 years has been more of a 13% to 14% growth CAGR from a bottom line earnings per share perspective. COVID obviously created a situation where we performed an extra 130,000 funeral services over a 2-year period.

Our norm is about 350,000 and funeral services per year through our network just as a data point. And that's obviously come down, and now we're kind of more normalized levels. So that's how I -- big broad picture of the industry and our company, specifically.

Yes. Okay. Great. And like you mentioned, COVID was obviously a big event for the industry. You took that time to realize some synergies, take out some costs, rationalize your sales force. Maybe just talk about implement some technology. Maybe just talk about some of the big changes that happened in that period and some of the earnings growth and cost synergies that you're able to realize through that period?

Yes. There's really 2 things that happened. One was kind of consumer and 1 was kind of what we did from a technology perspective in terms of consumer-facing technology.

From the consumer perspective, there's a little bit of a fork in the road there for our funeral segment when -- during the lockdowns of COVID. And that situation, a consumer could have reacted in our marketplace is saying, I like the products, I need limited services, and that's how the business is going to move forward. That's not what happened.

What we saw is a consumer in the funeral part of our business that really wanted closure, wanted to celebrate the life of their loved one and really enjoyed and value the service component, which is the defensible component of our particular industry and our particular company. And that boat that could have gone in a different way and it didn't. And it was a very loud signal that we're very excited about and profound from our consumer during the COVID period, which is a great situation.

The other thing we did is we took the opportunity to really utilize technology for one thing we had to, right? During the lockdowns, if you're going to continue to preneed sales either the customer-facing application, which we built called Beacon, and you needed to get on Zoom calls, et cetera, et cetera, to continue that process. And what that allowed us to do is to build on that and just become really a lot more efficient than what we've ever been.

And we kind of came out of COVID with a sales force that was probably, instead of 4,300 sales, counselors came out about 3,800 sales counselors, but yet was dramatically producing higher levels of sales production. And that's something that we've continued to build on as we move forward. But a couple of big lessons that came through, but the great thing about our industry and our company, in particular, is ultimately, they are very positive signals as we move forward towards the baby boomer generation, that this is going to be a very nice, healthy situation in terms of revenue growth.

And Eric, I know you love talking about this topic, so I'll just kind of tee you up and let you run with this. But M&A is a big part of the story here. Maybe just talk about some of the changes that have happened in the M&A environment. You did some large deals looking back, Alderwoods and Stewart back in the kind of 2013, 2007 time period.

You had an FTC standstill that has been lifted. So that's kind of freed you up a little bit. So maybe just talk about how has the M&A environment changed over the recent time period? And I know private equity is trying to make a splash in the space, I think, a little bit. How has that maybe change that? And do you think they'll be successful or not?

Yes. I think we've done some larger consolidation. We built the company over many, many decades through consolidation, which included buying the #2 player a couple of times, as you mentioned, Parker. Ultimately, what has built this now from our company's perspective is a company that's -- the next largest is probably 10% of our size.

So there's not really a transformative type situation for us to continue to go through that would have a higher return on investment than what we're currently doing through the more mid-level type M&A, independent deals in large markets that I described or other opportunities for use of our capital, such as building locations, which is very lucrative, which we love and the share repurchase program as we started.

Just as a point of reference, we started this 25 -- 20 years ago with 340 million shares outstanding. Today, we have 140 million, just under 140 million shares outstanding. So we've almost bought back almost 60% of the company over that period of time. M&A is still very important to us. The guidance is last year, we spent about $100 million off of a $700 million free cash flow stream. And this year would be similar probably in our likelihood, we'd love for it to be higher. But what we want are major metropolitan areas, we want large independent businesses, cemeteries and funeral homes that are very much -- we'll have some -- not only be able to apply our national scale but be able to apply our local scale as well, which are taking a pre-synergy multiple of 8 to 10x EBITDA. And moving immediately down a turn with our purchasing power because of the scale and size of our company.

And then over the next year or 2, the first year or 2 of an acquisition, taking another turn of synergies out of it because of the sharing of resources and some of the revenue streams that we're able to create. Private equity is always something that has been in and out of the industry over a long period of time. There are some very successful companies right now that are Park Lawn and North Star and those type of companies that are owned by private equity that are great situations.

But ultimately, some of the private equity when they're entering the business and they're going into the more rural areas and some of the lower-volume smaller businesses, funeral homes or cemeteries, is just not where we're competing against in those situations.

So I wouldn't necessarily say that there is a big wave of competition for the type of M&A environment that we're in. What we really are doing is developing very good long-term relationships with respected independents that have great businesses. And it's a lot of times is the third, fourth, fifth generation families. And we want to have that relationship. We have tremendous liquidity to move very, very quickly, but we want to give them a chance to raise their hand and say I'm ready for a liquidity event and let's make that a win-win situation.

And the more we can make that a win-win situation with an independent family that's just going to be natural PR advertising for the next deal in the industry. And that's been the strategy. We'll continue that way during 2026.

And yes, like you've always talked about the timing of when these businesses come for sale, it's typically when there's a passing on of the business, it's the -- maybe the father and the mother that have run it, it's been in the family for multi-generations. And the new generation doesn't want to run it. It has the -- with the impending kind of demographic shift, has that changed that cadence at all? Are people maybe trying to hold on for a little bit longer? Or has that just been a nonfactor in your opinion?

No, I don't think it's moved the needle too much, to be honest with you. I think there's still tremendous independents that are out there that are contemplating that. I do think, frankly, COVID was hard on our industry, just like other industries as well. I mean people came out of that fatigued. And I think that may have been a little bit of a push to some degree.

But when you start getting to the type of businesses that we're attracted to, which are large independents and major metropolitan areas, those are the fourth, fifth generation, and it takes those family members to get on the same page and raise their hand at the same time. So maybe it hasn't happened as quickly as we thought. But I have to tell you, we continue to have those relationships. The pipeline is strong, the deals that are coming to fruition and the pipeline behind it through our relationships is just as strong.

So I'm very bullish on the M&A situation. And I'm also bullish that we have a significant amount of capital that will continue with our construction program. We're spending $60 million, $70 million, $80 million a year building new funeral homes building out in some events, to a lesser extent, cemeteries as well. But we get to pick exactly where they're going to be in those situations in the new markets that meet the growth parameters of where we really want to be, and we get to design that location perfectly the way we want it to be -- to allow that client family to celebrate the life of their loved one with the infrastructure that's needed to have that celebration of life.

Yes. Okay. And then just switching over to the preneed funeral side. The company went through a pretty large transition there over the last 1 to 2 years. maybe just level set us some of the big changes there as you change your insurance arrangement and also kind of move the SCI Direct business into an insurance model. maybe just level set us on some of the big changes that happened there? And how would you say that transition has progressed relative to your expectations?

Yes, I'll start at the top, maybe give you a waterfall and then answer your question. So preneed sales, cemetery and funeral is about $2.6 billion roughly about $1.4 billion of that is cemetery and about $1.2 billion of that is funeral. And of that $1.2 billion, I characterize it about $300 million is used in a trust-funded mechanism in those particular states, about $900 million is an insurance -- life insurance product.

And as Parker mentioned, we had a very long-term relationship with an insurance partner for an almost 20-plus years. And we put that out for a bid process and looked at some value opportunities and went with a new partner, which is called Global Atlantic, which is a wholly owned subsidiary of KKR. It's been a great relationship so far. But with any type of relationship when you're shifting from 20 years, it brings some complexity, some bumps in the road that were expected some that maybe were not expected to some degree.

We started that process in January -- excuse me, of July of '24. We're pretty much through that as we speak. It was new products. It was shifting some of our businesses, such as you mentioned, SCI Direct, which is about $250 million of that $900 million of production from the trust fund mechanism to the insurance. What does that mean? You need to get all your sales counselors licensed to sell insurance products in certain states.

The Global Atlantic insurance products could have been slightly different as well. And so all of that were some growing pains that we expected. Some of it was maybe a little bit choppier than what we expected. But generally, it was in line. with what we had. Where we've landed is a really nice economic opportunity for our company where the general agency revenue we're getting from Global Atlantic is probably in the mid-30% area of the face value of the contracts that we're selling where the previous situation was more in the high 20s.

And so it's going to be a really nice win-win situation as we move forward with this particular new situation. But yes, we did have some choppiness that we had to manage through. And for the most part, we've managed through it at this point.

Yes. And just to put some context around that, we had estimated that the whole transition in total with core SCI and SCI Direct was roughly $120 million, $130 million good guide of earnings, but you also had to go through the earned revenue that you were deferring. Now that's eventually going to come out of the backlog in 10 years whenever those contracts mature.

So just to give a sense of some of the benefit that the company had through that time period. And like you mentioned, the SCI Direct transition was a little choppy. I think the production has declined a bit. What's kind of your outlook on that recovering towards kind of, let's say, a pre-transition type level.

I think we're there. I think we're going to grow from here now. We made some operational strategic decisions as it relates to SCI Direct, where we used to deliver some merchandise and now we don't. And so that was a loss of a revenue stream that's only a timing issue. It's deferred when they need our products and services because an event has occurred in a family's life, we will then deliver that merchandise and be able to recognize those revenues out of that deferred backlog to offset that headwind, as I just described to you, was moving the SCI Direct production of $250 million to $300 million from trust to insurance to generate that general agency revenue to help wash that.

Did it occur perfectly in timing perfectly? No, it didn't. That's what you're referring to in terms of that. But it was a really good derisking strategy that we have done with the SCI Direct, it's generally behind us. It's generally stable at this point. And I think we're just going to start seeing that particular space that our company grow as we move forward in 2026 and beyond.

Yes. And then just moving over to the preneed cemetery side, that's a business that you guys have done a tremendous job of growing over the past decade or so. I look back, you guys in 2013, we're doing $560 million of production. This past year, you did about $1.4 billion. So about 2.5x in 10 years, so it's pretty good. Maybe just talk about some of the big stepping stones that you have kind of taken to kind of get to that point? And then just more on the forward-looking outlook. How do you think about that business going forward? And how do you think in just kind of context with the macroeconomic environment and how that might affect the consumer in that business because it is a large ticket kind of discretionary type purchase. And so just how are you thinking about business kind of going forward?

So a lot of pieces and parts of that question. You may have to remind me on parts of those as we move forward. But going back many years, we took a business that was selling an homogenous land product and turn it into a real estate play, meaning that we started tiering the cemeteries themselves with very high-end property call it, private family estate, semi-private family estates, we would build some lakes and make Lakefront property. I mean, truly kind of a real estate type play. That has been a very good positive situation for the growth of our preneed sales of our company.

The next thing that's happening as we get closer to the baby boomer generation is we're starting -- and also, this is a technology play as we got more efficient through our CRM systems as well to give our management team a tremendous amount of credit in the sales area is ultimately making ourselves more efficient and ultimately doing more with less through technology.

And that's been a component to the growth as we move forward in the cemetery as well. Volume is a component to this volume being the funeral services that are being performed sort of I'm referring to that. And I said before that it's generally flat to slightly down, call it, down 1% or so. When that starts being affected, that's probably 1 out of 2 lead sources. So when you look forward-looking, we're doing pretty well with some of the parameters that you just described in the growth from $600 million at 1 year, as you described to the $1.4 billion in preneed cemetery sales has been done in a flat to down volume environment, which is about half the lead sources.

So once we get the volume coming in as well, it's not only going to affect the funeral segment, it's going to be a natural lead source tailwind that's going to come through in the preneed cemetery sales component. We're very excited about that. And that's going to have a double bang for our buck as it affects cemetery just like it's going to affect the funeral segment as well.

Yes. And I've asked you a lot of maybe flattering questions. I'll ask you a little bit of a harder one. We track the CDC data pretty diligently. If you look over the last 2 years, your same-store funeral service volume has maybe underperformed the CDC data by a point or 2. What would -- in your view, what is driving that? What's the company's explanation for that?

When you look at our markets and you cut our data, the punch line is we feel very, very comfortable with our market share. But you have to cut it, 2 things out of that data. For 1 thing, when you refer to the CDC data, that's about north of 3,000 counties that's being reported, call it, 3,100, I think, somewhere in that ballpark counties.

We're in less than 500. We are not as a general statement in the rural areas of the United States is a very general statement. We are in certain places. But as a general statement, we're not. We're in just under 500 counties of 3,100 counties. So that's the first way you need to cut it. And as I said, we're in more urban areas, major branch metropolitan areas.

And if you go in and study that, you're going to find that there is different life expectancy characteristics in the access the major metropolitan areas have to health care as well as perhaps the wealth that exists as well. And those situations versus rural areas. So that's the kind of the first thing that you need to cut, make the cut, to make that make sense.

The second piece of the puzzle is what I just actually just kind of alluded to. When you go into our particular properties that we own. As a general statement, we are working with middle to upper middle to upper spend categories. And when you go back and look at that data and there's stuff out there in medical journals and stuff like that, but if you really look at it, you're looking at the upper spend and upper incomes in our country having life expectancy over a trailing many, many years, perhaps over a decade, expanded 2 to 3 years, whereas the lower spend and less income is generally flat.

And so those 2 situations are what you have to go through. You have to cut the 3,100 down to 500-ish counties and you have to go into the data, which is hard to do. You have to do it separately and say, what is the life expectancy increases that are occurring in the upper incomes of our country versus not. And that's going to essentially get you to a point that we are at when we look at that on a market-by-market basis that we're very comfortable with where we are in our volume.

Ultimately, though, what is differential is the size of our backlog, the penetration of our backlog, that $17 billion to $18 billion that we have of consumers that have signed up and have funded their prearrangements. That I do think maybe a differential share opportunity as that comes to fruition over the next to 10 years as baby boomers start affecting , et cetera, et cetera.

Yes, securing future market share.

That's right.

And I got to ask this question because it seems like all that people want to talk about nowadays. But AI, does that have any place to play in this industry? I know during the COVID period, you rolled out some very modern technology like Zoom and DocuSign and Salesforce. So but does AI have a place to play in this industry? Are there ways that Service Corp. is layering that in across your company?

Yes. I think what we really did is we used contemporary ways to present the products and services to the funeral and cemetery consumer. And ultimately, we'll continue to do that, and we'll continue to make that better. The place where AI can affect -- look, it can affect any industry and any company and it will, including our company and including our industry.

Is it going to be a complete metamorphosis game changer? I guess it's possible, but I don't know where that would be if you pin me down right now, and I had to try to predict that or explain that.

So I won't have like an AI virtual assistant running my funeral service in the future. You're saying that's not going to happen?

It's possible, but I think people want to visit with licensed funeral directors has been our experience that understand what the offerings are. But it's possible that, that could have some component, but that would be a good ways from now at that time.

Right now, where it's affecting us are places like where can we be more efficient. We're in the fixed cost structure can we be more efficient and utilize AI from an FTE perspective, both in the field as well as from a corporate perspective.

And then ultimately, how can we get better and have another jump in efficiency in our preneed programs like we did during COVID utilizing technology, and that's where I think it will introduce itself. When you start getting into our CRM systems and you start saying, how can we move our lead to sale rates? How can we start smoothing out some of the friction in our sales funnels?

That's where we -- that's a large initiative for us, not only starting in 2025, but also in 2026. And I think AI is going to be a component of it. And I think A&I is going to be more of a component of it than what we even thought last year. And I think that's exciting. And I think it will have an efficiency play for us at SCI and perhaps the industry, but certainly at our company.

Okay? So we have about 1.5 minutes. So I'll ask about some more near-term trends. certainly, everyone knows about the winter storms that have been rolling across the country over the first quarter. What has the company seen there? Have you noticed any impact in the first quarter? And would you see that impact more on the kind of atneed funeral services? Or would that affect some of your preneed selling activities? And just what have you seen there?

Yes. We really haven't seen anything material in either segment. I think that was a temporary thing. And when things happen over a temporary basis, maybe it defers some things a few days or a few weeks, but it comes back. So when you think of the '26 guidance, if we're going to talk short term for a second, we're pretty excited about where we are growing in that algorithm, 8% to 12%. It's going to be -- the guidance is somewhere around 9%. I think there's a -- I think we're starting off with the toughest comp, as we said very publicly with first quarter of last year being up almost 2% in terms of volumes.

But we'll overcome that as the other 3 quarters come in. I think we feel very good about '26. Most importantly, long term, with our $17 billion, $18 billion backlog in the undeniable demographics that are going to affect this industry I think we feel very, very positive for a company that has $700 million of free cash flow with about 120% conversion rate. And I think we feel very comfortable in the meantime, continuing to do M&A, shrinking the equity to make the company more valuable as the baby boomer generation comes to fruition in a few years from now.

All right. I think that's all the time we have. We'll head to breakout. Thank you.

Good day, and welcome to the SCI Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions]

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 Bocage. AVP of Treasury and Investor Relations. I'd like to welcome everyone to our fourth 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 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.

I will now turn the call over to Tom Ryan, Chairman and CEO.

Thank you, Trey. Hello, everyone, and thank you for joining us today on the call. 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. I will then close with some thoughts about our 2026 business and financial outlook.

For the fourth quarter, we generated adjusted earnings per share of $1.14 and which was an 8% increase compared to $1.06 in the prior year. We saw moderate increases in revenues and gross profit in both the funeral and cemetery segments driven by strength in comparable and noncomparable operations as well as slightly lower adjusted corporate, general and administrative expense which, when combined, resulted in $0.04 of earnings per share growth from operating income.

Below the line, the favorable impact of a lower share count contributed an additional $0.04 of earnings per share growth. For the year, we generated adjusted earnings per share of $3.85, which was a 9% increase compared to $3.53 in the prior year. We saw solid increases in revenue, gross profit and comparable margin percentages in both the funeral and cemetery segments contributing $0.26 to adjusted earnings per share growth from operating income.

Below the line, the favorable impact of a lower share count and slightly lower interest expense was somewhat negated by a higher effective tax rate, resulting in a net $0.06 favorable impact on earnings per share growth for the year. If the effective tax rate had remained constant, we would have had an additional $0.07 in earnings per share for the year resulting in $3.92 or 11% earnings per share growth over the prior year.

Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenues increased $3 million or just less than 1% over the prior year quarter as growth in core and non-funeral home revenue was somewhat negated by lower core general agency revenue. Comparable core funeral revenue increased by $6 million or just more than 1%, primarily due to a healthy 3.2% growth in the core average revenue per service.

This core average growth was achieved despite a modest increase of 30 basis points in the core commission rate. The favorable impact from the average revenue per service growth was muted by a 1.9% decrease in core funeral services performed for the quarter. For the full year 2025, comparable funeral volume declined less than 1% as we believe the impact of the COVID pull-forward effect continues to diminish.

Non-funeral home revenue increased by $3 million primarily due to a more than 11% increase in the average revenue per service. We expect this impressive growth in the average revenue per service to continue as older preneed contracts that are maturing out of our backlog have higher cumulative trust earnings and more recent preneed contracts written will mature with higher value in the backlog due to our operational decision to no longer deliver preneed merchandise at the time of sale.

Non-funeral home preneed sales revenue increased over $2 million or more than 11%, as increased sales production with a higher percentage underwritten on insurance-funded preneed contracts generated more than an $8 million increase in general agency revenue. This was partially offset by a $6 million reduction in revenue recognized from merchandise deliveries in the prior year quarter.

Core general agency and other revenue declined by $8 million or almost 13%, primarily due to a lower general agency commission rate versus the prior year quarter that was impacted by changes in product mix and higher cancellations resulting from the impact of our insurance partner transition. We believe the general agency commission rate to be stabilized now in the mid-30s percentage range moving forward.

Funeral gross profit declined by almost $4 million, while the gross profit percentage declined by 70 basis points to just about 21%. A modest increase in revenue was more than offset by a $5 million increase in recognized selling compensation costs. While the cash rate expended for selling costs was flat versus the prior year, recognized selling costs increased for both the core and non-funeral home segments. For core, we have shifted our sales counselor compensation to more fixed versus variable, resulting in less being deferred for preneed trust sales production.

On the SCI Direct front, our conversion from trust-funded products to insurance-funded products compels the immediate recognition of the general agency commission and the related selling costs. This has the effect of replacing high-margin merchandise revenues in the prior year with lower margin general agency commissions, therefore, putting downward pressure on SCI Direct's margins as we compare to the prior periods.

The team managed fixed cost growth to less than 1% for the quarter, which had the effect of moderating the impact of the recognized selling cost increase. Preneed sales production increased by $29 million or about 11% over the fourth quarter of 2024. Core preneed funeral sales production increased by $25 million or 12%. Non-funeral home preneed sales production increased by over $4 million or 8% over the prior year quarter.

We feel great about our momentum in both channels, now having had the time to work out the kinks 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 cemetery. Comparable cemetery revenue increased by $5 million or about 1%, primarily [indiscernible] in core revenue, the core revenue decline was primarily due to a $3 million decline in atneed revenue. Total recognized preneed revenue was essentially flat as a $6 million increase in preneed merchandise and service revenue was offset by a $6 million decline in recognized preneed property revenue.

Preneed merchandise and service sales production was up $15 million over the prior year number, growing the preneed sales backlog by over $9 million. Other revenue was higher by $8 million compared to the prior year quarter primarily from an increase in Endowment Care Trust Fund income. Comparable preneed cemetery sales production increased by $8 million or about 2%.

Core sales accounted for a $13 million sales production increase powered by impressive velocity growth, which was slightly offset by a $5 million decline in large property sales, which was comparing against a very strong prior year large property sale quarter. For the full year 2025, preneed cemetery sales production grew by about 4%. We feel very good about the momentum our team carries into 2026.

Cemetery gross profit in the quarter grew by $5 million or about 3% and the gross profit percentage increased by 70 basis points, generating an operating margin percentage over 36%. While recognized revenue growth was 1%, high-margin trust income was slightly offset by lesser margin core revenue declines. And when combined with our team managing fixed cost growth slightly higher than 1%, this resulted in gross profit growth and margin percentage expansion.

Now let's shift to a discussion about our outlook for 2026. As you saw in our earnings release, we provided a normalized earnings per share range of $4.05 to $4.35 for 2026 or a midpoint of $4.20. The 2026 range is 5% to 13% growth with a 9% growth at the midpoint. Within our funeral segment, we expect flat to slightly down funeral volume compared to 2025 with the average revenue per case growing at inflationary rates, slight negated by the effect of a modest cremation mix increase.

We do expect to see higher general agency revenue from increased preneed sales production as well as slightly higher selling costs recognized, not cash, from the effect of the shift to a higher percentage of fixed compensation that does not get deferred.

Finally, we believe we can continue managing fixed costs slightly below inflationary levels with higher productivity, which all in, should drive profit growth for the funeral segment, increasing the gross market percentage by 20 to 60 basis points. We expect preneed funeral production for both the core and SCI Direct businesses to grow in the low to mid-single-digit percentage range.

For the cemetery segment, we anticipate that we can grow preneed cemetery sales production in the low to mid-single-digit percentage range, resulting in cemetery revenue growth of about 2% to 5%. This, combined with our continued focus on managing inflationary costs should result in impressive segment profit dollar growth, expanding our gross margin percentages by 30 to 60 basis points as compared to 2025.

Below the line, we expect a net favorable impact on earnings per share as the positive effect of a lower share count is slightly offset by higher interest expense and a slightly higher tax rate as compared to 2025. For our shareholders, know that we are laser-focused on growing you're a great company as best we can for the long term, growing revenues, leveraging our scale and deploying capital to its highest and best use.

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 will now turn it over to Eric.

Thank you, Tom. Good morning, everybody. Thanks for joining us today. Before I begin, I'm going to continue Tom's last thought and I want to take a moment to really sincerely thank our more than 25,000 associates at SCI across our entire network. Your dedication, your compassion, your commitment to excellence truly make a difference each and every day. We are deeply grateful for the care you provide the families we are honored to serve and the positive impact to continue to have and the communities that we are lucky enough to serve.

So today, I'm going to start by reviewing our cash flow results and capital investments for the fourth quarter followed by a recap of our full year performance in '25. After that, I'll provide an outlook for our 2026 cash flow and capital investments, and I'll conclude with an update on our overall very positive financial position.

So in the fourth quarter, we generated strong adjusted operating cash flow of $213 million. This exceeded the high end of our most recent guidance range for the quarter. Compared to the prior year, neutralizing for an expected $21 million increase in cash taxes, our adjusted operating cash flow decreased $34 million. So breaking this down a little further, adjusted operating cash flow was positively impacted by higher adjusted operating income of $8 million, highlighting the strength in our underlying funeral and cemetery operations during the quarter. However, cash interest was higher by $24 million, primarily due to the timing of a lower interest in the prior year quarter due to the bond financing and reduction of our drawn bank credit facility that we completed in September of 2024.

