Conference. My name is Joanna Gajuk. I cover healthcare provider companies, but also some other companies. Now it's my pleasure to have Service Corp with us, and Eric Tanzberger, who's the CFO. It's not typically a healthcare company, but there are a lot of actually common themes we want to talk about. Actually, you know, I want to start about that, 'cause there's still a lot of debates around, you know, the death rate and the COVID, post-COVID overhang. Kind of, you know, 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?
Yeah, if you go back to COVID, just to lay the groundwork here, I just want to talk about SCI just for one second.
Sure.
Largest in the industry. We are 1,500 funeral homes and about 500 cemeteries. A little under $4.5 billion of revenue. It's about $1.4 billion-$1.5 billion of EBITDA. Predominantly in the U.S. and Canada. We're not, in fact, we're not outside U.S. and Canada any longer. We perform about 350,000 funeral services a year, as a very general statement. 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 two-year period, 2.5-year period, if you will.
Ultimately, those were pulled forward from future years, and it kind of dubbed, not by us, but kind of the COVID pull forward effect by a lot of companies 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. 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.
The COVID specific, the COVID virus pull forward, we generally think, Joanna, this is a very long answer to your short question, we generally think that's kind of been built in at this point, and we've lapped it, and is 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. That's all good news.
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%. What I'm sure has been the number one question today is the first quarter started slower than that, we've altered that guidance in the last few weeks.
Right. 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. You know, any number you can put on so we understand like what you mean by that, in terms of like where it's tracking. I guess, you know, as you compare this through the month or through the quarter, like month to month and like March and then April, if you don't give us a specific number, kind of relative.
Yeah. What I would say is, let me ask your question very specifically and then I'll step back and say, how do we give guidance in an environment like that? 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, it got a little bit better than that. You know, 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. To be helpful, what we are trying to do is point to this situation and saying that this occurs in our industry every four to five years. We pointed to two year, five years in total, but we pointed to 2009, which is kind of the bookend analysis, and 2019, which is the other side of the bookend, then there's three years in between, 2012, 2014, and 2016. As a general statement, when we start off the year in this 6% range, we get back in the following subsequent quarters about 2/3 of that.
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 then funeral volumes will end up, by definition, through that math, based on historical data, down two, and we called it officially kind of down one to down three. 2009 was a little bit of an anomaly, which is one of the five years that I mentioned was kind of a bookend to 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. 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 levers that we could drive, which is the cost structure, hold costs during the quarter in the soft volume environment, which we did, and drive preneed cemetery sales, which really performed well, giving 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. You know, it's the small victories, I guess, but we're pretty proud that we were able to post that quarter.
We want to get back to more reasonable volume numbers so that we can continue on the growth trajectory, which is generally 8%-12% from an earnings per share bottom line basis that we've been able to produce for significant many years under our management.
When it comes to this range for the year, -1% to -3%, help us understand the EPS sensitivity, in terms of, you know.
Sure.
What the impact would be if this ends up being - 3% versus-.
As a very general rule, first thing I'm gonna do is give you a metric. As a very general rule, down 1% from an annual basis is about $0.10 a share. 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 gonna be flat to down $1, let's call it. 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.
That's why we didn't really adjust guidance because, you know, a lot can happen in nine months when we're just dealing with a subset of data of three months or the first quarter. 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. It's not time to say, to adjust that guidance. It's not time to panic by any stretch of the imagination. If we end up, you know, less than that 1%-3% down, you know, we'll probably fall beneath that guidance. If we end up better than that.
We may end up at the, you know, the upper echelons of that guidance. More to come, but that's the math right now.
No, that's helpful. Thank you.
Yeah.
That's very clear. Then specifically, we were trying to talk about the, you know, how you were exiting a quarter and such, I don't think we, anybody brought it up on the call, but the Qingming festivities-
Yes.
How things were going, and I guess maybe talk about the Rose Hills, that's your premier location. I guess those festivities are big there. In prior periods, you know, there was some disruption to that, you know, kind of very active selling season. I just want to hear how things were going around that.
So-
Okay.
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, 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 Qingming, that's when the families come out, and they honor their loved ones and such. That's a time where the families are very receptive and, in fact, approach us at the parks to buy pre-need cemetery property for other family members at that point in time. That was what Joanna was asking about.
We had a pretty normal, good Qingming season in the U.S. A lot of the Canadian stuff may come more into April, frankly. 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, even in places like Houston and, you know, in other areas where we have large cemetery footprints, Qingming 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%-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's gonna be your tour guide.
Yep.
Couple weeks. Is that right?
Exactly, yeah.
Right.
Got it on lock down.
Tour some investors at Rose Hills. We've done that before quite successfully. It helps pull everything together in terms of memorialization, celebration of life, the preneed strategies, the differentiation between perhaps the Hispanic customer versus the Asian customer and those traditions. We have a standalone funeral home at Rose Hills, which is purely oriented to the Asian consumer and Asian customs. It's very interesting for you to see that. Rose Hills has done very well. They're right on plan. I think so far, from what I understand, you know, they're continuing their momentum from the first quarter into the second quarter. More to come, but you'll be there.
Right. I'm gonna see that, definitely, in action. You mentioned, you know, funeral volumes are obviously out of your control in a way that that's where they are. You mentioned the preneed cemetery sales. This is really more in your control.
Yes.
That quarter was actually you know, exceptional, right? Up 10% year-over-year, comps get tougher later in the year.
Yeah.