Additionally, during the quarter, with a net $18 million use of other working capital, primarily due to the timing of payroll funded in the current year quarter. For the year, for the full year, we finished 2025 with impressive adjusted operating cash flow of $966 million. Compared to 2024, when you exclude cash taxes and special items in both years, 2025 cash provided by operating activities increased an impressive $108 million or 11%. So going back to the fourth quarter, we invested $174 million of capital into our funeral homes and cemeteries, new growth opportunities, business acquisitions and real estate, all of which resulted in our full year capital investment in these categories of $508 million.

So in the quarter, we invested $107 million of maintenance capital back into our current businesses with $47 million allocated to high return in cemetery development projects, $51 million into our funeral and cemetery locations and $8 million into our digital strategy and other corporate investments.

For the full year, we invested a total of $328 million in maintenance CapEx, slightly below prior year and ahead of the high end of our guidance range. We dedicated a portion of the strong cash flow from operations during the fourth quarter towards reinvestment into the maintenance of our funeral homes to improve the customer event experience and into cemetery development, creating new tiered options for our customers.

We also invested $31 million of growth capital in the quarter towards the construction of new funeral homes, the expansion of existing funeral homes as well as the purchase of real estate for future new build and expansion opportunities. This brought total 2025 growth capital to $79 million, which is down about $25 million from 2024, which was anticipated.

So turning to acquisitions. We invested $36 million into business acquisitions in the fourth quarter and in locations in North Carolina, Arizona, Florida and Canada. In total, we finished the year with $101 million of acquisition spend, which was in the middle of our annual guidance target of $75 million to $125 million. We are really thrilled about these high-quality funeral homes and cemeteries joining our company, and we're happy to welcome all of these new associates to our SCI family.

So moving on to capital distributions. We returned $107 million of capital to shareholders in the quarter through $59 million of share repurchases and $48 million of dividends. We repurchased just under 1 million shares during the quarter at an average price of about $79 per share. For the year, we returned $645 million to shareholders through $461 million of share repurchases and $184 million of dividends, bringing the number of shares outstanding today to just under 140 million shares.

Subsequent to year-end, we repurchased another 500,000 shares for about a $40 million investment at an average price of about $80 per share. So before we get into our 2026 outlook, I want to make a brief comment about our corporate G&A expense during the quarter. Corporate G&A expense increased $19 million over the prior year quarter to $34 million. This was primarily a result of the prior year quarter having benefited from the reduction of a legal reserve of about $20 million.

So when you exclude this prior year impact, G&A expenses actually declined about $1 million quarter-over-quarter. And as we look forward to next year, 2026, I should say, we expect that corporate G&A expense will average around $40 million to $42 million per quarter with, again, a reminder that this rate could be impacted one way or the other by the timing of our accruals related to our short-term and long-term compensation plans.

So shifting now to outlook for cash flow. As you saw disclosed in the press release, our 2026 adjusted operating cash flow guidance range consists of a $60 million range from about $1.0 billion to $1.06 billion. Excuse me, the midpoint of this range assumes the following: we expect our cash earnings at the midpoint of our EPS guidance range to grow about $70 million, reflecting growth in our underlying funeral and cemetery operations.

Cash taxes are actually expected to decline by about $20 million, which will result in $120 million of cash taxes as the impact of higher expected earnings on cash taxes are being more than offset by an anticipated tax benefit from an investment in renewal energy projects. As we look beyond 2026, though, we anticipate returning to a normalized cash tax rate of about 24% to 25%, absent additional tax planning strategies or regulatory additional changes.

From an effective tax rate perspective on our income statement, we expect 2026 to really trend in line with 2025, which is about a 25% to 26% effective tax rate. And then lastly, we expect a modest decrease in cash paid for interest this year due to higher average balances being more than offset by lower rates. So now let's talk about capital investment in 2026. We expect maintenance CapEx in 2026 to be about $325 million, which is generally in line and flat with the levels we incurred in 2025.

Of this target spend, we expect to invest $135 million into improving our funeral homes and cemeteries, $165 million into cemetery development projects with high rates of return and $25 million into our digital strategy investments and other corporate investments. We expect to invest again an additional $75 million to $125 million towards acquisitions, which is in line with kind of the annual acquisition spend target we've had in the last couple of years.

In addition to the maintenance CapEx and acquisition spend targets, we also plan to spend roughly $70 million to $80 million of growth capital on a new funeral home construction and real estate opportunities, which together drive low to mid-teen after-tax internal rates of return.

Finally, as has been our strategy for many years, we continue -- we plan to continue returning capital to our shareholders through dividends and our share repurchase program in a very consistent and disciplined manner, absent other higher return investment opportunities. So in closing, I'd like to provide some commentary about our current liquidity and our financial position.

I'd first like to note that in November, we entered into a new $2.5 billion bank credit facility, which consists of a funded $750 million term loan and a $1.7 billion revolving credit facility both now maturing in November of 2030. This transaction increased our liquidity by over $350 million and our current liquidity today is about $1.7 billion. Our leverage ended 2025 generally in line with prior year-end just above 3.65x, which is at the lower end of our long-term net debt-to-EBITDA leverage target range of 3.5x to 4x.

So our strong balance sheet, this enhanced liquidity position that I just mentioned, and consistent and predictable cash flows continue to support our capital deployment program, which gives us remarkable flexibility as we enter 2026 to invest opportunistically for the long-term benefit of SCI, our associates and our shareholders.

So with that, operator, this concludes our prepared remarks. And so I'm now going to turn it back to you to open the call for questions.

[Operator Instructions] Our first question comes from Joanna Gajuk from Bank of America.

So first, on the cemetery preneed sales production, it sounds like you expect low to mid-single-digit growth for '26. So can you kind of break down your assumptions in there for the large sales versus the core? I mean, it sounds like in Q4 large sales decline year-over-year because of the comp, but it sounds like the number must have been good so if you can give us a sense of the magnitude of the amount for the year for '25? And then what do you assume for '26, I guess?

Sure, Joanna. Thank you. So on that, you're right. In the fourth quarter, we were slightly down comparing against a tougher number. I think for the year, we're slightly up around 2% or so on the large sales, maybe 3 for year-over-year. And as we think about next year, I'd tell you, I feel very confident about the momentum we carry into 2026. We feel really good about our start and both on the large sale and on the core sales.

So I think, again, as you think about large sales, it's always really hard to predict, as you can imagine. But think of that as being slightly lower, so maybe a 2% to 3% increase there and then maybe a more robust increase as you think about the core customer. But as you well know, large sales are tough to predict. It could be -- that's the piece that can be a little bit volatile to the upside. And in times of stress may be something that isn't there.

If I may, in the, I guess, current period, any indications, how things are tracking so far this year, [indiscernible] in your broad field location and maybe elsewhere, if you can comment any disruption to the sales process and such because of the -- some winter storms in some of the markets.

Yes, we continue to see very positive trends on both preneed cemetery sales and on funeral sales. We've had a real focus. Our sales team is really focused around 3 things this year, and this plays a little bit into something we've talked about. We've shifted more compensation to fix from variable that we talked a little bit about in my comments. And that was a strategic decision to focus on people power, focus on retention of our key employees by giving them the stability of that higher guaranteed pay.

So the 4 things we're working on are people power are: call it, people retention, we believe if we can increase the number of preneed seminars that are out there, it's going to increase the number of good leads. And then once we have those leads, a real focus on the lead to sale rate, which is really the conversion of the leads. And then finally, really focused big time on large sales, making sure we have the inventory, making sure that we've the presentations right, that we're finding people that could be customers in this category. So those 4 things really drive our sales, and we're laser-focused. Jay has got everybody laser-focused on those things, and we're seeing great results. We're seeing both at the high end and at the core level on funeral and cemetery.

Any color on [ royalty ] activity so far?

Well, again, I don't want to give percentages, but as you think about January, two things to keep in mind. One is funeral volume last year was pretty strong. So we're comparing against a pretty tough number. We've not seen -- it's been a bit sluggish when you think about volume. But on the sales side, we're seeing tremendous out-of-the-gate results, both on funeral and cemetery, particularly cemetery. But again, one month is not a year make. So we're excited about it. We love -- I think the team is focused on the right things, and we feel very good about our opportunities for 2026.

First case, last one, I guess, staying on the cemetery side. Can you talk a little bit more about the opportunities to grow cementery for cremation customers. So you noted the shift to cremation is slowing down, but it's 65% of services are cremations. And I guess you kind of talk last time about opportunities to grow cemetery, I guess, sales for the cremation customers. So can you give us an update of where things there on kind of what are your goals for this year?

Sure, Joanna. We actually have piloted in a few markets now in the process of rolling out to more a specific focus on that cremation consumer. And some of that is putting videos into our locations that can show the opportunities to the cremation customer and just making it more visible to our visitors and to the clients that we're serving.

So, yes, we're doing a lot of things as it relates to media and the like to create that awareness and hopefully drive some opportunities in that market. I'd say early days, we feel very good about it. And it's going to take a while to roll it out to the entire network, but we're in the beginnings of doing that now and are excited about the results to come.

Next, we have A.J. Rice with UBS.

First of all, just on the comments that Eric made on G&A. You explained the 4Q's impact. But I think your 4Q of '24, the comp. But 4Q of '25, you're only at about $34 million. I think we had been thinking being more like $38 million to $40 million based on the third quarter call. What drove the better performance on G&A?

Two things, really, A.J. The first one is that we have short-term and long-term ICP accruals, and this is primarily a long-term situation, an LTIP situation. And just to remind you, we have some performance units that get compared to the S&P MidCap 400. And that's going to move quarter-to-quarter, which is what I was trying to say during my conference call remarks. Sometimes you have a $2 million, $3 million, $4 million headwind and sometimes you have a $2 million, $3 million, $4 million tailwind. And that's what occurred during the fourth quarter.

Absent that kind of volatility on LTIP, you should see a $40-ish, $42 million-ish per quarter G&A expense as we move forward. That's kind of the middle-of-the-road expectations as we move forward. The other thing that can move it that you kind of have seen us talk about in the last few quarters, sometimes you have some positives and negatives related to some of the insurance being self-insured. This primarily could be Workers' Comp, sometimes general liabilities, sometimes auto liability, sometimes even the health care accruals. Generally, those aren't moving as much as we've seen kind of the LTIP accruals move in. But any of those at any point in time can do that, and we'll explain that to you. But in terms of modeling, I think I'm pretty comfortable with that $40 million to $42 million a quarter right now.

Okay. When you think about the changeover toward more insurance, you've got -- you've called out commission normalization and then you also talk about the impact of SCI Direct. Are we pretty much going to have more straightforward going forward? And what are the implications on the commission run rate? It sounds like it's a little lower in the back half of '25%. Do we have to annualize that in the first half of '26 or something else and then SCI Direct going forward from here, it sounds like the restructuring of that is done, and we should have more normalized trends, but I just want to make sure of that.

Yes, that's correct, A.J. Answering the SCI Direct piece, we are 100% implemented in having the insurance product in those markets. There will still be some trust sales because some people aren't insurable. But I would say over 90% of the sales are going to be insurance and therefore, generate a commission and generate the associated selling costs. So as we think about SCI Direct, it's going to trend in a positive direction year-over-year and it's been a while since that's happened. So we're excited about it.

On the other commission front, as you think about selling costs and you look at the -- what we talked about -- when you looked at funeral, remember, we had 11% preneed sales production growth. So part of our selling cost increase is the fact that we're selling a lot more that's driving that cost up. We also saw a slight bit of transition to a fixed cost plan that I mentioned before as opposed to variable. And so as you think about the trust product that we sell, not the insurance, less is getting deferred and more is getting recognized. No cash increase, just the type of compensation that occurs. And yes, I think as you think about SCI Direct, like I said, positive from here as you think about trend wise.

Okay. And you also called out -- I think this may be the second straight quarter of the improvement in velocity you're seeing in the cemetery production area. Can you just maybe drill down a little bit more about what you're seeing there and what's driving that and what might implications of that be?

Yes. I think I do a lot of that's back to those 4 metrics or particularly the first 3, having won the aim to try to have higher retention of our good people and getting them quality leads and then really focusing on the training to take that lead and convert it to a sale. And so as I think about our success in being able to do that and focusing on those types of things, we're seeing, again, trends that we really like. And so we are seeing velocity drive our success as we think about the core cemetery sales.

So I just attribute that to focus. You mentioned the cremation consumer before. We are seeing a higher lift of people, cremation consumers choosing to buy into our cemeteries. So all those cumulatively bode very well as we think about cemetery production going forward.

Our next question comes from Tobey Sommer with Truist.

I was wondering if you could talk about the drivers of lower than inflation expense growth that's pretty impressive, particularly if you think that your ability to achieve that has legs?

Sure. Some of the things that are happening within the current year 2025 is our focus on the products that we sell. And the things that we're selling, the types of products we sell, we were buying from. And so our supply chain team, led by Michael Johnson have done a lot of great things as we think about the products that we retail to consumers and how we price those and how, again, where -- what types of products we're buying and selling. .

So we've seen on that really on the merchandising cost side, some enhancements as we think about it. The other thing that I think is probably the most powerful and it gets back to kind of labor efficiency, so we utilize -- we empower our operators really to proactively managing staffing levels and giving them the tools to do it as you think about overtime, part-time roles, they're using metrics. They've got daily dashboards. And so what it allows us to do with those labor efficiency metrics is manage that, and then as a team, we're taking best practices and sharing those across the entire portfolio.

So think of it that way, and then at the very top, we've got a cross-functional margin improvement committee that's been in place for a number of years now that really focus on dissemination of these best practices. So we think we've got a pretty good grip as we think about, volumes aren't as high as we thought they were. We're going to manage the variable cost, particularly around staffing. So really a testament to our great operations management team and how they're utilizing those tools to manage costs effectively.

So would you say that you think that this sort of spread could be achieved beyond 2026? Or take it one year at a time at this stage?

I think it's kind of a one year at a time. I do believe that's true, but it kind of gets back to volume, right? If we begin to see volumes ticking up, it becomes a little more complicated as you think about staffing costs. You're going to see some rises in that because, again, these are variable costs. But at the same time, I think it really allows us in the challenging volume periods to manage costs as low as you see us do it. But I'd expect those to get trend back up as volumes begin to increase as we anticipate over the coming years.

If I could sneak one more in from an acquisition perspective, you closed out the year and right down the fairway for your total capital deployed. When you look at the pipeline, is there any change in the composition such that something might be a little bit bigger this year?

I think we're seeing a similar type pipeline, Tobey. I think we're very excited about it. As I've said before, it's generally going to be more of larger independent type transactions that are both funeral and cemetery. And the best that we could do in those situations were places that we already exist and already have local scale. And that's the best of both opportunities for our company as well as those independent funeral homes that are decided to join our company, and we can continue the great service and the way they're treating their consumer in those markets that we are already in and guarantee that really. But the pipeline is good.

The pipeline is healthy. We're very busy. I think I've been saying that for a couple of quarters now. And I think I'm going to still say the same thing. I think it's pretty good and pretty busy, and we're excited about it.

Our next question comes from Tomohiko Sano with JPMorgan Chase.

This is Tom from JPMorgan. Could you talk about the plans for developing selling premium cemetery inventory and your outlook for recognition rates? And could you talk about how do you view price elasticity as well, please?

We're going to deploy capital, which is the first part of your question, similar to last year, which our metric right now is about $165 million of very high return on opportunities. As you're describing as you saw Memorial [indiscernible] your tour we're going to invest in tiered type inventory at each of our cemeteries that are going to give offerings all the way to the higher end in terms of families that want like private estates and such, then you go all the way down to the semiprivate areas, and then you get to some of the initial more lower-tier type offerings. I think that it continues, coupled with our sales force to be the best value opportunity that we can get and the highest return opportunities we can get for that type of capital.

In terms of the cemeteries themselves, there's relatively high barriers to entry. We're very lucky to have this 35,000 acres that we had that were built over many, many decades by really the founder of this company over a long period of time where metropolitan areas have grown around these cemeteries, but yet we still have a tremendous amount of capacity in years left within these cemeteries. What you saw in Memorial Oaks, which Houston has now grown out and surrounded still has many years left, many decades left in terms of inventory.

For those of you on the call have been to Rose Hill, that's a similar situation where L.A. has grown around it and many years left in that. So we're very lucky to have it. We have good barriers to entry. We're going to price it based on the tiering effect and type the value proposition that exists that we've always had. We feel that there's a lot of opportunity with a strong cemetery consumer, especially as the demographics over the long term turn our way over a period of time.

Very helpful. Just one follow-up on the M&A pipeline in 2026. Could you talk about prioritization for expansion, especially what drove the recent acquisition in locations of North Carolina, Arizona, Florida and Canada? And are you continuing to target these locations or more broader-based in mandate?

No. It's going to continue to be, as I said, we want to be in markets that we already exist in as the first stack ranking because we already have -- we carry the national scale anywhere that we're buying. But when we already have that local scale, it can really make 2 plus 2 equal 5, so to speak, when we have these larger really nice independents joining our company. So we'll continue to know we have a broad base across the United States. We also have a wonderful business in Canada really from anchored in the west all the way over to the East, especially in Toronto.

And you'll continue to -- for us to develop very long-term relationships with a valuable pipeline that we have with those relationships and as those individual businesses and their owners and their families kind of raised their hand and are interested in discussing the next step and discussing liquidity event, we have the advantage of having tremendous liquidity and speed and really making it a win-win situation with our independent partners.

Our next question comes from Parker Snure with Raymond James.

Just wanted to drill down on the GA revenue in the funeral segment a little bit more. With your core preneed funeral production up 12%, but the GA commissions were down just a bit. Maybe just talk us through some of the drivers there. I know there were some comments on the commission rate. I know you previously made some comments on a Flex product that comes in with lower commission, maybe just drill down on some of the dynamics driving that.

Sure, Parker. I'll take that. So as you think about the timing of all this, the fourth quarter of 2024, we're relatively new into the new contract with our new insurance partner. And so at the time, we're really hesitant to talk about what we think the rate is going to be because there are so many factors that play into that. Any kind of new plans going to have new pricing, new learning, new forms, new processes, new rules. So there's just a lot of change management engaging in there.

So the two things I mentioned on the call, Parker, were product. And so as you think about that, you rightly pointed out that we opened up the flex product in the mid part of 2025 that we didn't offer at the end of '24. So some of this is we're offering a flex product with a dramatically lower commission rate than the traditional insurance. That's a little piece. Another one is kind of what we call early payoffs. You try to predict who's going to sign up for these things and then pay off within a year, with the early payoff rates slightly higher, and that again would drive it down.

The other factor is, if someone pays a single pay upfront versus a multi-pay over time, there's different commission rates there. So we're trying to predict how many people are going to buy a single pay, how many people are going to buy a multi-pay. So those are the 3 things that kind of impacted the product piece. And then the other thing we mentioned was cancellation rate.

And again, two things there. One is you've got cancellation rate from the old insurance provider in that business. And we saw an increase of older contracts from the previous supplier that, again, kind of happens from time to time and is it as predictable. And I don't think that's going to continue at those rates.

And then finally, we're seeing a slightly higher cancellation rate than we used to experience with the previous insurance provider. I would attribute that to, again, the new plan learning. We're learning how what are the points where customers are frustrated with processes, rules, forms. And so I think we'll get better at that as time goes on.

So we came out and said, let's look for kind of a mid-30s type of percentage rate going forward. We think that's probably a fair way to think about it as you model '26, '27. Hopefully, we'll get a little better over time at some of these things like cancellation. But we're very comfortable that now we're in a place that we understand it. and we should try to improve from here.

Okay. Great. That's super helpful. And yes, just a follow-up on that. On the -- it sounds like there was almost like a bad debt accrual for the cancellation rate is maybe if you could just help us like give us a number for the magnitude of that? And is that expected to be a onetime item? Or is that going to be kind of an ongoing accrual that's constantly flowing through the numbers?

Well, I think it's -- like you said, the cancellation rate experience we're having is a little higher than we thought, which requires us to under -- when you're making estimations to catch up. So maybe think about 200 bps as being the impact of catching up this quarter, which again, we've factored into going forward, what we think about 2026. So as you model, I'd just go back to that kind of mid-30s and that would encompass any catch-up that we think we need to have. .

And like I said, I hope operationally over time, and I believe this is true, we're going to get better at this because there's typically a reason. And again, this gets back to new product forms, processes, people, us getting used to them. So I expect this over a period of time to get better. It's just the part of change management that's tough. But look, at the end of the day, we've got a better product for our customers. We're generating higher commission rates. So we're very, very pleased with our partnership and expect it to continue to trend to the positive.

Yes, absolutely. Understood. And then just if I can squeeze in one more. On the Perpetual Care Trust, that was up $8 million year-over-year. I think for the full year, it's up about $16 million. Maybe just help us with what is expected in your guidance for 2026 for Perpetual Care Trust revenue? And maybe just remind us on the accounting treatment of how that portfolio is accounted for?

Yes. We had a great year across all the trust funds, as you saw Parker, at a 15% return. We normally expect and model kind of about half that, kind of about a 7%-ish type market return in the trust funds. That's true for the Internal Care Funds just like it's true for the MST funds. The Internal Care Fund is really split into two components. One is a prudent person approach, which is the same 60% equity, 30% fixed income, 10% alternatives type mix that you would expect from that type of portfolio.

There's still though a few states in the Internal Care Fund, which don't follow that method and primarily are invested in fixed income securities. When that occurs, when there are gains or losses from those portfolios, that flow through that particular line. The issue was not during the fourth quarter of '25, but in the fourth quarter of '24, we had a liquidation related to a portfolio manager, and that created a $4 million, $5 million, $6 million loss that came through. So it's not that the portfolio looks so much better than last year is that last year was pressured by that particular event in the Internal Care Funds.

Our next question comes from Scott Schneeberger, with Oppenheimer.

I have probably a total of three questions. I'm going to ask the first two upfront. We heard a lot about the flu in the fourth quarter, certainly carry over into the first quarter. But funeral volumes were pretty light in the fourth quarter. Just kind of curious what you're seeing on the flu front. And then the second part of the question is the guide for 2026 on funeral volumes, flat to slightly down. When are we going to see that? I mean that's kind of been the trend, but is there a conservatism in there? Or is that the trend? I was thinking we might be seeing that start to improve a bit. So just thoughts on those.

You bet, Scott. So as it relates to flu, you're correct. We did -- you hear about the cases. I think as it relates to creating funeral volume that we're not seeing any of that. We're not hearing any of that. And as we think about trends in volume, it's probably good to take a step back for a second. So we know that the COVID impact occurred. We knew that we were going to have the COVID pull-forward effect, and we've modeled that. And we think we've got a little bit of diminishment there, but less year-over-year.

The other thing just to point out that we don't talk about as much, but you'll recall us talking about it during COVID, was the term excess deaths. And what did that mean? And we said that was kind of the ripple effect of COVID. We saw increases in drug overdose, suicide, traffic fatalities, murders, lack of cancer screenings. And so we couldn't explain this excess volume that has occurred even beyond COVID. And I think as you look at the statistics now, and this is a positive for us as a society, I think goodness, right, drug overdose down, suicide down, traffic fatalities down, murders down, cancer screenings back to levels, and you're seeing deaths from cancer trend down.

So as you look at the national data and again, it's not perfect, as a country, volumes were down in 2024. Preliminary '25, they're down. So I think what we're going through is a little bit of a trying to normalize out of this strange period. The other thing that we do is we go back and look at the CAGR of the 2019 numbers.

So if you go back and look at pre-COVID and you said, let's expect volumes to increase 1% over the next few years. If you do that and look at our current volumes, you'd be very pleased about where we stand. As you think about market share, as you think about demographics, so it's very confusing, and I understand why it is. It's frustrating for us sometimes, too. And look, we're paranoid. We're going to fight for volume for market share.

Are there markets we could do better as you think of cremation pricing? Maybe and we're doing that every day and trying to fix it. But I think if you really take a step back and do the compounded impact of '19, you feel very good about the volumes that we're experiencing today. We still believe the demographics of this business, just the pure aging of society is going to have an impact, and it's just challenging to understand exactly when you're going to be able to see that. It isn't being clouded by some of these other trends. But again, we're going to manage our costs. We're ready to take care of that.

On the good news front, so as I think about '26, yes, we think it's probably going to be flat to slightly down. January is a little soft, as we mentioned earlier, but we'd expect it to trend back towards flat. I think as you get out to '27, '28, '29, we expect to see funeral volumes increase is the way our models are working. So we think we're close. We're poised and ready to do it. I'd say on the positive front, on the cemetery side, we're seeing a lot of great things in our sales activity, both in large sales and in core. So still feeling good about '26, volumes could be slightly down to flat, like we said.

Great. Appreciate that color, Tom. And then the last question, it kind of dovetails off all that. The guide for 2026 EPS is growth of 5% to 13%. That certainly encompasses your 8% to 12% midpoint kind of in the bottom half of that. It feels about right, but just curious what has you concerned that, that could put you at the lower end? What are the drivers that could put you up at the higher end or above?

Yes. So I think at the lower end right now, I think we think that would be continued soft funeral volumes. If we saw volumes that came in at down and down, let's say, 200 basis points or something, that's tough to overcome. If we get flat, I think we feel very good about the higher end because, again, what we're seeing in our through the windshield is a lot of sales activity and feeling really, really good about it.

I think we feel good about SCI Direct trending the other direction. I think we feel good about our arms around the expense category. So to me, the part that would put you challenging to the lower end would be a continued year-over-year decline in volumes. And again, we're going to do everything we can to push you towards the higher end of that EPS guidance. But that's probably the most difficult one for us to overcome if it's not there.

This concludes our question-and-answer session. I would like to turn the conference back over to SCI management for any closing remarks.

We want to thank everybody for being on the call today. We look forward to speaking to you again soon. I guess, next call will be at the end of April. So everybody be safe out there. Thanks again.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Thanks for joining us for our next presentation.

Obviously, Service Corp. International has joined us here at the conference for many years. I always appreciate it back to Tom and Eric joining us and so forth. And Aaron Foley is with us today, Senior Vice President with Service Corp.

Aaron, I just thought we'd start off, if we could, just maybe framing kind of the outlook and you obviously put a very good numbers recently. Can you just mind frame the 2 lines of business and kind of the drivers?

Definitely. Thanks, Larry. and good morning, everyone.

Yes, on the 2 lines of business, obviously, we've got the funeral and the cemetery segments. They've continued to perform strongly. Obviously, we've gone through the COVID pandemic, which threw some wrenches into the predictability of our businesses. But I think that the funeral perspective, it seems that the volumes have normalized to a strong degree. Averages continue to remain strong. They've been inflationary type average increases on the funeral side over the past several decades, and we've kind of seen that -- have seen that play through even during the higher inflationary periods that we saw back in 2022, 2023.

Cemetery side has continue to be strong as well. We -- as I know that we'll talk about later, have a dynamic within our pre-need cemetery sales that has large sale dynamics but a core consumer dynamic as well. The large sales can be lumpy in nature but the core business that we term as contracts below $80,000 of spend have remained strong. And over the last 2 quarters, really, we've seen growth in both the velocity of contracts sold as well as the average of contracts sold. So the trends have been going very strong over the last several quarters.

And what is -- you talked about large sales. I mean what is it about large sales? I think they were up high teens in the quarter within preneed.

Yes.

What is -- why all of a sudden the trajectory and growth and kind of focus on the large sales?

Well, as I mentioned, large sales can be very lumpy. And so when you look at the last year quarterly cadence, the first and fourth quarter were our strongest quarters. The second and third were weaker. And so we kind of knew coming into the year where our headwinds and where our tailwinds were going to be. And so the first quarter, we saw kind of a headwind on that large sale. But the second and third, we've seen strength. And I'd say that the fourth, we're expecting some headwinds as well, assuming just kind of a normalized kind of a straight-line perspective.

Now what these large sales are, these are families who are coming in who basically are saying, look, they want a private family estate or private family mausoleum that may take many weeks, months, if not quarters, to matriculate through planning and design and ultimately getting a contract in place and signed. And so we've got several going at any given time and how many actually close during that given quarter can vary.

And some people have tried to correlate that with either equity or fixed income markets and how the individual portfolio might be transpiring. But in 2022, when we saw the worst combined equity and fixed income market, that was one of our strongest large sale years that we'd ever had. Others try to correlate it with the real estate market and how well that is performing. And -- but it's just hard to truly target exactly what's driving it. But those large sales make up about 10% to 15% of our total cemetery preneed sales. And we've got teams out there that are constantly driving and trying to grow that.

It doesn't require any unique infrastructure, though.

No. I mean...

Unique deployment of capital at large sales. It's just within kind of your organic.

Well, when you think about our maintenance capital, $160 million of that is to the development of cemetery property. And it includes the tiering to create maybe lawn crip gardens that can be several hundred spaces. It can be community-type mausoleums where many different families, but then a portion of that can as well go to some of these large sale opportunities where you may have a mausoleum that's built just for a family with 8 spaces, let's say.

Right. Okay. Just stepping back a bit, and thank you for that. Where is -- is COVID, obviously, it created a bolus ups and basically, it's been a headwind, obviously, in the last few years. Is that, I don't say, behind us? Or what's your thoughts today about the COVID? Has it normalized now? Is that in the rearview -- fully in the rearview now?

Yes. I mean I kind of think that the dynamics are going to constantly be there. Even when you look at death rates today, a decent chunk of people continue to pass from COVID. So I think it's going to be just part of the baseline death rate that's going to occur. Now the escalation of deaths that we saw during the 2020, 2021, 2022 type periods, those obviously pulled forward deaths from more acutely over the next few years but are going to be -- there's going to be an impact of that over the next several decades as well because they're 40-, 50-, 60-year-olds who passed through complications with COVID that might not had COVID not been around.

And so you've got those dynamics that kind of go into the blender. You've got the excess death dynamics where people during COVID didn't get treated for medical care such as cancer screenings. There was an increase in suicides, drug overdoses, alcoholism. I think where we stand today, it seems that, that has all kind of normalized out. We -- leading up to COVID, we were in 2018, '19, kind of a flattish volume trend. We've been kind of negative as we experienced that dearth of birth type period from the Great Depression but got to that flattish type period. And then obviously, COVID threw a wrench and everything.

As we began our 2025 planning, we came out of this expectation after having seen in '22, a decline of volume of 6% in '23, 4% in '24, we were down 2.5%. We expected 2025 to be about flat to slightly down. And this is probably getting into more numbers than you want. But what we did was we took our January through December seasonality for 2017, '18 and '19 and average those and said, based on our expectation of that slight decline in 2025, how do we expect the cadence -- monthly cadence to transpire for 2025. And for the most part, we've been really close this year. There have been some months we're above, some months that we're below.

So seeing all those trends together kind of gives me some heart to say, I feel like we're kind of at this normalized trend now for volume. And as we look forward and kind of as we've talked about over the last couple of weeks, we haven't given '26 guidance yet, but volumes likely our expectation is going to be in that flattish type of...

Flattish. It will be flattish. And that kind of -- it's pretty much consistent with what we had pre-COVID...

Yes, I'd say...

Kind of 50 basis point headwind kind of pre-COVID.

Yes. When I -- you're exactly right. We kind of have that. I'd say that when you think about we put in terms of an earnings growth framework of 8% to 12%, 5% to 7% of that comes from our base business. And on the funeral side, that really assumes a flattish volume and then low single-digit increase in average, driving basically a low single-digit growth in revenue, fixed cost structure increasing, so maintaining a flat margin percentage, slight increase in margin dollars but flat margin percentage. On the cemetery side, that's an expectation in that algorithm of a mid-single-digit type growth in preneed production.

The recognition rate is probably around 95%. That's going to drive a low to mid-single-digit growth in the top line, again, fixed cost growing. So both margin dollars and we would expect margin percentage to increase 50 to 70 basis points in that algorithm. So I think broadly, and again, we'll finalize this in February. That's generally the framework that we expect as we look forward to next year.

And [indiscernible] you're saying mid-single digit is kind of the growth metric for cemetery.

Correct. That's the only aspect of our business that we can really drive. On the funeral side, most of the earnings and cash flow is driven by death rate. And so until we start seeing an impact from the baby boomer demographic that is driving volume, which ultimately will drive an increase in our top line, you're really going to see stable margins until then when we start seeing growing margin.

Can you speak to market share? I mean you're currently growing market share but it's not necessarily -- you can't really put a number on it per se.

Yes. I mean the way that we look at market share is really looking at it by revenue. And so we're right now about 17% to 18% by revenue market share for the total deathcare business that we operate. I'd say 12% to 13% on the funeral side and then about 27%, 28% on the cemetery side. And we drive organic growth of that number as well as we can, obviously, through our preneed sales force on the cemetery side. And then on the funeral side, constantly trying to remain relevant to the consumer, making sure that we're providing the products and services that people are looking for in managing this end-of-life experience and just trying to ensure that we're able to execute to drive that.

Okay. Does -- if your investment in preneed, do you ever consider moving that dial in terms of investing more to bump it above your growth rate above the mid-single-digit rate?

Yes. I think we're constantly trying to figure out what we can do to try to drive that. At the end of the day, we've got about 3,700, 3,800 counselors that are out there. So determining does it make sense for us to increase that headcount. Would that help drive preneed production growth? Do we work with Salesforce, our CRM system, and we work with their modules to make sure that we're driving those leads as well as we can, acting on those leads as well as we can, routing them to the best counselors to be able to drive that. Our marketing team is driving analytics and research to try to make sure that we're targeting the proper consumers who truly would benefit from our products and services and then training, just ensuring that the teams have the tools and the training that they need to get in front of the consumer, explain what our value proposition is and ultimately close that sale.

And so we're going to be constantly trying to figure out how can we grow that preneed, how can we manage cost, and that's kind of the same playbook that we've kind of been following for the last 20, 30 years.

Yes. Yes. And analytics, I might as well ask this but we were talking about it before and it seems to be topical like does the deployment of AI at any point, is that a cost measure, cost opportunity for you presumably at a point in time? Or is it still kind of too early to see how this evolves?

I think it's kind of early for a lot of people that are out there. I think we're all excited about it and excited to see what opportunities we might be able to have on it. A few real examples that I have is actually with obituaries and writing obituaries. Funeral directors would sit down with families, get a feel for who the individual was and maybe take 3 to 4 hours to craft a really nice obituary. What that funeral director can now do is, again, sit down with that family, get the information, kind of populate artificial intelligence platform, generate an obituary in seconds that then can be tweaked and it really reduces the funeral director's time focused on that, which is great because then they can focus on other aspects of providing service to that consumer.

We do on the sales force side, work with Salesforce employing different modules to -- that utilize artificial intelligence to help again go through routing those leads. You may have a counselor who does much better with direct mail type leads versus another counselor who does a lot better with seminar type leads that we've had lunches and such. And so it can more automatically do that. It can generate e-mails to say to upper levels of their managers to say, look, this counselors is not doing what they need to do to do that. But at the end of the day, I think we're just scratching the surface, for example, in our FP&A type teams, just trying to figure out how can we utilize the data at our fingertips to improve the analytics, improve the fluctuation analysis and give us a better perspective for forecasting and modeling out what we'd like to do.

And I think there are going to be a lot of use cases that we just need to wrap our heads around and make sure we've got the right people in the room to figure out how to manage through that.

Manage the efficiency of it. Okay. The cremation mix, I know it's kind of been all over the place a little bit, even though in the past, you've always been -- again, looking back at historic trends, it always kind of been this 100 basis points a year or thereabouts headwind but it seems to have changed recently. Is that fair to say?

Yes. Really, to your point, for the last 20, 30 years, we've seen this kind of consistent rise in cremation from that 100 to 150. Today, as we sit, we're probably 57%, 58% cremation mix in our core business. Last year, we saw us closer to maybe a 50 to 70 basis points of shift. And I think we thought that was too early for us to call to say, look, we're in this new world, a new paradigm of cremation mix. But as we've kind of transpired through 2025, I think we're kind of shifting that perspective that now that 100 to 150 is dropping to 50 to 100 basis points of shift. Where you see that really come through is on the sales average, that low single-digit growth in sales average with a lower cremation mix, you're going to see a little bit more beneficial sales average there. And every 1% shift, holding all else equal, is about a $13 million impact to EBITDA. So you should expect maybe a $6 million kind of tailwind.

Each 100 basis points to $13 million.

That's right. That's right.

And that's really in the pricing metric.

Yes. That's exactly right. And where we stand at this 58% or so type cremation mix, when we've looked at other kind of Western cultures where the cremation mix has seemed to stabilize, that's around that 70% to 80% type range. And so as we get closer to that, you would expect that, that slope should start moderating. But then when you look at a lot of the cities and urban areas that we do operate in the top 10 or 15, there's a good chunk of those that are already kind of at or near that 70% to 80% type range. And so we're expecting less of a pressure from that front going forward.

Okay. You're saying -- you had mentioned, I'm circling back now but I had a question in my notes about, you had very strong gross margin in cemetery side this quarter. And you had mentioned that you could garner maybe 50, 50-plus basis points on cemetery segment going forward. How are you getting to those margin gains in that segment like what drives that? Is that just I don't know, more counselors or is it more focus on the preneed side or...

At the end of the day, it's true preneed, the counselors, the tools, the effectiveness, executing there because you really do need top line growth in both the funeral and cemetery segment because of their fixed cost structures to be able to drive that margin expansion. And as I mentioned, cemetery, we've got a lot more flexibility or ability to drive that because of the preneed nature of the cemetery business. And so that's really -- if you look over the last 15 to 20 years, we've taken the cemetery margins from close to 17%, 18% to where they're at now at 33% type level.

On the funeral side, we've really kind of been constant around that 19% to 20% type range with the new marketing agreement with Global Atlantic that's driving general agency revenue on the funeral side for funeral preneed sales. That's helped get the funeral margins closer to that 21% type level. And really until we start seeing more growth in that top line on the funeral side, you're going to see us probably around that 21% level. But once we start seeing that volume growth, which we, at this point, kind of expect toward the latter part of this decade for the baby boomer demographic to begin impacting our industry more strongly.

I think you're going to see that flattish type volume that I mentioned probably grow to 1% to 2%. And when you add that on top of a low single-digit growth in average, you're going to see that low to mid- maybe single-digit growth in the funeral top line similar to cemetery that then that 21% should grow as well until the bolus of that demographic kind of comes through the industry, which likely would be toward the latter part of 2030, early 2040.

How is it that, that contract translated, if I could ask the mechanics of how that contract translated.

Are you talking about the marketing agreement?

Yes?

So these marketing agreements are put in place for about a 10-year type period. And we've been working with TruStage American Memorial Life for really 30 years. We'd own them and then sold them about 20 to 30 years ago. And -- the latest contract was coming due in June '24. So we started an RFP process in mid-'23. And if you recall, that was really when interest rates were close to their zenith. And insurance companies are regulatorily required to invest in a bulk of fixed income type securities. And so going through the RFP process, the economic pie because of that interest scenario and dynamic had increased. And so we were able to negotiate much more favorable economic terms really with the incumbent as well as other firms that were out there. But Global Atlantic at the end of the day, just put forth the best proposition for us.

And so we were able to drive historically close to 26%, 27% type general agency commission percentage for each insurance contract that we would sell. Fast forward to this new marketing agreement, that's closer to 35% to 36%, and that's really with no cost. And so we're able to get that completely coming through and hitting the bottom line. That went into effect really in July of 2024. We lapped it in June of 2025. And so now we're kind of at this new base to grow from as we expand our funeral preneed sales.

Yes. Okay. That's great. Any questions in the audience?

Just one. I'm kind of curious on the cemetery. What drives the decision when you're having the discussion? I'm kind of curious, is it more legacy decisions like one, you talked about Family Trust and develop this compound, which it seems to me like, I mean, the cremation shift, I was surprised here it's only 50 to 100 bps or thinking about that going forward. Is it more of a legacy or a religious impact? And sort of what -- is there anything unique to the demographics? Is there a demographic shift as to who's -- who the key purchases are on the cemetery side in terms of demographics, religious other?

Yes, sure. I mean I think we're kind of talking about a burial versus cremation sort of dynamic. And you do see a secular trend that has been transpiring for the last several decades. That's part of it. Part of it is Americas more transient society. So you may be born and grown up in Florida but ended up moving to Texas or up to New York. And so you have less of a desire to kind of have maybe a single resting spot, if you will. But that being said, there's still a big part of our communities that students do still desire burial. A lot of our Hispanic consumer, a lot of our Asian consumers still really appreciate burial, determines on geography in the Southeast, you're going to see a lot more burials happening there as well.

And so I think there are a lot of factors that go into play on the cemetery side and what drives a burial. But I think what's potentially misunderstood as well is even though we are shifting to more of a cremation type business or society on the funeral side, that doesn't mean you don't want a memorial service that people don't want an event to remember the life of that loved one. We're still performing full service cremation and determining by what that family may want, what type of event, you may have some cremation services that will exceed the cost of a burial service just based on how big of a service they may want.

Similar type dynamic is on the cemetery side. Already about 25% of our cemetery sales are to cremation consumers. We've got what we term cremation niches, which are really glass front boxes that can be open, put the urns in with pictures and other keepsakes that people can come back to remember. We've got scatter gardens. We've got cremation columnbariums as well that people can have a place to memorialize if they would like to come back.

And so it's a constantly -- it's evolving, not rapidly evolving, but it is an evolving type industry. We do on both the funeral and now that more recently, the cemetery side, we've started every 5 years do customer segmentation studies to just try to understand what consumers are looking for, what they want and how that's evolving to make sure we can remain relevant.

And just as a quick follow-up on that, you mentioned the Family Trust, is there really a price sensitivity when you're dealing with the Family Trust on the large purchase? It seems to me like that with the, I don't know, increasing demographic shifts between haves and have-nots, it seems like, oh, why not have a family thing and leave this legacy behind with the family? Is there much price sensitivity in that demographic?

Well, one, I would say, when you think about the demographics, particularly on the cemetery side that we're serving, it is the middle, upper middle and upper income demographics that our cemeteries generally serve. And what you find too is these families are coming in and they're wanting to buy something that is special to them. We custom build in those types of scenarios, inventory that is catered exactly to their needs. And so we've really put our shoulder behind this 20, 25 years ago. I was in a meeting earlier. And we historically have just sold homogenous plots.

But what we ended up doing was saying, well, up in, let's say, the Northwest, if let's say, Bill Gates came into one of our cemeteries, what would you want to offer Bill Gates? And well, this $10,000, $20,000 lot. It's like, well, don't you think you'd want something more customized, more special. And we went through and we built a $750,000, $1 million mausoleum, a spec mausoleum and people laughed and said, no one's going to buy that. It's just going to sit there forever. And within a matter of weeks, it was sold. And so we've really kind of understood where our cemeteries are located, what the demographics, what people desire, and we'll go through and either build lots to create value to them.

But one other thing I'd like to point out is when you think of our 500 cemeteries, they're really in the middle of these mostly urban areas. They can't be replicated. So you've got the scarcity factor, you've got inflation factor, and then you've got this tiering factor that we've been deploying capital to tier our cemeteries. That really drives a lot of the pricing that we're seeing on that front.

Just a quick one. I think there had been some concern that when pricing goes on the Internet, it could be -- your prices might come under pressure. I think that was seen in some other countries potentially. And I think there's an FTC report or some government report that's going to come out that might force that. I think you've kind of begun to transition into putting your pricing online. I forget the percentage of funeral homes that's there but I think it's above a majority. Can you kind of go into that, maybe when the report is to come out and when that requirement might start?

Sure. So the FTC has about 40 different rules that it really kind of -- industries that it manages to. And one of those, of course, is the death care industry. And they're supposed to review that rule once every 10 years. It was put into place in 1986 and at the end of the day, requires that the general price list be provided to every consumer. And the latest review began back in really 2018, 2019 kind of time frame, right before COVID. And at the end of the day, the drive was, to your point, to get pricing to be put online because under the perspectives of some driving that, we're saying that at the end of the day, the funeral business is just a commodity and just get the pricing out there, it kind of misses that like weddings, funeral services can be all across the board.

But as it stands today, the last kind of movement on that was really October 2023. And obviously, with the recent change in the administration, that just seems to put it into a little bit more limbo, and we're just really getting even closer to that next 10-year review type period. And when you step back, this isn't the biggest burning platform that's out there. The latest data that I have is from 2022, and the death care industry drove about 1,500 complaints that the FTC received out of the 6 million in total.

So I think that there are other larger fish that they've got out there to fry. But as you noted, we do have about 70% to 80% of our locations currently that have some form of pricing online. Our marketing team has really been working to test out different approaches to figure out what's the best way to get our pricing out there. And what we find is getting the pricing out there has had a negligible really impact on either the volume or the average, and we've actually seen some positive dynamics of lead generation where people have gone on, seen it and said, "Hey, we'd like to be reached out to about a potential preneed plan."

Any plan to increase that, I think it's been about the same [indiscernible] a year or so?

Yes. I mean we're evaluating it. I mean, at the end of the day, I think that if the FTC does come through and say, hey, get pricing online everywhere, we're going to be able to do that. I think that some of our competitors may have some technical issues with being able to do that. But I think our perspective is we don't really feel that the federal government should be kind of stipulating how we are marketing to our consumers. And so we may continue down that path, but we're going to just take it methodically and drive the way that we see fit.

I think we're in that point. I think we're out of time. Thank you, Aaron.

Thank you, Larry. Thank you all. Really appreciate it.

Good morning, everyone. Thanks for attending. Yes, Aaron Foley have been with SCI for about 18 years. Currently, the Treasurer at SCI. A little bit about kind of what we do for people who may be newer to the story of SCI is what we term a death care company, the largest company in this space, in the U.S., North America. We've got about 2,000 locations, 1,500 funeral homes about 500 cemeteries across the U.S. and Canada. I'd say about 7% or so of our revenue, 6%, 7% is based -- I'm sorry, in Canada. And we have been really following the same strategy over the last about -- since 2004. It's really kind of deploying capital, executing on our business managing our footprint but essentially followed or targeted an 8% to 12% earnings growth framework over that time frame.

And really, if you look from 2004 to 2019, we've really been able to execute on that and have achieved really closer to 14.5% kind of compounded earnings over that time. So the group -- the company itself was really founded by a gentleman, Mr. Walter Bob Walter. And he actually took over his father's funeral home. And what he found was executing on a clustering strategy, really leveraging your scale, you're able to really aim the operating leverage for your business.

So the average funeral home in the U.S. does maybe 100 services a year, meaning the funeral home is working 1 out of every 4 days. And so if you can buy 3 additional funeral homes, then you're able to make sure that, that general director is optimize managing their time, you're able to manage horses and fewer horses and do that. But that's really how we've grown and really focusing in on those kind of urban areas that we've operated in.

Now if you noticed, I said up until 2019, obviously, in 2020, there was a rent kind of thrown into the works when COVID really impacted the world. And we saw periods of tremendous growth in our volume during that time frame. The concept of pull forward kind of came to bear where all these debts that have been accelerated into 2020, 2021 and so forth really had to come from somewhere. And so we're now in this period that -- the volumes are subsiding as the COVID experience is waning. And I think we've seen that come backwards and kind of normalize. I think we're that point to some degree. I think that we're also seeing some other changes that I'm sure we'll get into later around a smaller business, that piece of business that we have at CI Direct. We've experienced last 5 years, specifically increasing inflation, increasing interest rates and kind of manage that increasing tax rates during the time as well.

But as we're kind of sitting here in 2025, we're really excited to kind of where we stand and really looking forward to 2026 to continue to execute now on a kind of more normalized basis on that 8% to 12% earnings growth rate.

Yes. No, that was perfect thing. touched on already. Anything I step back here, touched on some industry things, America, it's aging. And that's not always benefit for you and you provide services that everyone needs some point in time. Maybe speak to the demographic trends that you're seeing right now? And what are your thoughts on like -- in the short term and the longer term geographically?

Yes. So as I just mentioned, COVID, we've seen kind of subsiding 2022 to '24, it dropped from 6%, 4%, 2.5% decline in volumes over that time. This year, we're actually expecting to slightly down. And so in our minds at this point from here and in the near term, we're in this flattish volume type are. And as we think about the baby boomer demographic, that's obviously a wave that's about to impact or is impacting health care and is going to be impacting us as well. The oldest baby boomers will be turning 80 next year. And in 1946, that's kind of the beginning of that trend and the birth rates over the following 2 to 3 years really took a little bit if time to kind of ramp up. But that's the beginning of the baby boomer.

When you look at mortality statistics for people who live to 79, 80 years old, generally expected to live 83, 84 versus kind of the national average of 8 years old or so. And so when you look at the birth cohort of the baby boomers, those who've already passed away and then kind of the immigration that has occurred, it's really kind of made that cohort hole from a domestic perspective. But we expect kind of putting all that together, the demographic will begin hitting us toward the latter part of this decade, 2029 kind of time frame, let's say. And when it starts impacting us, it's not just a kind of a check going up. It's going to be a gradual increase, we believe that probably take us from this flattish volume, maybe up 0.5% to maybe up 1%, 1.5% to 2%.

But that trend of growth, we expect that to occur consistently over about 10-year period. So towards latter part of 2030, early part of 2040s until the bolus of that baby boomer cohort kind of comes through the system, stabilizes. There may be a little bit of subsiding at some point in 2040 as we get to the tail end of the baby boomers and then you, of course, got the Gen X after, I guess, coming that also had some good growth trends as well. And so -- that's kind of our near-term perspective, kind of stability, flattishness, this dynamic around COVID actually still exists, but still one of the top causes of death in the U.S. But that being said, the pull-forward dynamic is also kind of embedded into our base as well. And we don't think that those dynamics and shifts are going to cause a big jumps one way or the other really over the near term.

Maybe speak to the shifting of -- preferences towards cremation and then how you're kind of aligning your offerings for that?

Sure. So cremation is a trend that a lot of people when they're new to the story come in and saying, well, this is going to completely destroy -- it's something that is really going to hang the industry. But really when you step back, it's a dynamic and a shift that's been occurring for the last 30 or 40 years. As we sit here today, our core business -- core funeral business has about 57%, 58% cremation mix only.

When you look at other Western countries, where cremation mix has also been increasing. You see that, that cremation mix generally seems to stabilize around 75% to 80%. And so we've been in this world now where over the last 20 years, we'd expected 100 to 150 basis points of shift each and every year as we've gone from 30% to almost 60% now.

As we get closer to that 75% to 80%, you'd expect that slope to decrease we actually started seeing that really back in 2024. I think we had around 50, 60 basis points of an increase that year. And we were asked, do you expect that this is the new normal. And I think a little too early for us to want to put a stake in the ground. But this year, we've still trended in that range, actually in the second quarter, we were close to 20 basis points, almost flat of shift in cremation.

And I think -- I don't think we're ready to say 20 bps, that's probably too low, but 50 to 100 basis points seems about right. And as I mentioned, kind of where we operate, we're in these urban centers A lot of these on the West Coast, particularly have cremation mix is already close to that 75 to 80 basis points. And you're not seeing that much pressure in those geographies as you may be maybe like Alabama and Tennessee and others that have a higher barrel mix.

And so that cremation trend again, has been manageable. Effectively, a metric we'd like to put out is about 1% change in cremation mix will equate to about a $15 million, $16 million revenue headwind and about a $13 million EBITDA. And when you're talking about a $1.3 billion, $1.4 billion EBITDA company, it's a hit, but it's a manageable thing.

The things that we've been doing over time just to manage that is to just make sure that we're providing the products and services people would like trying to identify new opportunities as well. I think a misnomer as well as if the person wants a cremation doesn't mean they don't want a memorial service. It just means they prefer to be reaming. What you see is America is becoming more secure. We're seeing Americas more transient, and they don't necessarily find as much of a desire to be varied as a result of that.

But we still provide memorial services because the family and friends on closure associated with that. And then the final thought I'd impart on that is on the cemetery side, something that we've talked about for a while, but we're really kind of put our shoulder behind , it's really delving into cremation opportunities on the cemetery side. So currently, about 1/4, 20% 1/4 of our unit sales in cemetery are already in the cremation well. And when you think about opportunity and the shift in cremation that we're seeing, how can we capitalize on that -- on the cemetery side.

And what we have found to use an analogy is when people would come into cemeteries, they would want to just get a homogenous we've gone and we spent about $160 million in capital now to tier that cemetery to create private estates, all the states, mausoleums, indoor mausoleums, in private mausoleums. So several tiers of inventory. Well, that family may come in wanting to get homogeneous lot, but then they may not be aware of what is out, what the opportunities will be and when -- our sales team is able to show them what these other opportunities are. They've been successful at basically offering up and selling up into those tiering options.

The same can be said about what we are expecting is on the cremation side. We think that families may not be aware of the cremation opportunities that exist. We've got these glass-front niches that you can -- we've got column variants. We've got scatter gardens that are available. And if we're able to create the median create the information that both the funeral homes and the cemeteries can use in front of families to say, look, even if you get cremated, these are options for you that rather than just taking the remains, they may say, I'm interested in checking that out and saying what it can go. So we're excited to see how that can maybe play out next year or 2.

Yes. Maybe on touching on the decision about what we're very premerger -- the time of sale are you expecting the sales from this and maybe effective backlog if you will?

Sure. So as in my opening, I mentioned SCI Direct, and SCI Direct is our nonfuneral home aspect of our funeral business. It generates about $200 million of our $4.2 billion of revenue. It's about $200 million of our $2.6 billion in premium production. And so that being said, over the last 2 years, it's taken up even though it's only like 5% or so of our business, it's taken up probably 50% of our Q&A questions and 40% explaining that.

But ultimately, what has happened SCI Direct has 3 items that we sell on a premium basis. It's in cremation service itself, an earn kit and then away from home travel protection, meaning, if you're 75 miles away from your home and pass away, your remains will be repatriated back to your home.

And so about 8 years ago, California came in and essentially said, look, you've been delivering that earned kit at the time of saying. You've been delivering away from home travel protection, but that's through a third party. And you've been deferring your cremation service. Those 3 parts of that agreement are all from their perspective, collateral to one agreement. And you need to defer it all the time of maturity. And we said, well, we've got this 1986 attorney general opinion saying it is okay doing what we do. And on top of that, we've been audited for the last 30 years and had an issue. And so now this is coming up as an issue. And so we bought it for 6 years. And at the end of the day, he said, look, we want to just kind of get this behind us. We saw a copycat situation pop up in Florida, and we said, look, we want to derisk our business completely.

And so now, for the most part, we're deferring that cremation service now as we have been historically now we're also deferring that and earned it. And so instead of providing it at the time of sale and delivering it, we're now also deferring that until the maturity or event of detours. And so it's really a timing perspective, and you're seeing the near-term headwind associated with that business shift occur. But that being said, it's something that we will get back in the future. And you're already seeing that that's growing associated with those deferred earnings come out and you're seeing that pre-need matured pre-need line item for non -- teens. We have 13%, 14% of growth in the third quarter, we expect that kind of growth to occur over the next decade or so as that backlog really builds out and we see that dynamic occur.

Now we've been doing this in ways. We've done it over 5 ways or so starting really in mid-last year. And so it's become -- it's more choppy than we would but we wanted to make sure that we were managing the geographies right and making sure that they were ready for the shift. Because another thing that we've done is to kind of to some degree is when we've made these shifts to deferring the earned kit, we've also shifted them from 100% trust selling pre-need back contract to an insurance-backed contract. And we've done that in conjunction with the global -- a new marketing agreement for our insurance business that gives us more favorable economic terms.

But in doing so, as we sell insurance contract, we're generating general agency commission. So that's helping offset that decline in earned revenue that we've been seeing. So if you look at our press releases, you'll see non-funeral home pre-need sales revenue. And you've seen kind of some headwinds from that over the past 4 quarters or so. But because of the cadence of these rollouts that has occurred as of the beginning of '25, we were 80% of the way rolled down. Midyear, we're about 95%. And today, we're completely done and have shifted those over.

But the headwinds that we've seen this year for the first 3 quarters, we're expecting that to subside substantially in the fourth quarter. And as we look forward to 2026, as Tom mentioned on the call, we're expecting some nice growth and strength going forward on that front.

Just remind credit question for -- maybe shifting gears a little bit with your larger pre-need sales, we've seen ship towards cremation, how what have you be seeing in these larger sales?

So when you think about cemetery pre-need production, we bifurcated between a core sale and a large sale, what we -- is what we defined is $80,000 or above. It's generally around 12% to 14% of our total cemetery pre-need production. And when you think about the numbers backing sales, we're probably talking about something like 600 to 800 contracts that we sell in any given year. And these large sales can take weeks, months, if not quarters, kind of matriculate. Families coming in and picking up exactly where and the cemetery they want to be working with our construction department to design exactly what they're looking for, if they're looking for private family model. These can be sometime multiple million dollar type sales that have occurred. And so they want to make sure that they're doing exactly what they want.

They can be very choppy in nature. And we saw in 2024, the first and fourth quarter were very strong from a large sale perspective. The second and third quarter were a little bit lighter from a large sale but it continues to be a source of growth for us. We think that it's going to be stable, if not growing over time. Obviously, when you think about cemetery pre-need sales, it's obviously a discretionary purchase by the consumer, so the consumer sentiment and can have an impact on that. But what also I'd point to is our customer that we are serving is the middle, upper middle and upper income consumer particularly on that cemetery front.

And so when you step back and you look at that core business, which is 85% to 90% from the cemetery front, really, we've not seen weakness on that consumer front. It's interesting because you're hearing everywhere that the consumer is slowing down, but I believe that that's more of a component of that entry level or lower consumer because we saw in the second quarter growth in both our contract velocity and the average.

And in the third quarter, we grew premium production and -- about 1/3 of that came from large sales. The other 2/3 were from our core business and the predominance of that growth was from contract sales coming through. So we are not seeing yet dynamic that people are talking about as it relates to weakness in consumer.

On the large -- back to the large sales front, we talk about, okay, what is driving that? What's going to drive that up or down we've tried to correlate it with the stockpiles, the financial markets. And back in 2022 when it was the worst equity market when the worst combined equity and bond market in almost a century, our large sales were up. Pretty nicely, people have also tried to correlate it to real estate in each of those markets. And I haven't seen a huge correlation there.

I just -- I think what happens is people get to a certain age and they want to get these end-of-life plans in order and depending what their balance sheets look like at that time, I think they're to make a transaction and get that in place.

Okay. You talk to the -- in consumer making a step back to the cremations. Is that mostly amid the lower peer consumer or up there?

I don't think it necessarily is. So this SCI Direct business that we've talked about, that's what we call it a price-sensitive consumer, but I don't think it's necessarily all for instance. I think maybe a good chunk of it is. But I think it's also people who just don't value the service aspect that they truly just want to have a cremation, get it completed and maybe the family will have some event somewhere else, sometime later, go to outdoor area and have look at a small outdoor event or do something like that.

But you -- so it's not necessary. You can have a cremation service of one of our funeral homes that has a full memorial service, but it can be tens of thousands of dollars, depending on what type of catering do people want. How much of the facilities family would like to use. Do they want the body present for the service, but then a cremation to occur later. And so there are a lot of different dynamics and aspects to a cremation that can occur.

But to your point, there's definitely an aspect and there's a component of our price-sensitive consumer that does prefer. We do customer segmentation studies for our funeral business. We've done about 3 of them over the last 15 years. Just to try to get a sense for how the shifts and trends for these consumers are occurring and making sure that as we see these trends occur, we are able to react and make sure that we're doing everything that we can to protect that consumer and do what we can to ensure that they value products and services. And so when the time comes, if they need us, their families will want to come to us to say, look, I've been to a service at your facility or before -- fantastic job. I'd like something for one of my family...

Okay. Maybe sticking on that line, Bob. Have you seen any maybe trade downs in service selection in the middle to lower to the consumer?

It's interesting on the funeral side. We've not ever really seen that. And using the great financial crisis as a litmus does, we've really kind of been constrained to inflationary type price increases. And what you find is even in a situation like that where people are getting hit, one, people don't really want to spend down on mother or fat they go through this transaction once in their life, and they want to make sure that they're remembered, remembered in the way that they want them to be.

Another aspect is out of every 10 services that we do or have a free contract back in the month. And so those are already in place and kind of protected. The other 6 that come to fruition. They've got usually some type of assets that they've got other in sets that may not be breed in transacting that they've got available as well. And so we've really not seen that come to bear. Where we did see that dynamic occur or impact us was, again, back in the '08, '09 kind of time frame was our cemetery premium business. Obviously, as we've mentioned, that's kind of discretionary in nature, but it was one of the latter aspects in the latter part of the great financial that we saw that finally get impacting the last 2 quarters, let's say, 2008, we may have seen teen type declines in cemetery production.

But as we move forward to March, April following year, you saw that consumer come back very quickly. And so in 2008, I think our symmetry premium was down 7%. 2009, it was up 7%. And so again, I think that people want to get this transaction completed and behind them. Obviously, if there's been a shock in the system, they may not be thinking the first thing they want to do is to get that in order. But once they feel more confident, you see that they come back from the sidelines.

Maybe jumping years a bit on the consolidation opportunity. 34% of the market operators consolidate you're at 17% of the revenue feels like there's quite the opportunity here. How would you say the opportunity is looking for you guys right now for the quarter?

Yes. So that market share is based on revenue in the U.S. and Canada. I think we've got a great pipeline. Deals that are either under contract under LOI or evaluating those. We've got a target spend of about $75 million to $125 million. We have a team that on corporate development that their job is to go out and cultivate relationships with targets that we would like to kind of fill out our footprint.

And so I think the tuck-in type acquisitions that we do a great job at completing are going to be there. There's nothing at this point that makes me think we're going to be, particularly for 2005 outside of that range. But of course, we'd love to see more 2024. We were about $185 million of acquisitions, and that was primarily made up of 2 chunkier deals that came through. And those deals are out there. But what you find is these are very generational families and they're pretty strong as well. I mean the cash flow strength is just very consistent coming through. And unless you have a family whose subsequent generation -- don't really want to be part of the business anymore.

If you have the kind of owner of the business is ready to retire, we kind of have to wait for that experience because what we target is a mid-teen-type on our acquisitions. And back in the '90s, we didn't really talk about this, but back in the '90s, the entire industry is just accretive EPS accretive roll-up type strategy. People were paying 15, 20x type EBITDA multiples just to get people off with them. That's the only way really to get them to sell until they're -- outside of fair pricing.

And so we learned from that, realize that focus on return on invested capital end maintaining the health of your company. But I think that us, as well as the industry, has stayed pretty disciplined in that regard. We do try to make sure that, look, we want to be the preferred acquirer that's out there. And when I think about that 17% to 18% by revenue market share, where we are today and think about our footprint, I think that a good gut feel probably around 25% to 30% would be a good target to be yet to be in those urban areas that we want to be in to make sure that we're taking advantage of our scale has opportunities. But it will take some time to get there.

But from a chunkier acquisition type perspective, the bigger consolidators that are out there, it's going to be a difficult play to follow, if you will, because a lot of the current operators, Carriage, Parkland North Star, they have been born from our previous FTC divestitures. They've been born from just assets that we've decided to hive off that we didn't want. And so as we think about a consolidation opportunity and kind of build out our DCF model to evaluate at the end of the day -- IRR we can model in synergies, but we have to get comfortable with whatever amount of EBITDA we would have to divest.

And under the previous administration, we may have had to divest, let's say, just example, 55% of that EBITDA just make sure to get FTC clearance under the current administration, I don't think that goes to 0. I think it's closer to maybe 45%, let's say, 40%, 45%. But again, you've got put that 3-year algorithm and see what your IRR comes back with. And I don't think that there are a lot of good opportunities in the U.S. on that front.

But in Canada, there is a nice opportunity up there. It's a private company called Arbor Memorial, and we would love to acquire Arbor. It's a family run business up there. It's about the same size as ours. But again, I think we'll be patient and cultivate that relationship. And when that family is ready to do something, hopefully -- they'll -- we're going to get acquired.

Maybe in with this tuck-in discussion. Maybe talk to the economies of scale you get. And then what would make you acquire choices operators?

Sure. So from an economy of scale, when we acquire someone, switch to our casket agreement we can get a switch to our marker agreement. And we're able to buy granite markers gas gets earned cheaper than pretty much any -- our scale and our teams that kind of manage that business. We've obviously also got a back office that we're able to really synergize that to -- from a trust processing spectrally tuck those in to our current businesses or operations. So from a back office perspective, we've got healthy economies of scale, even the backlog as it relates to this insurance agreement with the economics associated with that new marketing agreement able to, because of our size, which drive better economics there.

And then on the trust funds, we've got about $7 billion of trust funds that, again, we're able to pull those assets work with investment managers to create common trust funds, separately managed accounts and other vehicles that will help reduce the costs associated with them.

So those are examples of economies of scale that able to generate. Now as it relates to an acquirer of choice because what you find is what you will find is former owners are our biggest or and kind of proponents to other owners that are out there say, look, SCI is a great acquirer. And what we do is, even if it's a spectacular facility that we're acquiring, we'll find some way to deploy capital to kind of spruce it up to do something to -- because at the end of the day, that owner's name stays on the side of the wall. And so we want them to be proud to have sold to that.

Additionally, we give the owner's flexibility look, if you want to stay working full time, you can do that. If you want to come full time, you can do that. And if you want to pack up and go to Florida, you can do that as well. So given the flexibility to do that, we don't come in and just lay off a bunch of people to generate those synergies, the back-office type synergies that I was talking about. We allow natural attrition to occur to kind of rightsize that business model.

And so we -- currently, our -- we generally pay about 8 to 10x EBITDA for our acquisitions. I'd say that we get about turn half of synergies on top of that. But because of that dynamic I was just talking about, it may take 12 to 18 months to kind of get to where those levels are and expectations. But we've also got a former owner's counsel that gets together twice a year, but they all talk about opportunities, their colleagues and friends.

We even have owners on that owners counsel who aren't even from companies we've acquired. And so it just -- it really helps to that we're helping to build a community. But at the end of the day, we hope that they're proud to be part of.

We touched on the M&A growth now. Maybe shifting gears a bit with growth 8% to 12% goal you guys set out there, you -- 5% to 7% base business growth is in there, what the driver is going to be?

Sure. So this 8% to 12% that I mentioned back from [ '24 ] as we look to 2026 and really beyond until we -- the baby boomer demographics start impacting us, which should help boost it even more but that 8% to 12%, as you mentioned, is 5% to 7% base business. And the pieces and parts of that flattish volume on the funeral side, low single-digit growth from average. That should drive low single-digit growth in the top line.

We do have a big fixed cost structure, though. And so that's going to grow. We believe that inflationary type level, 2.5% or so. And then we're going to net positive margin dollars, but margin percentage is probably going to stay stable. On the cemetery side, target mid-single-digit growth in cemetery pre-need sales. When you take into account the recognition rate, which is generally around 95% of that production that we've got impacts the top line, so a low- to mid-single-digit growth in top line with that fixed cost growth is going to help drive not only margin dollar growth, but maybe 40% to 70% -- 70 basis points of margin expansion. It's really that algorithm that helps drive that 5% to 7%.

And then, of course, the remaining 3% to 5% is going to be driven by share that we've been effective at reducing the shares outstanding from 2004 -- $40 million. We're now $140 million today. We've also, of course, the $100 million of acquisition spend that we drive to. And then we incur about another $80 million or so of growth capital, whether it be building new cemeteries or new funeral homes to help fill all our footprint in that regard.

Maybe just digging into some of the revenue line a little bit further, pre-need -- some prior customer computer customers. Can you give us a color of the which the preferred age preference in transient...

Yes. Usually, the first kind of touch point that a customer has with our industry is when a loved one has passed away whether a mother or father or someone else, and they get on the cemetery side interred. And then the family has to make a decision. Do they want to be entered around the family. So from a proximity perspective or what do they want to do? And what you find is people will generally go ahead and kind of walk in that property sale, the property sale, and that's what we find close to the early 60s when that occurred.

On the funeral side is generally the early 70s when families come in and say, look, I want to be either buried. I want a celebration of life where everyone comes in and parties and we all drink old fashion or do something like that, just get something in place in that regard? Or do I want something more somber, just more low key and more traditional. And that is the early 70s kind of getting that in place. They don't want their families to be burdened with that decision. It's not necessarily a financial decision that they're making. It's really more of -- making sure that, that plan is in place and they know that their families don't have to deal with that when they pass. And then the early 80s is usually the time of that occurs.

Okay. And then maybe just shifting gears over to SCI Direct the change in selling trust on the treaty product, the insurance for the premium products. What was the main driver force there?

It was really that business shift that we've done, where we're now deferring the earned kits. That's a big chunk of it. But on top of that, this marketing agreement that we entered into in July of 2024. We'd really been with the previous insurance companies 25, 30 years. We own them really at some point and sold them in the late '90s, early 2000 from a liquidity perspective. But at the end of the day, in late '23, early '24 we start an RFP process to evaluate that marketing agreement. And I think we kind of hit when the iron is hot because interest rates were kind of close to their zenith at that point. And insurance companies obviously have to manage 2 interest rates to a certain degree because they're required under regulatory requirements to maintain a very significant portion of fixed income to back that up. And so as that interest rate was higher, the size of the economic pie was also higher.

And so the incumbent insurance company did put forth RFP response that provided for higher economics than what we were getting. But the current provider just provided for a lot more economic. And it's basically taking commission percentage of 26%, 27%, up to closer to 35%, 36%. And when you step back at really no cost to it. And so you've seen a big step up on the core business from July '24, really June '25 until we lap that associated with that increase in general agency commission.

But having that percentage, when you kind of step back and you want to do a trust contract or do you want to do an insurance contract. The insurance contract at 35%, 36% makes that NPV a lot easier to say, yes, it makes more sense shift toward an insurance contract versus trust. And so those 2 dynamics really were the deferral of the earned kit and the better economics on the revenue helped push forward that shift.

And on the funeral side or on the core side, I'm sorry, we've kind of already been at that 70% basically in 30% is trust. We've tried to maximize that percentage of insurance. The 30% just for your benefit, is really made up of terminal imminent contracts, people who were writing pre-needs for who are expected to pass away because they're in hospices over the next month or so. The insurance company really doesn't want to get those into their backlog and then have to ship them out. And there's also a premium tax associated with it. So we try to incentivize counselors that if they expect this to occur that they ship to a trust terminal in a contract. And then there is some state regulation in New York, for example, who can't sell insurance, we can only sell a trust product. And so those are the dynamics there that have driven that.

Okay. Then maybe digging a little bit deeper partnership with or make you gave the last that partnership here? Are there any points you'd like to highlight for the benefits? Any headwinds you can -- to the partner?

Yes. I would say -- they're definitely new products that the core consumer had to wrap their heads around. And so that created some volatility on the SCI Direct side because they've been 100% trough, we've got to get those counselors insurance licenses, which has created a lot more headache, I think, than we had anticipated when we rolled this out.

Additionally -- and Tom mentioned this on the call, on the core, when we made this shift in the core business, we decided to completely not sell what we term a flex product. And essentially, what that is, is when you buy an insurance product, you generally expect covered that if it's over a 5-year payment plan if you pass in year 2, let's say, insurance will kick in and cover the remainder of that contract. Now what comes with that is a premium, an insurance premium that the consumer pays over the life of that contract as well.

While there was another contract available called flex product. And it's an insurance product, but there's no insurance really benefit to it. So if you pass in year 2 of 5, the family, really, unfortunately, has to come out of pocket for the rest. And when we did a but it has no insurance premium. And so the counselor didn't have to sell that insurance premium and the benefit of it.

So when we took away that flex product. what we found is, one, there was a big chunk of counsel that's pretty much all we -- so it was a flex product. And so that made it a lot more difficult for them to wrap their heads around and do -- but then there was also even on the core there is a middle-income consumer may not want that insurance benefit. And so we've had to pivot a little bit in that regard because we have seen some weakness on the production front.

And really focused on our West Coast markets shift to the flex side product to protect that reduction because at the end of the day, even though we're selling that flex product and I didn't mention this, but we get a lower general agency commission. We'd rather that consumer be in our backlog secured as a future market share, if you will, rather than risk of the shift into another provider.

It was great, Aaron, giving any on comments I'd like to make -- questions.

Now this has been great, Tom. Really appreciate the conversations. Our first having you host as a fireside chat. Really appreciate seeing you all as well and at the conference as well.

Thank you.

Thank you very much.

So hello, everybody. Thanks for the next presentation. We have Service Corp International, and we're very pleased to have Aaron Foley, Senior Vice President and Treasurer; Andrea Low, Director of Investor Relations. So Aaron, thanks for doing this again this year.

Thanks, A.J.

We're 10 months into the year. What are some of the things you highlight as surprises, positives, challenges that the company has faced. How would you sum up the year up to this point?

Sure. So obviously, we look at things on a funeral and a cemetery segment type basis. I'd say the volumes actually hung in there really well versus kind of what our expectations were coming in, in February. We had expected a slight decline in volume because we've seen a lot of volatility in those trends from a seasonality perspective throughout the year. We took our 2017, '18, '19 average seasonality over that time period, kind of put it on top of that decline in volume. And we've really hit that pretty close every single month of this year. For example, this past third quarter, where we posted a 3% decline in volume, we'd expected that based on a normalized seasonality trend. So I'd say that volume really kind of seems to have normalized, and we've gotten a lot of the volatility out.

And I think that we should see continued foundational strength from here going forward. So I'd consider that a positive. I think continuing to see the cremation mix shift being more moderated. I think we posted around a 50 basis point increase in cremation mix. So kind of we've been following similar trajectory and trends that we saw in 2024, but I think we were kind of premature to call it at that point. I think we're now in a 50 to 100 basis point shift versus 100 to 150 basis point shift that we previously had talked about. The kind of surprise, I'd say, a little bit on the downside might be associated with SCI Direct and some of the volatility that's come along with that shift that we've been doing there, not only deferring the delivery and recognition of urn kits on these preneed contracts that we're selling as we've shifted these changes over about 5 or 6 different waves over the last 18 months.

But the commensurate impact then on -- as we've shifted from trust to an insurance product, getting the counselors licensed and getting them comfortable with addressing the benefits and protection aspects of selling an insurance product. That's been, I think, a little more volatile than we would have expected coming into the year. On the cemetery side, I'd say that generally, our expectations for low to mid-single-digit growth in cemetery has held true. I think we all recall back in April when we saw a lot of volatility in the markets at that point when we spoke with you in May, we kind of moderated our expectations out of caution down to a low single-digit growth. But as we've seen in the second quarter, we saw growth in our core preneed cemetery consumer, but we've seen that even more. So in the third quarter, we posted a 10% growth.

And so I think we're obviously hopeful that we can continue that momentum, and we're giving our sales teams and our marketing efforts, all the tools that they need that we hope can help buttress that and continue that growth into the future. But those are kind of the dynamics that have unfolded this year and kind of seem a little bit contrary to what some others have seen on the consumer side.

Yes. No, that's good. On the third quarter call, you made some initial commentary about 2026 saying that you thought you'd be in your sort of target 8% to 12% EPS growth range next year. What are some of the key factors behind that variables, headwinds, tailwinds that you think about when you made that comment?

Yes. So our 8% to 12% algorithm is really predicated on a funeral flattish volume, up low single-digit growth in average, helping to drive a low single-digit growth in revenue, fixed cost increasing, the operating margin percentage kind of staying stable, but seeing some incremental operating margin dollars coming through. Cemetery side, mid-single-digit growth in preneed, assuming a 95% recognition rate should drive low to mid-single-digit growth in the revenue top line. Of course, fixed cost growth, you should see some margin expansion dollars as well as on the percentage range.

That's the normal algorithm that gets you to 5% to 7% of our earnings growth framework. The remaining 3% to 5% is going to come from capital deployment. Hopefully, we'll be more lucky on the acquisition front to be able to deploy more capital there. But absent that, we should be able to achieve it with our $75 million to $125 million acquisition target. And then, of course, we've got some amount for growth capital. And then finally, continuing our strategy of deploying capital to share buybacks. Now some of the factors, as I think about over the last 2, 3, 4 years that have really been headwinds to the story, the obvious being volumes contracting since COVID, that seems to have normalized. The associated impact on cemetery velocity, for example, when a husband or a wife or partner passes away, you're going to want a preneed associated.

So as that funeral volume declines, we've seen a decline in cemetery velocity. That seems to be normalizing as well. You had interest rates growing '22, '23, that took $80 million to $100 million of a headwind over that time frame. At this point, you would expect interest rates to be flat, if not decline over 2026. Our tax rate, we had a 22%, 23% tax rate in '24. As we've progressed to '25, that's grown to 25% to 26% as the Tax Cuts and Jobs Act from 2017, which gave us the ability to deduct stock options associated with our top 5 highly compensated employees that kind of lapsed at the end of 2024. So we've had a headwind from a tax perspective of about $0.10, I'd say. So that's a good 3% to 4% of our kind of normalized earnings growth framework as a headwind.

And finally, we've had this dynamic and volatility that's been coming through associated with SCI Direct and the business shifts that we've been doing there, which we began the year having transitioned or completed about 80%. And as we sit here today, we're 100% done with all of those transitions. So as we get into the back part of the fourth quarter and then look forward into 2026, as Tom mentioned on the call, expecting some nice growth from general production from that front.

Okay. Okay. You're calling out a return to more stabilized funeral volumes next year as opposed to modest declines and more quarterly volatility in recent years. What gives you the confidence that you'll see that? Is it lessening pandemic carryforward, you've run its course primarily? Or is it -- are we starting to see the pickup in the baby boomers hitting 80 yet?

I don't know if we're quite there yet. But I think it's partly due to what I was mentioning earlier about us really being able to hit these expectations from a slight decline in volume and the trajectory or seasonality of those volumes coming through really being in line with our expectations. So getting more predictability there. Obviously, a strong or weak flu season can affect that now just as it did during COVID. But another thing, as I looked at the data and our volume pre-COVID, if you go back to the late 2010, so let's say, 2009, 2010 kind of period, actually, our volume was declining around 2% to 3% per year. And that was because we were in this dearth of birth type generation where the period during the Great Depression, people just weren't having as many babies.

And so we were seeing that dynamic, but we were coming out of that. So 2 thousand, let's say, '15, we were closer to 1% to 2% down. And as you got really to 2018, 2019, volume was kind of flattish. So the trajectory was obviously -- was increasing during that time. COVID threw a wrench in all that, obviously, and we've seen that dynamic. But as we're now getting to this more stabilized state, I don't think necessarily the COVID impacts are gone because people in their 40s, 50s and 60s passed away because of complications associated with getting COVID as well as other comorbidity type issues. So you're going to have, I think, a long tailwind associated with it. But I think the more acute impacts from a pull-forward perspective have been in the years immediately following.

I think as each year goes by, that pull-forward impact is going to moderate. So it will be a natural tailwind going forward. That being said, as we sit here today, COVID continues to be a pretty strong impact to mortality within the U.S. And kind of like flu, it's likely going to be part of the base, if you will. And so those dynamics that as we get further away, I think more stability in the base and looking at the trajectories before, in the medium term, I'm thinking the volume should be somewhat moderate, flattish over the near term. Hopefully, we're not too far off from that perspective or expectation.

But I think it's really still a few more years out before the baby boomer demographic begins to impact us. I think our view is that's likely toward the latter part of this decade, but that's then going to be a sustained type growth and strength that's coming through from the funeral top line perspective that's going to last a good decade likely toward the latter part of the 2030s until it kind of plateaus and may subside for a little bit as we get into the 40s.

And what is the average age these days of a customer?

Our clientele is around -- it's still around the 80, 81 type range, maybe a little bit lower than pre-COVID.

Right. So I do think the first baby boomer hits 80 next year, 2026, but you're saying you still would say before it's a noticeable difference, it's probably a couple more years than that.

And there are really 2 factors there is one, yes, that's the first baby boomer cohort year, but it still took time for that baby boomer trend to grow to kind of where the birth rates ultimately got to from a slope perspective. So I'd say that, that's a dynamic. But also once an individual usually makes it to 80 years old, they're more inclined to get to 85, 86. And so I think those 2 dynamics are what give us the perspective as it's likely further.

And when you think about what it takes to drive margin improvement in the funeral business, I mean, as you started to see the uptick in preneed cemetery sales, you've seen steady margin and pretty dramatic over the -- if you look at it over a 10-year period. What is the point where the volume growth is enough?

Yes. I think, as I mentioned, in the 8% to 12% assumes flat volume, 2% to 3% -- let's say, 2.5% to 3% type volume with the more moderate cremation mix. I think if you could get that top line similar to cemetery in that low to mid-single-digit type range, let's say, 3% to 5%, and as long as we can keep the inflationary impact on fixed cost at that 2.5% type level, that excess should be able to grow that margin like we've seen on the cemetery side. And if you expect this demographic wind or demographic tailwind to be here, that's 10 years that you should be seeing some expansion on that front.

Right. No, of course, that makes a lot of sense. Company did make a decision -- well, you renegotiated your insurance contract a year ago, significant improvement in terms for the company. But alongside that, you've made this decision to emphasize insurance over trust funds a little bit. Maybe just walk through for someone that's new to the story, why -- what's behind that thinking that we're going to emphasize one versus the other?

Sure. So you really have to separate first, funeral from cemetery. Cemetery is 100% trust, and that's because the contracts have multiple items that can be delivered at different times, and then we put multiple people on them that, again, can have different contractual requirements. So for an insurance, you really need to underwrite to a specific time. So there's too many complexities on the cemetery side to make it make sense for insurance. So 100% trust on that side. Funeral really have to break it out then between our core business and then SCI Direct. And that's -- the core business is running around $1.2 billion or so of production. The SCI Direct is around $200 million to $300 million of production. Historically, the core business really has kind of -- we've tried to maximize that insurance production mix already.

And so over the past 5, 10 years, we've been around 70% insurance, 30% trust. And that 30% is really comprised of the expectation of terminal imminent consumers where a person who may be in hospice who may be passing away within the next several months, an insurance company does not really want to underwrite that type of consumer because there's a premium tax that comes along with that type of dynamic if that occurs and they try to avoid that. And so that 30% is made up of terminal imminent contracts that we're selling. It's made up of contracts in New York, where we're not able to sell insurance contracts. And then it's made up of counselors who've yet to receive their insurance licenses to be able to sell insurance, they're going to be selling trust to be able to make the commission.

On the SCI Direct side, prior to July 2024, they've been 100% trust. But as we've looked at these 4 or 5 waves, as I've mentioned, over the last 1.5 years, where we've been switching SCI Direct, the operating structure from recognizing an urn kit, recognizing away-from-home travel protection, but deferring the cremation service, we're now switching that up a bit that we're now also deferring that urn kit. And each wave that we do that with, you're getting an earnings hit -- a near-term earnings hit associated with deferring that urn kit, but that's going to be coming out of backlog on average over the next 10 years. And you're already starting to see it come through in the average where we saw 13% to 14% growth in the third quarter in that non-funeral home preneed side of things.

But on that note, as we've seen that deferral of the urn kit occur, we're then switching at the same time from a trust to an insurance type model, where we're then able to generate a general agency commission now that the rate that we're getting is a very good rate and looking at it from an NPV perspective, it's a very strong compelling argument to make. We're making the switch, and that's helping to offset that decline in that urn -- delivered urn earnings loss that we're having on the near term. And so I think that we're kind of now in a new mix type perspective. You'll probably see in total, that 70% -- 65% to 70% insurance mix grow to 70% to 75% insurance in total.

And is the average life on an SCI Direct contract, the 10 to 12 years that it is on the traditional?

It's about the same. I wouldn't say they're much different.

Okay. Okay. I guess I had some sense maybe a little younger. What about the overall comment on the cremation rate? I know you guys have said if you look at some of the other English-speaking markets, they all peak out at about 70%. But when you get 50 plus, it tends to moderate the pace. Is that what we're seeing play out here? Or do you think the fact that the cremation rate has been a little less than the 150 to 200 basis points in the last 1.5 years or so. Is that -- what's driving that, do you think?

Yes. I do think it's more the earlier comment that you made. So today, we're at about 57% cremation mix. I would say that the plateau or the stabilization seems to occur around 75%. And so as we're getting closer to that point, I think you'd expect that mix shift to moderate to some degree. So you've got that dynamic. You've also got the dynamic that in a lot of the states -- or cities, I'm sorry, that we're operating in, big urban areas, they already are kind of really close to that cremation mix where you're at around 75%.

And so if those are already stabilizing, then you're kind of waiting for the remainder of the businesses to kind of get closer to that cremation mix shift as well. And so I think in 2024, as we were seeing this moderate shift of 50 to 70 basis points, we would get asked, are we now at? Are we below that 100 to 150? I think it was still too early at that time. But I think as we've seen the trajectory of that carry forward into 2025, we saw in the second quarter, a 20 basis point growth. I think that, that's probably unrealistic, but I do think that it's more reasonable around that 50 to 100 basis point level.

Okay. And in terms of what that means for you from a revenue, I mean, we used to think of it as, what, 1% to 2% revenue headwind when you were at the higher end. And so...

I'd say it still remains around 1% is about a $15 million or so revenue kind of headwind. The EBITDA headwind is about $13 million. And so if we're going to be in that 5 to -- I'm sorry, 50 to 100 basis points type range, you're in that $6 million to $13 million kind of EBITDA headwind type range, which again, it's a headwind, but when you're talking about $1.3 billion, $1.4 billion of EBITDA, it's manageable.

And there was a time, I know when there was a big push to sell more full-service funerals to people that were just using cremation as a way to dispose of the body. Are we sort of at the level where that's stabilizing the percentage of people that choose a full service to go along with the cremation? Or is that still growing?

No, I think it seems to have stabilized. We're not seeing it really decline any dramatically. We're not seeing it really grow dramatically. So I think we're kind of in the normalized type pattern for the people who do choose cremation, who ultimately do want some type of memorial service, it's really kind of stable.

And when you look at -- try to break down the revenue per case, traditional funeral versus cremation, are they both growing at about the same level at this point? Or is the cremation growing a little faster?

I would say from an average perspective, it truly is kind of inflationary type growth on both the burial and the average -- I'm sorry, burial and the cremation type average. Again, there are 22,000 funeral homes in North America. So it's a very moderate barriers to entry. And so the pricing power is really not too tremendous.

Okay. Cemetery preneed sales production has been a long-term positive trend, mid-single digits, even some quarters better. I think there have been some thought that you're getting to the point where that baby boomer cohort is finally moving through that, but you're still showing pretty good production. What do you think is driving that? And do you think it's sustainable to say mid-teens -- I mean, mid-single digits is still the growth number for the foreseeable future?

Yes. No, I do think so. I mean, as you mentioned, the oldest baby boomer is 80. The youngest is 65. So they're still in that area that is kind of a target consumer for us. So generally, when we see consumers who get to this time in their life, they want to get some of their end-of-life plans in order. And so I do think that there's continued opportunity there. There's going to be a bit of a lull, but the subsequent generations, there's still going to be growth to be coming there. But as I mentioned or you've heard us talk about on the calls, there's a very high correlation between cemetery velocity and at-need funeral volume.

And I think as we start seeing the baby boomers impacting the funeral segment from a funeral volume perspective, you're going to continue to see strength then coming on the cemetery velocity side coming from that. And when you look -- when we've looked at the data, and there's -- the data is not all that great as it relates to how much have we penetrated with our preneed program into the baby boomer demographic, we don't think that we've hit a tremendous amount, if you will. And so I think as we see the at-need volume pick up, you're going to see a commensurate increase as well on the cemetery side that's kind of going to benefit that segment.

Are there any statistics out there that would somehow give you a sense of what percentage of the population, maybe it's in the relevant age group is probably the way to look at it, that has a preneed funeral cemetery plot that they've already bought. Is it -- would you say it's 10%, 25%?

Yes. I would say there's no good data that we find -- that we have found outside of kind of our own and performing focus group tests and going and having conversations with different folks about their preferences, what they have done, what they don't want to do, what they do want to do and kind of digging into that. But what we did do is we looked at the cemetery sales trends over about a 15-year period and looked at the number of units that we had sold over that time. We looked at what we viewed as our addressable market. And we come up with something. This is, again, 5, 6 years ago, so it may have changed, but around a 20%, 25% kind of penetration rate into there. And so...

So those people from late '60s to early '70s had bought a funeral clad.

That's right. That's exactly right. About [ 20 ]. Yes. And so I do feel like there's still opportunity there that's going to come through. And then as Tom has mentioned as well, the backlog that we've built on the cemetery side, it's about a $4 billion backlog. And as we start seeing the maturities coming through and that backlog coming out, you're going to see some continued strength coming there as well.

Right. And just while that's another point I was going to ask about. So you sell a person the plot, there are additional services when that -- when there's actually a death and someone's going into that gravesite. It's the headstone, tombstone, it's opening, closing, maybe a vault. It used to be a rule of thumb that, that was sort of -- half was the plot and then the other half is the -- all the other stuff. Is that still about the right ratio?

I'd probably say it's closer to 60% is the property or the plot and then 40% is the other products and services that are provided at death.

And are those all generally consumed at death? Or is some of that consumed over the course of the time?

Yes. No. I would say that there's a portion that is consumed before and that being the marker. Some people, when they get a lot, they want to go ahead and get the headstone carved and placed and left open for date. And so that is a situation where there is some amount of delivery and recognition associated with that, but -- yes.

Yes. That's good. I hadn't gotten some of those basic things nailed down in a while. On the acquisition front, which is an important part of the story, $75 million to $125 million of acquisition spend is the target. Last year, you were above that. This year, it sounds like you'll end up being roughly in that. What is the pipeline look like out there? Is there more conversations sort of steady? How would you describe it?

I'd say the pipeline is really strong. I would say that if we would be able to close all of those transactions that we have under LOI, we'd likely be toward the upper end of that range during '25. I'd say that it's more likely than not, though, that some of those are going to transition into 2026. But I think that as a result, that's going to put us nicely into that $75 million to $125 million range. I don't -- we've not put forth any official guidance yet necessarily. But I'd say that at this point, there's nothing that I'm aware of that would say we're going to change that too dramatically for '26.

But the pipeline remains strong. That continues to be the highest and best use of capital that we can deploy, generating low to mid-teen type IRRs. And we've got a team in corporate development who are just out there cultivating relationships, trying to make sure that the families know that we would be happy to acquire them. We do right by their names that would stay on the side of the funeral home or cemetery. We've got a council of former owners who are some of our biggest cheerleaders out there helping to promote what we've done with their facilities subsequently. And so we're constantly trying to see if we can drive that figure higher.

Okay. And we think about being in the $75 million to $125 million, when you talked about earlier your growth algorithm, how much is -- would acquisitions then be? Would that be 1% on the growth rate, you think, or...

Yes. I think 1% to 2% is probably fair.

Right. And do you -- when you realize the benefit of the acquisition, does that typically happen 1, 2, 3 years? How long is it before you get it to where it's going to be stable margins under the SCI infrastructure?

I would say, unlike new build growth, when you do an acquisition, you've already got that top line coming through. And so once we complete the acquisition, it may take a month or 2 to kind of get some of our feet under us and working through some of the expense dynamics there. But we typically, over maybe a 12-month period, are able to achieve a lot of those synergies, immediately achieving our purchasing power associated with caskets, granite, vaults, such like that because of the scale that we're able to buy. We don't go in and do much by way of just headcount reduction because we don't want to create a negative environment at the location. So we usually allow natural attrition to occur and then kind of rightsize over time associated with that. And so I'd say that the synergy time frame is usually about 12 to 18 months where we're able to achieve about a turn of synergies off of maybe 8 to 9, 8 to 10x purchase multiple that we're doing.

And you had this agreement with the FTC under the Stewart deal that put some limitations on you, especially in your end markets. When you think about that $75 million to $125 million to the extent that those are properties now that are -- where you already have a significant presence, does that make them significantly more economically compelling when you can do something in those markets? And is that an increasing part of the pipeline in any way?

I wouldn't say it's necessarily an increasing part. It's one that I think we now have handcuffs that are taken off of us. Prior to that standstill agreement lifting, we were kind of at a disadvantage from a negotiation standpoint because unlike our competitors who could come in and do the acquisition and get it completed in, let's say, 5 to 6 months, we would have to say it's going to be 12 to 15 months because they would have to go through a supplemental review by the FTC. Those handcuffs are off. At the end of the day, they're still generational type businesses.

And we don't want to just drive that sale by paying a higher price. We want to make sure that the IRRs that we're targeting, we're able to achieve in that low to mid-teen type IRR range. And so I think that there are opportunities. I would say, I believe the Hart-Scott-Rodino limit is around $120 million, $125 million per acquisition that above that, there has to be an FTC review. A lot of these chunky deals that we're looking at aren't necessarily at that range. But I would say that we're still somewhat sensitive in these markets, but I would say that it's not an impediment like it was back prior to that standstill agreement lifting.

We periodically hear about private equity divestments in the space. Those could potentially -- there could be competition for some of these deals, but they could also be acquisition targets. How would you assess that aspect of the lay of the land at this point?

Yes. I would say that they are out there. I don't think that they're necessarily as active. Park Lawn, who recently went private back in August of '24, they had been very active. They've kind of subsided to a certain degree. North Star is a very strong player in the markets as well, but they've been relatively stable, not too necessarily active on the acquisition front. And who we've really seen come out more from an acquisition perspective has been Carriage Services. They saw during the third quarter, a nice uptick in acquisitions. But that's after they've kind of come out of their leverage issues that kind of arose during COVID when they bought back a bunch of shares, but they're kind of emerging from that. And I think we're seeing them a little bit more on the negotiation front.

And I mean, you would be open to potentially buying one of those bigger ones if they were available, right, I would guess.

I think at the end of the day, all the pieces and parts to that algorithm would have to make sense. We have to be able to -- in a larger type acquisition like that, we may be okay getting slightly below that teen type -- low teen IRR. But at the end of the day, you have to evaluate synergies. You have to evaluate ultimately what amount of divestitures would be required under any administration. I don't think that even under the current administration, we could expect to be 0, but there's some amount and then obviously look at the valuation that's being put on the equity. And so we would be open to it. We're obviously watching the landscape. And if we see a hiccup and we think that there's an opportunity in working with our advisers, there may be an opportunity, but I don't see anything necessarily in the near term on that.

You have done some development and land acquisitions and frankly, a little bit in the divestiture mode, too. What -- anything to say on that, those types of outlays? I assume they would always be pretty modest, but anything to highlight there?

No, I think you're exactly right. They, particularly on the cemetery side, seem to be a compelling area that we want to continue to dip our toe into. As you know, historically, we've not been too focused on building new build cemeteries because of the outlay and how long it takes to get that capital up and running. But we've seen some great opportunities come up and execution on those. And so I think you'll see us kind of doing more of the same going forward, trying to find those right geographies where that makes sense to do that.

And maybe just as we wrap up on leverage, where the company is at on leverage, where -- what kind of range are you comfortable with? Maybe comment on that.

We target 3.5 to 4x leverage. We're currently at the end of September right at 3.6x. So at the lower end, we look at the leverage, we look at liquidity, which we've got $1.4 billion, $1.5 billion of liquidity. We look at our debt maturity profile just to make sure that we've got the foundation to be as opportunistic as possible given the opportunities that arise. If the share price were to take a big hit that we believe is unfounded, you'd probably see us want to come in and take advantage of that if there isn't a big swell of acquisition opportunities to come up. So we're just positioning ourselves to be ready for that opportunity when it arises.

And the dividend, how do we think about that?

Yes. We just raised our dividend. We're right now at $0.34 per share per quarter. So that was a 6% increase that was announced last week. We target a dividend payout ratio of 30% to 40% on a recurring net income type basis, and we're within that target range. And I think as we continue to grow, you're going to see us continue to increase that dividend.

Well, great. So I appreciate Service Corp participating in the conference again this year, and thanks, Aaron, and I hope everybody has a good afternoon.

Thank you, A.J. Thank you, everyone.

Good day, and welcome to the SCI Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management team. Please go ahead.

Good morning. This is Trey Bocage, AVP of Investor Relations and Treasury. Welcome to our third 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 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 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. 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.

I will then close with some thoughts about our earnings expectations for the rest of 2025. For the third quarter, we generated adjusted earnings per share of $0.87, which is more than 10% increase compared to the $0.79 in the prior year period.

We saw impressive increases in cemetery revenue and gross profit as well as lower corporate, general and administrative expense, which was partially offset by slightly lower funeral revenues and gross profits, which when combined, resulted in $0.10 of earnings per share growth from operating income.

Below the line, the favorable impact of a lower share count was more than offset by a higher tax rate and a slightly higher net interest expense, resulting in a negative $0.02 decline in earnings per share. The higher tax rate was the result of the nondeductibility of certain excess tax benefits from the settlement of stock option awards.

If the tax rate had remained constant, we would have had an additional $0.04 in earnings per share, resulting in 15% earnings per share growth over the prior year quarter.

Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenue declined by almost $2 million or less than 1% compared to the prior year quarter. Comparable core funeral revenue declined by $3 million or just under 1%, primarily due to a 3.5% decrease in core funeral services performed, partially offset by a 3% increase in the core average revenue per service. The core cremation rate increased modestly by 50 basis points to 57.3%. Non-funeral home revenue increased by $3 million, primarily due to a 13.4% increase in the average revenue per service.

We expect this impressive growth in the average revenue per service to continue as older preneed contracts that are maturing out of our backlog have higher cumulative trust earnings and more recent preneed contracts written will mature with higher value in the backlog due to our 2024 operational decision to no longer deliver preneed merchandise at the time of sale.

Non-funeral home preneed sales revenue decreased by $4.6 million, primarily due to our decision to stop delivering preneed merchandise at the time of sale, as I previously mentioned. This quarterly decline should cease later in 2026 as we anniversary the date of not delivering merchandise preneed.

And the non-funeral home average revenue per service will have a meaningful compounded growth in the coming years as each year, a higher percentage of contracts with higher value mature out of the backlog.

The decline in merchandise revenue this quarter was partially offset by higher general agency revenue due to our conversion from selling a trust-funded preneed product to an insurance-funded preneed product. Core general agency and other revenue grew by $3 million or 6%, primarily driven by higher preneed insurance sales production.

This positive impact from higher sales production was slightly offset by a modestly lower average general agency rate as we decided to offer a noninsured flex product in several West Coast markets, which generates a lower general agency commission rate in the current period.

Funeral gross profit decreased by $9.5 million, while the gross profit percentage declined by 170 basis points to about 18%. This gross profit decrease was attributable to the slight decline in revenues for the quarter, coupled with higher selling costs and a moderate fixed cost increase. Declines in higher-margin merchandise revenue were somewhat offset by increases in general agency revenue. This general agency revenue is substantially offset by a higher portion of our selling costs being recognized currently for GAAP purposes.

We continue to manage our fixed costs below inflationary trends to about a 1.4% increase for the quarter as we continue to focus on leveraging our scale, both in the field operations through staffing metrics and in our overhead support functions.

Preneed funeral sales production increased by $6 million or about 2% over the third quarter of 2024. Core preneed funeral sales production increased by $20 million or 9% as we have now lapsed the anniversary date of the transition to Global Atlantic, and we experienced growth in both insurance and trust-funded sales production.

Non-funeral home preneed sales production decreased $14 million or almost 20% as SCI Direct transitions from the sale of trust to insurance-funded preneed contracts. This transition has required many of our sales counselors in certain states to go through extensive training, obtain insurance licenses, both of which contributes to the temporary reduction in the number of contracts written. We expect in early 2026, we will experience year-over-year sales production growth again for SCI Direct as a whole. Now shifting to cemetery.

Comparable cemetery revenue increased by $31 million or almost 7%. Higher core revenue was the primary driver, complemented by higher other revenue. Our core revenue increase of $27.5 million or 7% over the prior year quarter was primarily due to a $27 million increase in total recognized preneed revenue, of which $21 million resulted from higher property revenue and $6 million from higher merchandise and services revenue, which includes recognized merchandise and service trust fund income.

Other revenue, primarily internal care fund trust income increased as well by $3.5 million or 10%. Total recognized preneed revenue benefited from growth in comparable cemetery preneed sales production of $30 million or almost 10%. Large sales grew by an impressive $8 million or 19% over the prior year quarter. Maybe more impressively, core sales accounted for $22 million of the sales production increase as solid velocity growth was complemented by higher sales averages.

Cemetery gross profit in the quarter grew by $18 million, and the gross profit percentage increased by 160 basis points, generating an operating margin percentage of 34%, primarily due to the strong growth in cemetery revenues. Now let's shift to a discussion about our outlook for the remainder of 2025.

As you saw in our earnings release, we are confirming the midpoint of our normalized earnings per share guidance and narrowing the range to $3.80 to $3.90 for 2025, and we are slightly raising our cash flow outlook due to stronger working capital trends in the business as well as anticipated lower cash taxes.

Therefore, the fourth quarter range would be $1.09 to $1.19 in normalized earnings per share. In the funeral segment, we expect volumes to range in the slightly down 1% range to the slightly up 1% range, bringing the 12-month volume for 2025 to slightly below flat.

This is 200 basis points better than 2024, and we believe now the pull-forward effect going forward will be negligible and can begin to see the effects of demographics, our premier locations and outstanding people and the impact of our tremendous preneed funeral backlog affect volume growth in the years to come.

We would expect the sales average in the quarter to continue to see solid growth. We expect our core general agency revenues to slightly decline, even though we anticipate preneed funeral sales production growth as the average commission rate should decline due to certain markets having the ability to sell noninsured flex products this year that carry a lower commission rate.

Overall, we expect modest funeral revenue and gross profit growth as compared to the fourth quarter of 2024. In the cemetery segment, we would expect to see low to mid-single-digit cemetery preneed sales production growth, but a lower construction revenue recognition rate as we should have a slightly muted effect on the recognized cemetery revenue growth. Overall, we expect flat to low single-digit revenue growth, resulting in flat to slightly down gross profits as compared to the fourth quarter of 2024.

Below the line, we expect the impact from our share repurchase program to have a favorable effect on earnings per share as compared to the prior year, which will be somewhat negated by a slightly higher tax rate in the fourth quarter.

We feel very good about our momentum that we will carry into 2026. We expect favorable trends in funeral volume, funeral average, SCI Direct, preneed cemetery sales and lower interest rates and believe that we can achieve earnings per share growth within our long-term growth framework of 8% to 12%.

In conclusion, I want to acknowledge and thank the entire SCI team for their daily commitment to our customers, our communities and to one another. Your skill, dedication, compassion and attention to detail are the foundation of our success. Thank you all for making a difference every day. And with that, operator, I will now turn it over to Eric.

Good morning, everyone. Thanks, Tom. Thank you, everybody, for joining the call today. And as I usually do, I'm going to kick it off the way Tom just ended.

So before I start my prepared remarks, I'd like to extend my sincere appreciation to all our dedicated and talented associates. Your commitment, your compassion enable us to serve client families with care and professionalism during some of life's most challenging moments, which ultimately makes a meaningful difference in the communities that we serve.

I am truly proud of the work you do every day and continue to be grateful for your continued dedication to our client families and to the communities that we serve. So with that, I'm going to begin today by providing highlights on our cash flow and our capital investments during the quarter. And then I'll make a few comments on corporate G&A and then touch on our remaining 2025 cash flow expectations and then conclude with an update on our overall very positive financial position here at SCI. So we generated adjusted operating cash flow of $268 million in the quarter, neutralizing for an expected $11 million of higher cash taxes, adjusted operating cash flow increased $10 million from the prior year.

So let's break that down a little bit more. Our underlying business supported adjusted operating cash flow by generating higher operating income of about $14 million during the quarter that Tom just walked you through in his comments. Cash interest was also lower by about $13 million, but that was due largely to cash interest payment timing associated with the note refinancing that we completed in September of 2024 and coinciding reduction of our drawn bank credit facility.

Additionally, lower rates on our floating rate debt were offset by higher floating rate balances. So offsetting these favorable impacts were working capital uses of about $17 million, which really related to just normal timing of payables and receivables during the 3-month period. So let's move on to capital investment. We invested $140 million in the quarter into our existing locations, new builds, funeral home and cemetery acquisitions and real estate purchases. So let's break that down a little bit.

We invested $86 million of maintenance capital primarily into our current funeral homes and cemeteries in the quarter, which was in line with our internal expectations. $45 million of this was allocated to highly profitable cemetery development projects, $35 million into our current funeral and cemetery locations and then $6 million into digital investments and some corporate spend as well. We also invested $17 million of growth capital in the quarter, primarily for the construction of new funeral homes and crematories.

Finally, we invested $37 million into business acquisitions during the quarter, bringing our full year business acquisition investment to $65 million. Also, subsequent to quarter end, we invested an additional $3 million for a few locations in Canada, bringing us currently just shy of the low end of our full year acquisition target range. The pipeline of acquisition opportunities today as we speak, continues to be robust, and we fully expect to achieve our $75 million to $125 million acquisition investment range target for 2025. So moving on to capital distributions.

We returned $123 million of capital to shareholders in the quarter through $45 million of dividends and $78 million of share repurchases. We repurchased just under 1 million shares at an average price of about $79 during the quarter. This brings the number of shares outstanding to just over 140 million shares at the end of the quarter.

Year-to-date, though, we returned $538 million in capital to shareholders, repurchasing 5.1 million shares at an average price of $78, which totals right around $400 million and an additional $135 million of dividends.

And by the way, we currently still have about $410 million of remaining share repurchase authorization as we speak today. So shifting gears now for the quarter, I'm going to now make some comments about our corporate G&A expense, which decreased $5.4 million quarter-over-quarter, which was primarily due to timing of incentive compensation accruals versus the prior year quarter. We remain very comfortable with our fourth quarter 2025 range of $39 million to $41 million for corporate G&A expense.

Although as you've seen in the past, we fully expect some variability in this due to our long-term incentive compensation plans that could push us above or below this range slightly during any particular quarter. So shifting now to the rest of 2025 and as you saw in the release, we updated our 2025 adjusted operating cash flow guidance range to $910 million to $950 million with a midpoint of $930 million.

That is a $20 million increase over our midpoint of $910 million, which we talked about last quarter. $10 million of this increase is related to lower cash taxes and $10 million is related to better working capital expectations. So after deducting $315 million of expected maintenance capital at the midpoint of our ranges, we expect to achieve very impressive adjusted free cash flow of $615 million, which, by the way, approximates about $4.40 of free cash flow per share. And as I've discussed in prior quarters, cash taxes have continued to return to more normal levels in 2025 after the tax accounting method change that benefited cash flow since the third quarter of '23.

While this normalization created an expected headwind, the impact of this is now partially offset by the newly enacted federal tax legislation during this year. We now expect the full year amount of cash taxes to be approximately $135 million, which compares to the $145 million that I anticipated last quarter. And again, this is $115 million greater than the $20 million of cash taxes paid in 2024.

Lastly, as we've addressed in prior quarters, we expect our effective tax rate to be 25% to 26% as excess tax benefits are no longer recognized on the settlement of certain executive share-based compensation awards. So I'm now going to conclude my comments with an update on our financial position. We continue to have a favorable and manageable debt maturity profile with ample liquidity. We ended the quarter with liquidity of just under $1.5 billion, consisting of about $240 million of cash on hand and approximately $1.2 billion available on our long-term bank credit facility. Additionally, leverage at the end of the third quarter was 3.6x net debt to EBITDA, which is down from almost 3.8x at the end of the third quarter of 2024 and remains toward the lower end of our long-term leverage target range of 3.5 to 4x.

So our strong balance sheet position and its liquidity, combined with the robust cash flows continue to support our ongoing capital investment program, which provides us tremendous flexibility to invest opportunistically for the long-term benefit of SCI's customers, our associates and our shareholders. So in closing, I want to again emphasize how proud we are of our entire SCI team.

Your unwavering commitment to supporting our customers as they plan and as they manage through their most difficult times is truly inspiring. Thank you again for all that you do. So with that, operator, this concludes Tom and I's prepared remarks, and we'd like to go ahead and open the call up now to questions.

[Operator Instructions] The first question comes from Scott Schneeberger from Oppenheimer.

It's Daniel on for Scott. I'd like to start with the cemetery preneed sales production. I mean velocity was clearly good in the quarter. Could you discuss how velocity trended in this quarter on a year-on-year basis versus last quarter? It sounds like it's accelerating. So some perspective on that, please? And what do you think that means for the consumer? And as we look into next year, your comfort level with this trend to be sustained?

Yes. I think if you look at our results and then some of the other retailers that are out there, it doesn't jive very well because we really saw across the board a lot of great velocity in the quarter. And again, quarter is a quarter, it's not a year. But I think, one, having the flexible financing plans for our consumers to the extent we can has made a big difference. I think just focusing on the basic metrics that we utilize in order to generate leads, good leads and bring them to close. So a lot of it is just good fundamental sales management and sales techniques that are bringing in more customers and accommodating them with financing terms that work. But I think you're right.

I mean, what's really great about this quarter is we saw great growth on the high end with large sales up almost 18%. And then within the core itself was the primary growth. And we saw more of an effect from velocity than from sales average, which is very inspiring when you think about that component of what we do.

So right now, based on what we see, we see continued ability to focus on growing velocity, getting these inflationary cost increases, and we're still seeing a lot of activity at the large sales level. So we feel good about those trends going into the fourth quarter and as we head into 2026.

Got it. Following up on that, I mean, it sounds like you're targeting your typical 8% to 12% EPS growth range for next year. Could you please discuss your confidence level in achieving that? And is there anything on the cash flow side that's unique or different for next year that we should be thinking about?

Yes. So I'll speak to the 8% to 12%, and I'll let Eric speak to the cash flow. On the 8% to 12%, like we've always said, our degree of assurance in a typical year is probably 85% to 90%. I mean we have achieved that level or greater for the most part in those types of situations. I don't know what 2026 holds, so there's no guarantee.

But if you look historically over almost any period of time, if you want to take 20 years, 10 years, 6 years, I use 6 because COVID is 5 and that's unusual. But if you look at these, we've generally grown at about 14% compounded. And so we do have a tendency to be able to achieve above the target. We never know when that's going to happen because it takes a little bit of things falling into place for that to occur. But again, I think it's really -- for the most part, it's about revenue growth. And if we get volume, if we get average in the same time, you're going to see margins pop on the funeral side.

Cemetery is going to be predominantly driven by preneed cemetery sales, particularly preneed property sales. More and more of it is the merchandise and services that are rolling out of the backlog, that's become a nice growth driver complementing.

But at the end of the day, to really drive cemetery margins, you got to have those sales. So I'd tell you, we still believe 85% to 90%. I don't know what '26 holds. And I'll turn the cash flow question over to Eric.

Daniel, Yes. I mean, I think the part that you need to understand and really model as it relates to cash flows is related to cash taxes. Before I get in there, absent cash taxes, I don't know of anything unusual in terms of working capital or whatever. But as the EBITDA grows, as the company grows, which Tom just says we expect, you'll see cash flow from operations grow, which is -- depending on the year, has been growing over a long period of time in the kind of 4% to 6% type CAGR for cash flow from operations.

And that should generally continue as we move forward independent of cash taxes. So we started the year, as we all know, with about $150 million -- excuse me, headwind as it relates to cash taxes.

We paid $25 million last year. We expected to originally pay $175 million. That has come down by about $40 million. A lot of that has to do with the federal tax legislation that was new this year.

Some of it would be a little bit more recurring, which is more of the accelerated depreciation depending on the assets we put into play and invest in. But some of it, such as some of the internal use of software and some of those things may be more like onetime. So I guess what I'm trying to say is, I think we'll give some of that $40 million back. I don't know how much now. Maybe it will be more like $20 million to $30 million of that $40 million, we'll get back.

But that is something we'll talk in more detail in February when we give you more specific guidance. But that's the one place that I think you got to think of in terms of the cash flow. Still, with all that being said, we don't see huge amounts of changes in investment in our maintenance capital expenditures, which is about $315 million this year.

So when you think of the free cash flow being well over, it's almost into the mid-4s, it still should be over $4 a share, $4.25 a share, which is really significant for our company that we're very proud of.

The next question comes from Joanna Gajuk from Bank of America.

So I guess maybe just to follow-up on the cemetery preneed sales production sounds like a very robust number. And I guess you gave us some details on this. So thanks to that. And how should we think about next year?

I mean, it sounds like you believe you're on track for the 8% to 12% EPS growth. So should we assume mid-single-digit growth next year for cemetery preneed sales doesn't make sense? Or is there any reason to think about a different number?

Yes. I think, Joanna, thanks for the question. Overall, we do expect cemetery sales will trend like they kind of have historically. We feel very good about low to mid-single-digit growth. A component of that is large sales. That's the one that tends to have a little more volatility to it quarter-to-quarter.

But overall, we would expect to be able to grow that again in the kind of low to mid-single digits with each of these categories. We just feel very good. I think the inventory is out there. The sales force is doing a tremendous job of taking people through there and educating them. The one component, we talked a little bit about this, is the cremation consumer continues to be a high-growth opportunity in our cemeteries. We're seeing more cremation consumers pick either cremation gardens, cremation niches.

We have a lot of products that I'd tell you, consumers really don't have familiarity with. I think a lot of cremation consumers come in and don't really understand what we have available. So we're really focused this year with some consumer research that we've done about trying to tie that consumer in a better way to educate them about what we have because we found in the focus groups that almost 0 out of 10 knew what we had and about 8 out of 10 once they saw it said, I'm interested in looking.

It doesn't mean they're going to buy, but I think there's a consumer there that we probably have not done as good a job with as we've done with the burial consumer. So tie that into cemetery over the next couple of years, I think it's a real growth opportunity, albeit not a huge one, but one that has an ability to grow at a higher growth rate.

So on the last comment on the cremation customer buying into the cemeteries, any way to say that? I mean it sounds like you said a huge one, but I guess would that -- could this add a point of growth or so per year?

Yes. Yes, I think the other parts are going to grow in traditional ways. I think we feel very good. We've really focused on the types of leads and our ability to close the leads, and this kind of gets back to sales productivity and sales growth. But our sales force has done, I think, a tremendous job.

Our revenue team has helped construct some really nice inventory across our cemeteries. We spend about $160 million a year injecting new inventory into the system, and we do a real good job of converting that pretty quickly into sales. So we feel very good about next year right now based on everything we know at the high end, at the core level, and like I said, I just want to identify some of these productivity gains or velocity gains. If we can get more cremation consumers in there, it's going to drive more sales, not as high an average, obviously, but drive more velocity, more familiarity. And the nice thing about cemeteries is it's really a family tree component to this, right?

Because people are going to visit the cemeteries, people are going to want to buy adjacent properties for the family. So this is really good in educating and providing future leads and opportunities to our sales force.

Okay. Great. And if I may, can you talk about the sales trends, I guess, at your largest location, the Rose Hills? It sounds like that's really running a lot of what's happening with the company. So can you flesh out how the quarter has been going and anything to flag there?

Yes. I would say Rose Hills is doing very well. Really congrats to Rachel and her sales team. They've done a tremendous job of setting the inventory up, bringing in the consumer, driving the leads. And so they had a very successful quarter, well into the double-digit growth. And we expect great things to come because, again, there's great inventory, there's great people, a great team. And so we expect Rose Hills to be a big part of our growth story into 2026 and beyond.

The next question comes from Tobey Sommer from Truist.

Good job on expense control in the quarter. Do you have pretty good confidence in being able to extend the trend in low expense growth into 2026? And are there any areas where you are seeing pressure?

Well, I think historically, Tobey, we've seen a little pressure on the cemetery maintenance front as you look over the last few years. And again, that's kind of easy to understand as you think about cost of water, cost of labor, those types of trends. We definitely have been instituting some new strategies that we believe can continue to kind of manage those costs down. But probably the biggest lever we have in the margins is our staffing metrics.

And so our operating teams do a tremendous job, and it's really being able to flex when you have volume or you don't have volume. So the way I look at it is this, I would expect that if we were to get more volume in 2026, well, it's going to be hard to hold 1% to 2% cost growth, but that's okay because it's supported by the revenues. So utilizing those staff metrics, and that's both using part-time people.

It's about how we're managing the staff themselves, about trying to leverage technology to take some of the burdens off our caregivers and funeral directors. So that's really how we're managing today. It's a more challenging volume environment, and we're able to kind of flex and manage those costs.

So I think that's the way I would think about the field. And then, obviously, at the home office level, we're always trying to look for ways, particularly today with AI and technology, can we begin to think about how we do our jobs differently and begin to leverage those tools to where maybe we don't have to hire an extra person or 2 person. So I think that's the way, by department, we're trying to manage the costs going forward.

And I wanted to maybe ask a follow-up on the cemetery -- excuse me, the cremation comment that you made in response to a prior question.

With respect to the company's journey in educating prospective customers about the options, how would you compare and contrast the various cemetery options in customer awareness versus cremation? And how quickly can you affect change there, do you think?

Well, I hope very quickly, but as usual, I think on the cemetery side, if you think about a burial customer, they're thinking about that cemetery option if they haven't already arranged it. By the way, most of them -- 80% of our customers come in with a burial place already. So that's -- I think we're pretty good at that because we've got a customer that expected a customer that wants to go to the cemetery.

What's unusual about the cremation opportunity at our combo facilities, it's easier, right? Because now you've got -- you know there's a cemetery behind there, you might ask the question. But one of the things we're trying to do is just create visibility, both on the web as people are searching out there, putting it on our websites a little more prominently.

We're going to have things in our lobby as people are waiting to meet with somebody, that's going to flash across the screen, that's going to tell you you're going to see aerial views of some of these beautiful crematory gardens and niches.

And so again, kind of soliciting a little bit of education there for our consumer and then also just training even our stand-alone funeral homes to realize we've got that offering and be able to talk about it and be able to, again, set up appointments to go out and see. So we've got a variety of tools to create more awareness, more discussion around it. And it's happened naturally, by the way. And again, we have great people. And so there's locations today that do a great job of that, and there's some that don't. And so it's really about standardizing that educational process across the network.

The next question comes from Parker Snure from Raymond James.

You guys mentioned the noninsured flex product out on the West Coast. Maybe just dive deeper there, explain the rationale of why you think that product was appropriate for that market.

Yes. So think of the noninsured flex as a product that's more similar to trust. If you remember, so an insured product gives a consumer protection. So if you were to enter into, let's say, a 3-year as an example, so you're paying over 36 months. If I die at month 8, my family is covered. They're protected by that insurance product. Well, it's a little more expensive than a trust product because the trust product doesn't have that protection. So Tom dies in month 8, they're going to go to my family and say, I need to collect the balance in order to bury you.

So a lot of this is about providing a product that is suitable for the consumer from an affordability perspective. And so we have that product called trust in most markets. Some of these markets, particularly in California, is where this occurs, where we've offered a flex product, which acts a little more like trust.

And it doesn't generate as much of a commission for us, but it also doesn't provide the protection for that consumer. So as we switched over to Global Atlantic, we didn't offer the flex product in certain markets, and we saw that consumers' needs weren't getting met.

So this was an attempt to say, we have a consumer that needs this product, let's utilize it because it's become an issue that is keeping them from being able to go under contract. So that's all it is. I don't think we expect it to expand much more than the markets we're in because we have trust products as an alternative in other markets.

So I think we're -- the changes in, and you'll see a little bit of a comparison as you go into early '26 when you think about the general agency rates going forward.

Okay. And then you mentioned that the funeral volume pull forward, you think is going to be more negligible going forward. So should we read that through that funeral volumes kind of trend slightly up next year or kind of more back to a more normal cadence?

And then maybe just talk about the knock-on effect that, that provides to the preneed cemetery business as that acts as a lead source for that business?

Yes. So if you think about it, we do some ratios that kind of stay around 55%, I think, is the percentage of our ability to sell preneed off of the funeral volume that walks in. So as we get a little bit more, the incremental cemetery piece should be about 55 basis points of that growth as you think about it. Now there are things we can do to tune that up, and we hope we can go higher.

But to your point, it should be positive for cemetery sales leads as well. And I think the way we're thinking about it is this, and we modeled it a long time ago and nothing is perfect, but it's been pretty well done in the sense of the diminishing effect of the pull forward is real, and we've seen it year to year to year.

It's still there. I don't want you to say there's none, but we just don't expect it now to be a material factor going forward. So now you think about the things that are positive. We've got the best locations, the best people. We've got demographics beginning to work for us. We've got this massive backlog that nobody else and our competitors really has.

And so I think we've captured some share and some high-value share because remember, the contracts coming out of the backlog are bigger than the ones that are walking in the door. So all those things point towards -- and again, I don't know for sure when it hits, but when it does, it's very incremental.

We know when you get a little bit of revenue growth, you can pop the margins. Look at this quarter alone, we've got a little over 4% revenue growth. And if you normalize the taxes, we're up 15%. That's what happens when you get 4% revenue growth.

When you get 2%, that can't happen. So what we like is with demographics, with the backlog, we feel very good about the ability to generate earnings per share growth in the coming years.

Okay. And if I can squeeze in one more, the insurance transition on the SCI Direct side has led to some declines in production. I understand that was 100% trust before. It's a different sale. It's a different product, and it's been a phased rollout. But is there an expectation that, that will return to sort of pre-transition levels at some point? Or are we going to be kind of working off of a lower base going forward? And then also, has there been any changes or inflections in turnover with the sales force on that segment?

And you're talking specifically about SCI Direct, yes.

SCI Direct, yes.

It is a pretty drastic change. I mean the product is very different. It does require licensure. So I think the way to think about it is this, we expect in '26 that we're going to see growth again off that new base. I don't think we get back to -- pre-change levels is probably going to take a couple of years to get back to those types of levels, but we're going to get there.

And again, I think part of that is hiring the sales force where we've had the turnover, getting people licensed and comfortable with the product. The thing I feel better about is this really is about familiarity of sale. I mean people have been doing it a certain way for a long time, and we really disrupted their world, and we really appreciate the sales counselors and sales leadership at SCI Direct and all the hard work they've done.

So the fruits of their labor is coming. I think it's going to take a couple of years, but I think you're going to see some pretty impressive growth rates. And again, combine that with the fact -- so you're going to see higher general agency revenues. And now think about that backlog.

That backlog is going to unwind, and it is very valuable and very incrementally profitable. So as you model this thing out 10 years, it's incredibly impressive the rates of growth as you think about earnings going forward for SCI Direct.

This concludes our question-and-answer session. I would like to turn the conference back over to SCI management for closing remarks.

Thank you, everybody, for being on the call today. We appreciate your attendance. Happy Halloween to everybody tomorrow. Have a good, safe one. And we'll speak to you in our fourth quarter call in next February. Thanks so much. Bye-bye.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the SCI Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

This is Trey Bocage, Director of Investor Relations and Strategic Finance. Welcome to our second quarter earnings call of 2025. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me quickly go over the safe harbor language.

Any comments made by our management team has set 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 the call over to Tom Ryan, Chairman and CEO.

I Thanks, Trey. 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. I will then close with some thoughts about our earnings expectations for the rest of 2025. We -- for the second quarter, we generated adjusted earnings per share of $0.88, which was more than an 11% increase compared to the $0.79 reported in the prior year period.

We saw impressive increases in funeral revenue and gross profit, partially offset by slightly lower cemetery gross profit and higher corporate general and administrative expense, which when combined resulted in $0.05 of earnings per share growth from operating income. Below the line, the favorable impact of a lower share count and a slightly lower net interest expense resulted in an additional $0.04 of earnings per share growth.

Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenue increased over $15 million or about 3% over the prior year quarter, primarily due to solid growth from both core revenue and core general agency revenue. Comparable core funeral revenues increased by $8 million or about 2%, primarily due to a healthy 3.3% growth in the core average revenue per service, which was modestly impacted by a 20 basis point increase in the core cremation rate.

The favorable impact from the core average growth was partially offset by a 1.5% decrease in core funeral services performed. For general agency and other revenue grew by an impressive $7 million, primarily driven by higher average commission rates derived from our new preneed insurance marketing agreement, which were partially offset by a decline in insurance-funded preneed funeral sales production.

Funeral gross profit increased by about $15 million, while the gross profit percentage increased by 210 basis points or about 20%. This gross profit increase was the result of the solid 3% revenue increase combined with managing our fixed costs below inflationary trends to about a 1% increase for the quarter. As we continue to focus on leveraging our scale, both in the field operations through staffing metrics and in our overhead support funds. Preneed funeral sales production decreased by $29 million or about 9% over the second quarter of 2024.

Core preneed funeral sales production decreased by $18 million or 7% primarily due to the transition to our new preneed insurance provider in July of 2024. We anticipate comparable core preneed sales production growth in the back half of 2025. The nonfuneral home preneed sales production decreased $10 million or 14% as SCI direct transitions from the sale of trust to insurance-funded preneed contracts. This transition has required many of our sales counselors in certain states to go through extensive training, obtain insurance licenses and change the payment terms for customers financing their pre-need. -- all of which contributes to a temporary reduction in the number of contracts written.

As of today, we have made the transition in markets that represent 95% of our production. We expect that in early 2026, that we will experience year-over-year growth again for SCI Direct as a whole. Now shifting to cemetery. Comparable cemetery revenue increased by $2 million or almost 1%, slightly higher core revenue and higher other revenue accounted for the increase.

Our core revenue increase of about $1 million over the prior year quarter was primarily attributable to a $3 million increase in atneed revenue, which was partially offset by a $2 million decline in recognized preneed revenue. Within recognized preneed revenue, higher preneed merchandise and service revenues which include recognized trust fund income were more than offset by lower preneed property revenue, which was negatively affected by a lower recognition rate on new construction compared to the prior year.

While recognized preneed cemetery revenue declined due to lower recognition rates, comparable preneed cemetery sales production increased by almost $19 million or over 5%, driven by a healthy increase in large sales as well as a modest increase in core sales. While these incremental sales were deferred for revenue recognition in the second quarter, they should benefit future periods as we achieve the required payment criteria and/or complete construction of the project.

Cemetery gross profit in the quarter decreased by $4 million and the gross profit percentage declined by 110 basis points, generating an operating margin percentage of 33%. Our modest revenue growth was offset by higher selling compensation on higher sales production. The profit decline was partially mitigated by less than inflationary fixed cost growth of 1%. And as we continue to focus on leveraging our scale, both in the field operations and in our overhead support functions.

Now let's shift to the discussion about our outlook for the remainder of 2025. As you saw in the earnings release, we are confirming our normalized earnings per share guidance range of $3.70 to $4 for 2025. And we are raising our cash flow outlook due to stronger working capital trends in the business as well as anticipated lower cash taxes from recent legislative changes that were inactive. For the back half of 2025, we expect growth in revenues and margins for both the funeral and cemetery segments resulting in impressive earnings per share growth versus the prior year 6-month period as well as compared sequentially to the first 6 months of 2025.

We also expect both preneed cemetery sales production as well as preneed funeral sales production to grow at low to mid-single-digit percentages over the prior year 6-month period. Below the line, we expect a favorable impact from a lower share count, will be substantially negated by a higher effective tax rate, particularly in the third quarter as we compare to a prior year rate reduced by the deductibility of excess tax benefits from certain stock option exercises, which is no longer deductible for us in 2025.

In conclusion, I want to acknowledge and thank the entire SCI team for their daily commitment to our customers, our communities and one another. Your skill, dedication, compassion and attention to detail is the foundation of our success. What I know many of our professional team members help client families navigate painful loss every day. I would like to particularly recognize our Texas team who have been caring for so many families impacted by the heartbreaking tragedy that occurred on July 4 in the Texas Hill Country.

When I have witnessed and heard from countless friends and colleagues, including other independent funeral operators is that our teams have performed above and beyond. Thank you for being a source of strength, respect and peace. Your grace and compassion will never be forgotten. Thank you all for making a difference every day.

And with that, operator, I'll turn it over to Eric.

Thanks, Tom. Good morning, everybody, and thank you for joining us on the call today. To start, I really need to just continue some of the statements that Tom just mentioned and expressed all of our heartfelt gratitude to each of our associates. Again, your exceptional service and dedication make it possible for us to support client families during some of the most difficult times of their lives. Your hard work truly does make a difference. And we are appreciative and proud of all that you do to support the families as well as the communities that we serve.

So with those statements, I'd now like to shift to beginning my remarks today as I typically do by providing highlights on our cash flow and capital investments during this quarter. I'll then make a few comments about corporate G&A, and I'll conclude with an update on our overall financial position. So we generated adjusted operating cash flow of $168 million during the quarter. Adjusting for $84 million of higher cash taxes, adjusted operating cash flow really increased $33 million from the prior year after making this adjustment.

Let's break that down a little bit during the quarter. From an underlying funeral and cemetery business perspective, adjusted operating cash flow was supported by higher funeral and cemetery gross profits of just under $14 million during the quarter that Tom really just walked us through. Additionally, we had a net $43 million source of working capital in the quarter, driven by $20 million of higher cemetery installment receipts and $23 million which are sources of cash related to the timing, working capital timing of payroll, payables and some other working capital items.

Partially offsetting these increases, Corporate G&A expenses increased and cash interest was also higher by about $14 million, which was due to the timing associated with the bond financing and consigning reduction of our bank credit facility, which we completed last September of 2024. Lower rates on floating rate debt were largely offset by higher floating rate balances for the remainder of the quarter.

Lastly, related to cash taxes, recall that prior year cash flow was favorably impacted by a change in tax accounting method that benefited cash taxes. Cash taxes of $94 million were significantly higher than the prior year by $84 million, which we fully expected and have communicated several times over the past few quarters.

Now let's move on to capital investments. We invested $100 million in the quarter into existing locations, cemetery development, new builds, business acquisitions and real estate purchases. So breaking down this spend, we invested $69 million of maintenance capital primarily into our current funeral homes and cemeteries, which was in line with our expectations.

[indiscernible] this was allocated to highly profitable cemetery development projects, $29 million into current funeral and cemetery locations and $5 million into digital investments and some corporate spend. We also invested $18 million of growth capital in the quarter to purchase real estate and for the construction of new funeral homes and cemeteries.

Finally, we invested $13 million into business acquisitions in the quarter. And on that topic, we again remain optimistic about our acquisition pipeline. And we anticipate achieving our $75 million to $125 million acquisition investment target for 2025 for the full year. So moving on to capital distributions. We returned a substantial $239 million of capital to our shareholders in the second quarter through $45 million of dividends and $194 million of share repurchases.

We repurchased about 2.5 million shares at an average price of about $78 during the quarter, bringing the number of shares outstanding to just over 140 million shares at the end of the quarter. So year-to-date, we've repurchased 4.1 million shares at an average price of also about $78, returning a total of $320 million of capital to shareholders through this repurchase program. Subsequent to the quarter, we have completed another 0.5 million shares for about $39 million, which equates to an average repurchase price of about $79 million.

So moving to our corporate G&A expense during the quarter. After adjusting for a $6.4 million pretax estimated charge for certain legal matters, G&A expenses increased $4.1 million quarter-over-quarter, which primarily was related to an increase in general and auto liability insurance costs as well as higher expenses related to the timing of incentive compensation accruals. We continue to expect the recurring corporate G&A expense to average somewhere around $40 million per quarter for the remainder of the year, although we fully expect there'll be some variability in this quarterly number due to our long-term incentive compensation plans that could push us above or below this during a particular quarter.

So let's talk about the outlook now for the rest of the year. And as you saw in the press release, we revised and increased our 2025 adjusted operating cash flow guidance range to now $880 million to $940 million, which is a new higher midpoint, which equates to $910 million, which is a $50 million increase over the original guidance midpoint of $860 million. About $30 million of this cash flow increase relates to cash taxes, and another $20 million relates primarily to stronger-than-anticipated preneed customer installment receipts.

After deducting $315 million of expected maintenance capital for the full year, we now expect very impressive adjusted free cash flow of almost $600 million for the full year of 2025. As we have addressed for the past several quarters, Cash taxes will revert to a more normalized level in 2025 compared to 2024, following a tax accounting method change that has benefited our cash flow since the third quarter of $23 million Previously, we expected cash taxes to increase $150 million year-over-year.

However, we now expect less of an increase due to the recently enacted federal tax legislation. While we continue to study the newly enacted law, we believe that certain components such as accelerated depreciation changes will now cause our 2025 cash taxes to rise only about $120 million year-over-year, which again results now in a full year revised estimate of cash tax of $145 million.

As we've addressed in prior quarters, we also expect our effective tax rate to be 25% to 26% in 2025 as excess tax benefits are no longer recognized on the settlement of certain executive employee share-based awards. And again, Tom also covered that. So I'll conclude my comments this morning with an update on our financial position. We continue to have a very attractive and manageable debt maturity profile with significant liquidity. We ended the quarter with liquidity of about $1.4 billion, consisting of approximately $250 million of cash on hand and approximately $1.2 billion available on our long-term bank credit facility.

Additionally, leverage at the end of the second quarter was 3.68x net debt-to-EBITDA, which again remains in the center of our long-term leverage target range of 3.5 to 4x. Our strong balance sheet position and this liquidity, combined with our robust cash flows continue to support our capital investment program, providing us tremendous flexibility to invest opportunistically for the long-term benefit of SCI, our associates and our shareholders.

So finally, in closing, I want to reiterate how extremely proud we are of our entire SCI team. The way we continue to serve our customers in their greatest time of need is truly inspiring. Thank you for everything that you do.

So with that, operator, this concludes our prepared remarks. And with that, we're going to turn it back over to you, and we'll open the call for questions.

[Operator Instructions]

Our first question comes from A.J. Rice with UBS.

Hi, everybody. Maybe I have a couple of questions I would ask if that's possible. First on the dip in the recognition rate in the current quarter. Is that just -- do you attribute that to the normal volatility you sometimes see in the cemetery production area? Or was there anything unusual that drove that? And it sounds like you think that's going to step back up to more normal recognition rate in the back half of the year, and therefore, you'll be able to book those sales. Is that the right way to think about it?

It is, A.J. I mean any time that we are starting to build a new project or develop new parts of our cemetery, we obviously, at some point, release that to our sales force and kind of pre-sell that project with consumers in our particular cemeteries. And as we all know, that essentially gets moved from production into revenues, which that ratio is the rec rate you were describing at the time the completion, the construction project is completed.

By definition, that's going to kind of ebb and flow. You usually see it in the low 90s in the first half and the higher 90s in the second half. What you saw in the press release of the low 90s is pretty sequentially consistent with what you saw last quarter. So what you should see in the back half of the year as projects complete and previously sold inventory gets recognized for revenues upon that completion is you're going to see that recognition rate raise in the second half of the year into the mid- to high 90s.

I think as a general statement, I think last quarter, we had -- someone asked me about it. And I said, I think you're going to end the year somewhere around mid-90s in terms of that rec rate, that's very consistent with what we've ended last year as well. So the punchline really, A.J., at the end of the day, is the natural ebb and flow of this process that occurs, there's nothing in the quarter that's deviating from that ebb and flow, and we feel very good about it.

Okay. That's great. On the cremation rate, off and on for the last year, 1.5 years, we've seen the rate of increase seemingly moderate. I know you're up 20 basis points this quarter. Historically, we forecast 100 to 150 basis points, that's created a revenue headwind that you've each year had to overcome. Do we think that we're entering a period where that pace of increase is going to moderate. Any thoughts on what you've been seeing in the cremation rate?

A. J., this has been kind of an ongoing debate between A. J. and I, and I think he's winning -- the -- I think 2 things are probably impacting this. One is when you get to cremation rates in some of these larger metropolitan markets, they're already pretty high. So where you have a lot of volume, the cremation rate is probably starting to stall a bit because it's gotten to that level.

And so the cremation changes are happening in probably more rural markets and places like that. And the other thing is just the demographic makeup. We probably serve a lot more consumers that are Hispanic, customs, aging customs, which may be lower cremation rates as you think about the population as a whole. So yes, we've kind of dialed back our expectations. I do think 20 is still a little low, but to probably say 50 to 80 is an area that we think probably as we go forward as the expectations.

Is there any way to translate that into -- at the 100 to 150 basis points, it's X percent of headwind to revenue growth each year and now at the new 50 to 80, it's more like Y percent or is that probably a bridge too far?

I think what we used to say, we used to lose a percent. So think about it as if we put in a 3% price increase, it gets us to with that old. And now I think instead of a 100 basis point headwind, maybe it's more like a 50 is the way to think about it. So I mean, as an example, you saw a 3.3% increase in the quarter because the cremation rate was modest. That's an area that I think we can start to model in as closer to the 3% rather than in the old days of thinking more around the 2%, 2.5%.

Okay. And maybe just a final question on the comments around cash flow and the tax benefits from the federal bill, et cetera. Can you just, Eric, maybe comment a little more about what is stuff that you can realize this year, how much of a benefit versus stuff that's just going to persist? I know some of it is going to be permanent and some maybe just you taking advantage of things that are available on a shorter-term basis. Can you give us a little more flavor on how much this affects your thinking about long-term cash taxes?

Yes, I think it does affect it, A.J., frankly because of the components of it. So when you talk about accelerated depreciation, you think like, okay, we're going to accelerate something and then the depreciation is done with. But what really -- what you're accelerating our capital improvements. And we're going to have a consistent ongoing capital improvement program.

So when you think of our maintenance CapEx of $315 million we've always broken that down for you that the true piece of maintenance is somewhere around $125 million, $135 million. That's the type of stuff as long as it's less than 20 years as part of the tax depreciation tables is the stuff that makes it eligible now that wasn't eligible prior to this newly enacted law. And to me, that's not a onetime benefit. That's something that will continue over a period of time. There's other stuff such as software, internal use software that we create. Well, we do ongoing update our software and create our software, some of our core software is homegrown, such as our HMIS system.

So that's something that you're going to have to continue to maintain Beacon is homegrown. We'll continue to maintain. We'll continue to expand. So look, it's early in the process for us to get it perfect. We definitely think there's a $30 million benefit to us from a cash tax perspective this year. And -- but I don't think this is a onetime thing. I think there's going to be some type of benefit similar to what I just described to you going forward as well from a cash tax perspective.

Our next question comes from Parker Suner with Raymond James.

Just any comments on seasonality of funeral volumes in the back half of the year, it looks like the third quarter is a little bit of a tougher comp versus the last year. So just anything you would note in terms of your expectations for funeral volumes in third quarter versus fourth quarter?

You hit the nail on the head. As we think about -- we use seasonality trends over multiyears, you would think that the third quarter from a volume perspective is a tough comp. The good news is preneed cemetery is probably an easier comp. And so I think as we think about the third quarter, we'd expect cemetery revenues to be really strong. Funeral will be a tougher comparison.

And then as you get into the fourth quarter, I think it moderates a bit, and you have a little more of a normal seasonality. So good observation.

Okay. And then I know just on payment terms and preneed cemetery. I know there was a mention of installment receipts in the prepared remarks in terms of working capital. Has there been any changes in the customer financing or payment terms in preneed cemetery, whether that be percentage of money down at the beginning or length of payment terms?

No. We haven't done anything materially in that area where we're lengthening installment terms or change in down payments or anything along those lines. Typically, you'll see us -- to recognize the revenue of undeveloped property, you have to get to 10% down. You typically have seen a pattern over the years. We're in the first half of the year -- we have some incentives where maybe we're not getting 10% down, but knowing that the customer will pay into that by the full fiscal year, and that will get recognized in the back half of the year. That concept plays into the previous question on the call in terms of a lower recognition rate in the lower 90s and a higher recognition and the higher 90s in the second half of the year.

But we're not materially changing. The truth to it is, installment payments are solid. They're strong. They're probably a little bit above our expectations. Frankly, the consumer continues to hang in there in the cemetery segment. We continue to have a large jump in production that we all know about during the COVID years. And we probably underestimated how much of those installments are really going to kind of hang in there versus historical levels.

And I think it's just done a little bit better -- consumers are a little bit better than probably what we ultimately modeled, which is $20 million of the $50 million raise in our midpoint of cash flow that we're very excited about.

Our next question comes from Tobey Sommer with Truist.

I wanted to ask a question about the financial benefit of the shift in life insurance partner. What sort of incremental benefit may you still get on an ongoing basis now that we've lapped the initial year. I'm not sure whether everybody was fully on board and fully sort of equipped to sell at scale, so there might be some ongoing benefits. So I'd love to get your thoughts there.

Yes. I think the incremental benefit is going to be in the type of insurance product that we sell you get more benefit from a multipay versus a single pay, how much of your preneed sales streams going into pure insurance if you're selling at levels in the mid-60s, low 70s, that's going to make a difference.

So I think, again, as you mentioned, as people become more equipped to present the benefits of insurance, but that's something that we can focus on. But I also think having gone through this now, we feel like production is something that we can raise across the board. And that could be in the insurance product, it could be in the trust product, but we feel really good about our momentum going forward and growing, whether it's an insurance product or a trust. But within the insurance bucket itself, it's the type of insurance product and like you said, we've got counselors that are better at giving that presentation. We'd expect an ability to grow that bucket.

Quantifying that is if we got 7% year-over-year kind of in the reported quarter, is it -- is it something that's going to be appreciable? Do you think it's a single point, a couple of points? How would you think about it numerically?

Yes, maybe a couple of points. I mean, because again, because you're lapping yourself and so you effectively have the similar rates that you had before. So now it just gets back to what is your production within that bucket. And the points that you're making are -- we've got a counselor that now is up and ready, its own insurance and knows how to do it, I understand the benefit.

So kind of just the normal perfecting the presentations. And so yes, that type of increase is not something we'd anticipate going forward.

Got you. My last question from a from a pricing standpoint for preneed, have you changed the percent down payment required at all?

Yes.

Our next question comes from Joanna Gajuk with Bank of America.

First, just a follow-up on clarification. Did I hear it by the preneed sales production expected to grow low to mid-single digits in both funeral and cemetery. So -- is that up for the full year? And did I hear right as it mean that you expect faster growth because like is the cemetery preneed sales production was expected to be up low single digits for the year? Or was it a comment for the second half?

Yes. My comments were specifically to the second half of the year that we think low to mid-single-digit percentages for both printing funeral and preneed cemetery. And again, on the annualized guidance I don't have that in front of me, but obviously, free funeral has been a challenge in the first half.

We expect that to turn around in the second half and carry that momentum into 2026. We've kind of gotten through the -- all the impact from change cemetery -- Joanna, we feel really good about. We saw some great momentum, as I spoke to in the second quarter, both in large sales and in core sales, and we expect that momentum to continue in the back half of the year. So feeling good about particularly where we are in the cemetery sales cycle.

So on the cemetery there is still for the year, I guess, it's going to be low single digits growth, maybe a little bit higher.

I think it could be low to mid -- we can climb back into the mid-2s. I think we feel good about -- obviously, we need a mid- to high single-digit back half to achieve that. But because the first quarter was a bit of a challenge. But the momentum in the second quarter, we feel pretty good. We could get back to low, but also mid for the year, again, depending on our success as it relates to large sales in core.

Right. And that was my other question in terms of the specifics because you did say you saw a healthy increase in large sales and modest growth in core. So I guess in Q1, the problem was the other the large shares were down to more like $30 million or so in the quarter. So what was the number in the second quarter for large stores?

Like $52 million. So we had a great second quarter as it relates to large sales. And I think, again, that compares back to last year's quarter, I want to say $38 million if I remember incorrect. So pretty healthy increase. And again, you can't get too excited and too proud either way because these sales come in a little bit lumpy. So we had really good sales in the second quarter.

I'd say July is off to a really nice start, but we still got August and September. So we feel confident that momentum is good, cemetery sales should be impressive in the third quarter and carry into the fourth quarter.

Yes. And I guess, if I may, a little bit different topic -- so thanks for the July commentary that was good to hear that, too. But on a different topic around your cash flows, right? -- increasing, it sounds like the $30 million benefit on the lower cash taxes might be a sustainable number. So if that's the case, how should we think about capital deployment? Does that change your appetite by doing more deals or maybe some other capital deployment opportunities that you would kind of be more aggressive on given the higher cash flows?

Yes. I think it's more of the same of the formula, Joanna, that you've seen is done. I mean we're going to invest capital to the highest return. Certainly, we've done a lot in shares in the first half of the year. I think you'll see some momentum there that will continue at least the shares at this level. But the M&A program is going strong. I know someone commented that we spent $30 million year-to-date and the guidance of $75 million to $125 million in terms of investment. I think we'll get there. I feel really good about the pipeline.

Some of the deals -- I mean, if we just get through our LOIs alone right now, we'd be into that guidance, frankly, and there's a lot more that we're out there discussing. So I think we'll get into that $75 million -- I think that's a good guidance number for investment for M&A. Would we do nor Absolutely. The other thing that you have to remember though, is are the greenfield investments that we're making, the new funeral homes and sometimes new cemeteries. This is a nice robust program, which we've told you -- this year alone, we're going to spend probably about $70 million on that. Could that go up? It's possible, but it takes time. That's a 3-year cycle.

At any point in time, we have $30 million to $35 million projects that are in the pipeline, about 1/3 of those turn every year. And that's at a more better velocity than what we've had in the past, but we're excited about that. M&A has its benefits because you get EBITDA and cash flow right away. But so do these construction projects have these benefits where you can build exactly where you want and exactly what you want, especially having a modern celebration of life venue we design these brand-new funeral homes.

So there's a lot of opportunities out there, but they're not different than what we have talked about in the past, and we'll continue to invest as we can in both of those programs as well as the share repurchase program.

Our next question comes from Scott Schneeberger with Oppenheimer.

I have -- I think it's a grand total of cemetery preneed, we just heard that doing quite well in large sales. Could you speak more on the core? Are you -- that sounded like that was strong as well, certainly relative to expectations. Are you selling up in the high tier, I believe the cutoff to get to large is 80,000 -- are you like up in the 50, 60, 70? Or is it broad-based across that? And then part 2 of that question is this is what you're seeing overall velocity or volume trends speeding up? Or is it more from pricing, what you're getting in that preneed cemetery.

So on the core, it just wasn't as big of a percentage increase. Obviously, it's the biggest chunk of our cemetery production. So it was a nice increase. But percentage-wise, large sales was much bigger. It's really across the board. We're not seeing it in any specific point. And again, back to your velocity versus pricing, both of those were positive within the core for the quarter.

So all signs looking good. It's hard to find anything we don't like right now, at least in the second quarter production. So all of the good and really across the board, no specific price points, Scott, that I'd point out to you other than the over 80,000 that you already mentioned.

All right. Sounds good. Moving on to the next section. Funeral revenue per service -- that was a bit higher than we expected. It sounds like the lower cremation rate is contributing. I'm just curious, how sustainable is this plus 3% going forward? And what will be the drivers behind that?

I mean 3.3% might be a little higher than you'd anticipate going forward. But yes, I think we're pretty comfortable in that 2.5% to 3% range depending on the cremation rate change. We've really focused on discounts I think, have done a good job of managing those things. And the other piece that wasn't as impactful for the quarter is keep in mind, what's coming out of the preneed backlog. The preneed backlog has the component of what did you write the Corpus at when you wrote the preneed, which we've done a really great job.

And then you get the compounded interest if it's a trust product. So those type of things can have an impact on the average as well. But I think if we think forward, Scott, I think we feel pretty good about being able to come close to that 3% if cremation mix changes that we're seeing in most recent years hold.

Great. Eric, I'm pulling you in from my last 1 to wellbreak here. The G&A, how should we think about that in the back half versus the first half? And maybe a little granularity on to what kind of changes and how we should model that?

Yes. I mean I think you're safe modeling around that $40 million, $42 million type guidance that we gave you before. Maybe it's a little bit higher than what we've said before. But ultimately, when you talk about general liability and auto claims, those are going to be event specific and they're going to ebb and flow. And we had a heavy amount of them during the quarter as we talked about.

And then the last thing that I would tell you is, and we say this in my remarks, we say -- and I've said this before, is the longer-term incentive comp accruals are going to move it. So yes, 40% to 41%, 40% to 42% is a good baseline for it. Could it be 44%. If the comp accruals need to go up, yes, could it be 38% if comp accruals need to go down, yes. So you've got to remember that variability that's going to be a few million dollars as well. But generally, that's how I would characterize modeling it for the second half.

We have a follow-up question from Parker Snure with Raymond James.

Just 1 more question. just on the long-term growth algorithm of 8% to 12%. I know this year had a pretty strong benefit from the insurance transition. I mean now that preneed cemetery production is kind of comping at a higher rate. It's remaining elevated post COVID. Any thoughts that there's any change into the composition of your long-term growth algorithm? Or just -- now that preneed cemetery is kind of at an elevated rate. Does that make it a little bit harder to grow on an organic basis? Just kind of any general thoughts on your long-term growth algorithm as we exit the year?

I think we still feel very comfortable with that algorithm. There are some things that are -- that you point out that are tougher comps as you go forward, but I also think there's things that are going in our direction. Again, I'd point you back to SCI Direct, we have taken that business from a certain level of profitability down to essential breakeven, and it's all related to the way that we operate the business and the way the accounting works.

And as you play that out, that should be kind of a natural growth business as more and more of that comes out of the backlog. It's going to be higher averages. So we've just got some, I think, positive trends in the business. We talked about the sales average being stronger on the funeral side. I still think demographics are going to play into both the funeral and the cemetery side. So we're very optimistic about the 8% to 12%. And I think there's some years coming up where we can go above that.

So overall, we feel very good about the guidance we're giving you continue to fill that way.

Okay. And then sorry, I know I said 1 last one, but actually 1 more. The L.A. fires in Rose Hill , are you sensing that there's any kind of continuing or lingering just disruption in that market? Or are all your KPIs that you track that property is kind of tracking along as it should.

I think overall, obviously, there's so much the people are still dealing with so many things and so you never want to belittle that. That's going to continue to happen for years and years. But I think as it relates to our business and our ability to sell, we're not seeing anything that's impacting that business related to that event. Unfortunately, people were still suffering, people are still trying to build their lives back. But it's not noticeable, I'd say, and in the sales process today.

This concludes our question-and-answer session. I would like to turn the conference back over to SCI management for any closing remarks.

Thank you, everybody. I appreciate you being here, and we'll talk to you next quarter. Have a great week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good morning, everyone. I'm Scott Schneeberger, the Senior Business Services Analyst at Oppenheimer. Thank you all for joining us today. It's our pleasure to have from Service Corp., Chief Financial Officer, Eric Tanzberger, to speak on the company's investment story. We're drawn to Service Corp's leading position in the funeral services and cemetery offerings industry, its opportunity to capitalize on the favorable demographics of an aging baby boomer population and its strategy of providing pre-need contracts to gain advanced market share and garner a backlog to build its trust fund portfolio.

We'll be using a fireside chat format today. I'll ask Mr. Tanzberger some high-level questions upfront, get us an overview of the business. Later in the session, I'll facilitate audience questions. So please feel free to send those in to me throughout, and I'll make sure that we get them to the CFO before we end the session. But in the meantime, let's get started with the fireside chat.

Starting off, could you please discuss your overall business model and strategy?

Yes. Sure, Scott. First of all, thanks for having us and everyone at Oppenheimer as well. I'd also like to note that's the first time in our lengthy relationship that Scott has ever called me Mr. Tanzberger. So let's let the record show that, if that's how we're going to kick this off.

Might happen again.

Yes. So we are the largest owner of funeral homes and cemeteries in North America. The history of the company in 30 seconds or less was an EPS accretive roll-up model that started back in the '70s. The bad news is those former management teams in the '70s and '80s and even in the early '90s kind of lost sight of return on invested capital, instead drove the EPS accretion, ended up overpaying for acquisitions, and there was a pivot or an event in 1999, 2000. We became senior management team in 2002. We sold 21 of those 23 countries. We are in the United States and Canada.

Canada is about 10% of our business. We own about 1,500 funeral homes and 500 cemeteries. The Funeral business has overall market share approaching kind of 14%, 15%. The cemetery has market share approaching 28% to 30%. So the good news, back in the '60s, '70s, '80s and '90s, are the former management teams really bought an unparalleled group of assets in terms of cemeteries. In terms of 35,000 acres that are really in the middle of major markets. So it's this unprecedented, the barriers to entry because those cemeteries are huge.

The funeral business is kind of a slow growth business, which is a play that we've been strategically staying up with the consumer in terms of criteria, which has changed over time to less of a formal process and formal service to really a lighter celebration of life. We've really become party planners and event centers and that type of thing. There is a nice future material play to our industry and to our company.

When the funeral business experiences an expected increase in demand, in the sense of the baby boomer generation turning to what would be an average age of 82 to 84 years old when people need our at-need services in our funeral segment in our industry.

The Cemetery segment is a little different because it's more driven from a pre-need perspective, which means selling merchandise property and services before people need it. The average age of that is about 65 years old. The baby boomers, by definition, have already crossed over that. And so we've had some really nice growth at our company related to our Cemetery segment.

To wrap up the introduction, the algorithm is about an 8% to 12% earnings per share growth that we've been able to maintain pre-COVID for, God, at least 10 years or so. That primarily is about 5% to 6% of that is coming for organic growth, primarily driven by the cemetery pre-need sales that I just mentioned. Then we have about 2% to 3%, what I characterize as inorganic growth, meaning capital deployment in the industry itself. So that's M&A and new build construction opportunities.

And lastly, another 1% to 2%, 2% to 3% is going to be our share repurchase program, which we believe heavily in. We started this journey back in the mid-2000s with 345 million shares outstanding. Today, we have just over 140 million shares outstanding. So we bought well over half of the company back over this period of time. So Scott, that's your -- that's kind of the answer to your introduction in the first 5 minutes or so.

All right. Great job, very thorough. I appreciate it. It certainly earns you another Mr. Tanzberger. So looking closer at your at-need funeral and cemetery businesses, growth was elevated during the pandemic, followed by a pull-forward stabilization period. Please share funeral volume trends as well as perspective on the broader timing of demographic tailwinds.

So to start at a big picture, we interact with about 700,000 families a year. A couple of hundred thousand of that is on the pre-need side, where we're selling products, merchandise and services, both on funeral and cemetery on a pre-need basis I've described earlier. 150,000 of that are actual interments into the 500 cemeteries. That's when a death has occurred and you are entering a loved one or a family member into one of our cemeteries and 350,000 of that are the actual funeral services that we perform on average. And that's a good number for today's volume, for example.

During the pandemic, though, as Scott has mentioned, we performed about an extra 130,000 funerals during a, let's call it, a 2.5-year period at the peak of pandemic. Those funerals had to come from somewhere. And ultimately, we had first thought that it would be a very acute pull forward from -- if we're in '22 or '21, it would be from '22 and '23 maybe. As it turns out, it's been a longer tail in terms of the pull-forward effect, especially as we got halfway through in the later half of the pandemic, which we were servicing primarily people that were in their 40s, were in their 50s, were unvaccinated. That's a long pull forward, as you could imagine, on average.

And so what has happened is we had this big spike in volume, up mid-teens, type percentages in volumes during the COVID pandemic. And then the subsequent, so to speak, hangover from that demand has come in mid-single to low double-digit declines in funeral volumes. That has now all, for the most part, stabilized. We thought it would stabilize a little bit better than it was in '24. It was still down about 2%, 2.5% in terms of volumes. We are hoping to be more flattish. But our current guidance in 2025 is more flattish in terms of funeral volumes, and we're off to a very good start. We had almost 2%, I think it was 1.8% to be exact, growth in funeral volumes during the first quarter of 2025. But that has been something that's been, Scott, as you know, very material to our business, very material to our model. And we're glad to say that we are talking about it less and less as what we call the pull-forward effect becomes less and less material to our company and to our industry.

Great. All right. Staying with funeral, it's funeral revenue per service. That's been steadily growing in the low single digits since the pandemic. Please discuss the drivers and provide long-term perspective there.

Yes. I think as a general statement, as long as you're delivering in a relevant fashion to your consumer, you're going to have inflationary type price increasing in the Funeral segment. What I mean by that is we've gone through a metamorphosis over the past 15 years where you walk into a funeral home, it was dark, it was traditional. It was a chapel. Now we've spent a tremendous amount of capital over the last 10 or 15 years, reformulating the actual infrastructure of those assets where they are more open, they're lighter. There's really not chapels anymore. They're more event centers with roundtables and such.

And it's really, again, as I said, it's turned into a celebrant leading a celebration of life for those consumers. So we've been very, very key in staying relevant. And with that, our pricing has really hung in there. But the most important thing you should get from that is the consumer finds value in the service component, which has allowed us to continue to have inflationary type increases in the particular Funeral segment from an ASP perspective. I think long term, to answer your question, Scott, I think we would continue to see that during the inflationary period in the last couple of years, something that we normally raise prices 2% to 3%, we are raising prices 4% to 6% in that Funeral segment to stay ahead of inflation. We're back down to kind of the former now as inflation has come down. But I still see that path as a relevant path as we move forward for several years.

All right. Let's go to funeral pre-need sales. They have the potential impact revenue market share in future periods. Could you address recent developments impacting the category as well as provide a long-term perspective on its potential growth at Service Corp?

Yes. So when we're selling these prearranged and pre-need contracts to these consumers, what are we doing? In the Cemetery segment, we're selling actual cemetery property and the interment rights to go into that property, whether that's a mausoleum or bound burial -- ground burial, as you would expect. We're also selling cemetery merchandise, which are markers, granite markers, bronze markers and then the graveside services.

On the funeral side, people are actually prearranging their funerals. And they do that not from a financial perspective. It's purely a peace of mind issue. It's purely a -- the average age is 72 years old. They started going to some funerals. I didn't know you could do that. Could we do that for me? I don't trust my kids to do it. I don't want to pass the burden on to my kids, et cetera, et cetera. So we sell about $2.6 billion a year in pre-need merchandise and services. About $1.2 billion of that is on the funeral side and about $1.4 billion of that is on the cemetery side.

Now the funeral has been going through a metamorphosis over the last year or 18 months or so. And that is that when we sell that under the law, you have to either take the money from the consumer and put it into a state-mandated trust fund or you have to have the consumer buy a life insurance policy, which we will arrange. And ultimately, we become the beneficiary or the signing of that policy. When we did that, so we have a $16 billion backlog, about half is in trust funds and half is in life insurance policies. And we've used the same life insurance company now for 25 years. And we've just gone through an RFP, a process, and we changed it to Global Atlantic, which is a wholly owned subsidiary of KKR. With that, because of the rise in interest rates, frankly, and timing it correctly, which is a lot of luck, we ultimately got economics that are substantially better than what we've had over the last 25 years.

So a general agency commission that we would receive, which would be both revenue and cash flow from day 1, has gone from 25% to 30% of a sale -- face value sale to probably 35%, 38% of a face value sale. And that's had a nice tailwind for us, Scott, over the -- as we've been implementing that in our core operations. And we look forward to that. We'll eventually lap that, but there'll still be a little bit of that tailwind left for '26 as well.

Great. Thanks, Eric. Let's go over now to pre-need cemetery sales cemetery.

Yes. Okay.

Historically, it's been, in our view, a major P&L growth driver for the company and for some reasons that we can get into. But could you please discuss drivers of the growth you've experienced in this category, how it's trending here at the start of 2025, outlook over the balance of the year as well as longer term? And maybe some specifications on the timing of recognition.

So there are about 5 parts to that. So just keep me going as we go and remind that I hit all of your 5 parts. I guess starting off the year, we've done well, and we were down about a couple of percentage points in the first quarter, quarter-over-quarter. That has to do with large sales versus our core sales, which I'll get into in a second. But let me start with the bigger picture.

We sell about $1.4 billion. About 10% to 15% of that every year in the pre-need cemetery space are what we call large sales, which are north of $80,000, and that's a couple of hundred million, $150 million to $200 million a year. And that generally is, like I said, 10% to 15% of the total, let's call it, 13% on average of the total, it's been somewhat consistent. What we call core is the other remaining 80% to 85% to 90%, which is everything below $80,000. And there are different consumers when you see that.

So to understand this sale, you have to understand a couple of things that have been driving it. The first thing is the average age of the consumer that raises their hand and says, "I want to buy pre-need cemetery property is generally in their early 60s. Essentially, as a very general statement, they have just perhaps buried a loved one, perhaps a parent. And when they bury a loved one like a parent, they want to buy the adjacent property around their loved one, and that's what creates the pre-need environment. And when you have baby boomers that has a larger generation, so more of them crossing over that 60 to 65, that has created a nice situation for us in terms of having more people to market to and it has been a big growth driver for us in terms of the number of contracts that we've been able to sell over a period of time.

The second piece to this, which is very material that we need to mention is that when we started this journey back in the early 2000s, like I described [indiscernible] as the executive management team, you would walk into a cemetery, and it was not really a real estate play. It was a very homogenous situation. It was walk in, there's 1,000 plots per acre, which one do you want? Just pick them. They're all the same. They're all priced the same.

Fast forward 15 years later, 20 years later, you walk into one of our cemeteries and you're going to see kind of a real estate tiering strategy that took effect where you're going to still have that beginning homogenous offering. And let's call that $5,000 in the Midwest and let's call that $10,000 to $15,000 on the West Coast. But then you're going to go all the way up to the top, which is a private family estate and a semi-private family estate and a lake with lakefront property. I mean you can tell we became kind of real estate developers.

And what that has done is really brought up that ASP to the extent that you could walk into a cemetery in California, and buy a high-end family space for $2.5 million to $3 million. That's the part that makes up those large sales. You can walk into Denver and that same piece of property may only be $200,000 to $300,000. You walk into Houston and it may be $600,000 to $700,000. So a lot of it is a real estate play and localized pricing and such, but you get the idea. But those two things, the baby boomers, the size of it, allowing us to market to a lot more people that want to have the conversation, coupled with the 10- to 15-year progress of tiering the cemeteries with high-end, medium type inventory is what has allowed us to be a big growth driver.

And by the way, is essentially when we started this, has taken a 12% to 13% margin Cemetery segment business to a 30% to 35% margin business. So it's been a tremendous growth driver and driving that earlier 8% to 12% EPS algo that I've described to you before.

Great. Thanks. We did cover it all. I think, obviously, great margin expansion there, as you discussed over the history, it was a 5-part question. I think the only thing we didn't cover is what's the growth rate of that? What's it been historically? What do you foresee going forward?

It was pre-COVID, it was low single to mid-single-digit type growth is how I would describe it. And it was a combination of the two factors, not to repeat it, that we've already described earlier. During COVID, it had a huge spike to it. Why? Because the -- about 1 out of 2 sales or what we characterize as the #1 driver or lead to these pre-need sales is the at-need event. And I've already described to you what happened in COVID with an extra 130,000 funeral services being performed. So just like funeral went like this during COVID, pre-need cemetery went like this during COVID, and there's a little bit of a pull-forward effect associated with pre-need cemetery.

So we've had declines in pre-need cemetery, not as bad as you saw the volume, but we started off the year again with kind of below 2% down-ish, but we hope to get to low single-digit percentages during 2025. Now as we get further into it, we fully expect without -- I'll give you long-term guidance. We fully expect to get back to mid-single-digit percentage type growth in the pre-need cemetery environment. When you take that as the baby boomers start to continue to affect the at-need environment, you can't also -- you have to also remember, you're going to have all of a sudden this tailwind coming in both the at-need funeral and at-need cemetery type revenue streams, which again will have a multiplier effect, hopefully, to the pre-need cemetery revenue stream.

So the whole thing, the whole strategy for the last 20 years are stay relevant to the consumer and the Funeral segment and get set up for the baby boomer generation, sell pre-need cemetery and sign everybody up as well, but at-need cemetery is going to have a positive long-term effect with the baby boomers, which will radiate to pre-need cemetery getting back to mid-single-digit type percentage growth. In the meantime, shrink the equity, buy back 50%, 60% of the company, so it's that much more valuable when the baby boomers don't affect the top line of this company and this industry in a few years from now.

And just real quick, Eric, following on that. You mentioned large sales, which I think have held up very well consistently. The lower end, though, that -- it's a little bit more of a discretionary spend. So do you anticipate a pickup, perhaps lower interest rates or other drivers?

Well, it's been somewhat solid. We saw a pickup in the first quarter, where we had some growth. Even though we were down about 2% in total, core was up and large sales were down. And there's different factors to that. As you said, Scott, correctly, the core is worrying about discretionary purchase, let's start with that on both ends. But as a general statement, the core consumer that we're selling to on a pre-need basis being discretionary, they care about the price of eggs, and they care about the price of gasoline. The large end does it. The large end cares about what the market is doing and what real estate is doing.

And so there are two different kind of differentiators there. But the other thing that I would describe to you on the high end is that it ebbs and flows. People don't walk in and spend $3 million at their first visit. It's a long-term 2-month, 3-month, 6-month process to get that family across the finish line in those large type sales. Generally, you're going to sell about 13% of your sales, you're going to be in that high end, but it can be a little volatile in terms of timing. Fourth quarter of '24 was 16%. That's a very strong high-end quarter. First quarter of 2025, 9%.

Now some of that could have been pulled in from January into December and such like that. But it does ebb and flow as a general statement, regardless of what the macroeconomic factors are related to those high-end situations. But as a general statement, we're seeing -- we continue, like other companies, not really trying to explain it, but we're continuing to see a nice core consumer, less than that $80,000 spend that really kind of hangs in there. We have a really nice pipeline, as we told you on the conference call in April, of those large end sales it's just that the first quarter kind of ebbed. And you see that, and it will go like this. But generally, we feel pretty good about it for the remainder of '25.

Great. Thanks, Eric. Appreciate that. I snuck that one in because the next question on the prepared list, I think we covered in all that discussion. I'm going to go over it again, maybe just a quick answer if we missed anything. But we're fortunate to be conducting a field trip with Service Corp to Rose Hills Memorial Park in Los Angeles. It's not only the largest cemetery park in the company's portfolio. It's actually the largest in North America, possibly the world. Could you please discuss some interesting attributes of that property, maybe draw some parallels to your entire portfolio? You mentioned Denver, Houston, just kind of bouncing any parallels?

Yes. There are two things that I would probably mention about that. Well, the first thing is we hope a lot of people sign up because when people get out there and do this tour of it, it all kind of comes together visually. And people are like, wow, I understand the tiering now. And I understand this and I understand that. And I would encourage as many people on this call to get with Scott and sign up for that. I think we redid in August, some date in August, if I recall correctly.

The first thing I'll mention about Rose Hills is the sheer size of it. I mean it's 10% of our EBITDA with one location. It is just -- it's massive. It's in L.A. It does a tremendous business. It will never be duplicated in the history of the company or the industry, in my opinion, whether it's in North America or somewhere else, as you've described.

The second key point, I think, is how we have continued to change who we are serving. And again, this again relates to our -- we have to remain relevant to the consumer. So if you go back 20 years ago, it was a very high Caucasian consumer that was in there. Today, it's probably at least pre-need sales metrics, it's probably 40%, 50% Asian and 30%, 40% Hispanic. That's great for us. We love that because those are segments that value the celebration of life and value the recognition of the cemetery process, the property, the markers, the services, same thing on the funeral side.

We have a separate Asian-specific funeral home that we built there that we would be able to tour, which is very interesting. But that is a consumer that's high spend, both of them, Asian and Hispanic that we really love and has really solidified the growth for many, many, many years for Rose Hills. So you'll see a different consumer when you go there, you'll see the sheer size of it, you see a different consumer, and you'll understand the tiering effect as well. It would be anyone that's interested in the industry, not just our company, but in the industry that would get a lot of, in my opinion, benefit from taking the tour with us.

Great. Really appreciate that. And yes, I've seen it once before. It is massive. It is impressive. And again, everyone, yes, that's in mid-August. Please contact me if you have interest. And with that audience, there are a lot of folks on, Eric, but pretty shy with the questions. So we have about 6, 7 minutes left. I have a few more questions. But audience, if you have anything you want to ask Mr. Tanzberger, please send it to me, and we'll get it in there.

So next, I'm going to go to Cemetery segment margins. We have touched on this, how much they've expanded. Let's just maybe talk about the drivers. It sounds like the main driver really has been the high-end sales. But just anything you can elaborate and what should be -- what we should watch as levers, good or bad for those margins?

Yes. I think the large sales as it ebbs and flows are going to move it. I think we're expecting not a lot of growth and margin expansion during cemetery during '25 versus '24. Why? Because we had some really nice margins, for example, when we had that fourth quarter at 16% or the high end. These are high-margin situations with those high-end sales. But generally, you're going to see a very stable 33%, 32%, 34%, 35% type margins for the Cemetery segment. As sales increase and of course, as the at-need events stabilize, that's going to help your margins. But we think that margins are going to be somewhat stable. But over a period of time, as you grow pre-need cemetery sales for the reasons I've already described to you, it's not unusual to see 50 to 80 basis points of margin expansion per year as we move forward. And we saw that and even higher ends of that come through in the last 20 years as we've gone from 13% to 33%.

Great. I guess my prompting helped because I have one from the audience I'm going to ask now because we only have 5 minutes left. What have been the biggest drivers of pre-need cemetery over the past 3 to 4 quarters? Third quarter '24 and the fourth quarter was very strong, then first quarter '25, a little bit of a pullback. Any color on the drivers of movements like this?

I think we've really kind of answered the question, to be honest with you. I mean I think the third and fourth quarter were very strong in terms of the higher end of sales. I don't remember the third quarter specifically, but I remember the fourth quarter, and it was 16%. And yes, it's going to ebb and flow and it ended up 9% last year. But what was important to understand is that we weren't seeing some kind of macro pullback during the first quarter from that. It was more of the natural ebb and flow of that consumer when you measure things on a 90-day basis because we've said it very clearly in April on our call that we continue to have a very nice pipeline in those large end sales. But there's nothing really else going on in the cost structure, and there's nothing really going on in the core. I mean it was just kind of that large end sales that affected margins and had them ebb and flow, but we continue to be positive with that.

Yes. And I think actually that did come in earlier. I had missed it. So I think that was -- that came in while you were discussing it. The 2025 EPS profile, how will that look compared to the company's longer-term expectations?

I think we're in the lower end of the 8% to 12% is our expectations of the current guidance of the $3.85. We have a tax rate difference, which is at least 100 basis points. That has to do with the law that went through in 2017, where any options that were issued after that, no longer tax deductible from a high-end executive perspective. And that has eliminated a benefit that we had related to exercising of stock options, which have held our tax rate from 24% to 25%, which is now 25% to 26%. If you add that back, you'd be at the higher end of that 8% to 12%. And that's why it's worthy to mention.

So I think we're back into that 8% to 12% from our perspective. I think the more funeral volume is more flattish like our expectations compared to leaking still down 1% to 2% is going to make a difference. The more we can get cemetery sales despite the slower quarter to start off the year, get them back to growing again on the high end, then that's going to help us get us annual growth of cemetery sales back into the low single digits. And when you get that, that's going to all come together into hopefully that $3.85 midpoint of the guidance, which will get us back into our algorithm 8% to 12%.

Great. Thanks. And we're basically at time, and that was everything from the audience. So I'm going to wrap up, but just one 30-second answer, Eric, if we could. We haven't really touched on the strong free cash flow here and the application of capital. Can you hit on that real quick, how you consider it?

Yes. We have very strong cash flow. We expect it in the guidance of about $550 million. The highest best use is M&A, which will spend, let's roughly, call it, $100 million at the midpoint. We do about another $50 million to $75 million of construction greenfield, then we'll go ahead and pay a dividend, and we'll reduce shares accordingly. And the shares will ebb and flow based on our opinion of the intrinsic value, but that's generally the algorithm that we have deployed for many, many years at our company and will continue in 2025.

Excellent. Perfect summary at the end there. Great overview, Eric. Thanks so much. We really appreciate it. Audience, thanks for the questions. Thanks for listening in. Let us know if you have interest in that Rose Hills Memorial Park field trip. And with that, we're going to wrap it up.

Thank you, Mr. Schneeberger.

Thank you, Mr.Tanzberger..