Right? That's why the question is, like, you know, what gives you essentially confidence you're gonna get 'Cause I guess now you're talking about, what, like, mid-single digits for the year, or low single to mid single-?
Mid single.
To mid single.
The guidance was, that's actually guidance that we actually raised in the last call. 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. I think we have a lot of momentum, though, that we've been working on for a couple 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. 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, you know, whether we add 200, 300, 400 more sales counselors.
Just as a rough number, we probably have 3,700- 3,800 sales counselors, just as a feel for that. You know, if we could add, you know, net 5%- 10% more counselors, we have the leads now, in our opinion, to get to in a very efficient manner and an effective manner, and that people power, we think, is gonna help us continue to move this needle in a very positive way. Another initiative we had that's kind of back, which is a pre-COVID initiative, is seminars. These are going into retirement communities and such, you're going to restaurants and you're putting on presentations, but, you know, obviously feeding people at restaurants. As we all know, during COVID, that just absolutely evaporated. That really took us some time to get some momentum back as it relates to those seminars.
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, you know, 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? 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, you know, a year or two at this particular time.
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. At-need volume will always be probably the number one 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 cemetery sales come in. What we're trying to do is not just have that be the number one, the only lead, but really develop more and more as we go forward, utilizing that technology. Going back to large sales, admittedly, large sales have been about $45 million a quarter for the past four sequential quarters, and that was a nice bump.
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. 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, how's the real estate market doing? Is there a real estate bubble? How's 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 four sequential quarters to be very positive, frankly.
Just maybe staying on that breakdown? You're talking about the large sales, but obviously the vast majority of the velocity of the volumes comes from what you call the core.
Core.
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?
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, you know, to be able to push through pricing that's reasonable for our consumers. You know, there are a lot of barriers to entry in our cemeteries, 'cause these were started 50 years, 60 years ago in major metropolitan areas. Now you have, you know, 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.
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. That's what Joanna was asking me about, we've probably posted several quarters in a row. In fact, last year's velocity was up, you know, low single digits. This year, what we want to make sure of is that we can come off of that comp 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.
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. You couple that with 4%- 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, you know, that we think we can get mid-single-digit growth that we talked about in terms of the revenue, that's gonna lead to margin expansion. You know, when you can push through 4%- 5%, you know, 4%- 6%-type growth in your preneed cemeteries, excuse me, in your cemetery revenue growth.
you know, you're starting to get to 60 basis points- 100 basis points per year of margin expansion. If you really, really, really wanna 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, you know. Now it's generally 33%- 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.
You mentioned, the seminars, right, and also your technology and sounds like including the, you know, increases in headcount on Salesforce, right?
Yeah.
Yeah, looking at the velocity, yes. Sounds like things were actually growing pretty robustly. Is there anything else? I was also thinking, like, you know, did you make any other changes in terms of your territory or maybe comp structure?
Yeah.
Sounds like these salespeople are doing really good job.
Yeah. I think the metrics, kind of the metric-driven philosophy that we started probably a couple years ago, has been a heavy lift. Anytime you're working with, you know, 3,500- 4,000 sales counselors, Change does not come overnight. It takes buy-in, and it takes time to get that buy-in. 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 gonna occur to this industry in the next, you know, three to five, three to six years, whatever you think it is, in terms of the baby boomer generation.
Put more throughput through this. It can ebb and flow by the quarters. There's no doubt. Large sales can ebb and flow by the quarters. As a general statement, as we look out over the next three to five 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.
That was my other question, or 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 at-need business we're talking about.
Yeah, at-need cemetery is huge. People forget about that.
Yeah.
You know, I mean, it's not just the at-need funeral volume, but it's the at-need cemetery business that is gonna 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. The average number, the average age, I should say, of when we are working with families because a death has occurred is generally around 83 years, 84 years. You know, that generally tells you that you're gonna see something in the next three to four years.
In terms of just solidly being in it and seeing the type of growth parameters where instead of saying funeral volumes are gonna 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, you know, maybe funeral volumes are up 1%-2%, you know, I think that's probably somewhere in the early 2030s or mid-2030s. You know, what can move things are advancements in healthcare. Generally at SCI, we are working with kind of middle to upper spend, middle spend, upper spend middle to upper spend type offerings to our consumers in these particular markets.
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, you know, there are families that could probably afford advancements in healthcare if those advancements come, and that is the type of thing that could maybe push a needle, you know, a few years out or not. I'm not here to predict that by any stretch of the imagination. You're the healthcare analyst. I'm not. You just, you know, that is the type of thing where it's just not a perfect science in terms of throughput for SCI.
You said that you have in terms of the cemetery property availability, you have decades.
Oh, yeah.
Right? 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, you know, I guess what percentage of people over 65 years have a cemetery property?
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, you know, mid-teens type market share, and the funeral market share is in the low teenss, and the cemetery market share is kind of in the high 20s. We have 1,500 funeral homes and 500 cemeteries, when you kind of weighted average that calculation. You know, we have a nice $17 billion backlog of future revenues because we've signed that many people up early.
It's been our number one 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. You know, I think that bodes well for us into the future.
Since you mentioned the $17 billion, obviously that's great to have, 'cause you have visibility in your market share and say.
Correct.
Forward, with the business going forward. The other dynamic around these dollars, right, is the trust fund.
Yes.
Right? Recognition of that returns.
Yes.
Maybe remind, because that comes up sometimes, you know, in conversations, remind sensitivity, right, when things kind of change in terms of the market.
Yeah.
returns and such, and also remind everyone kind of the average length of the contracts in that backlog.
Yeah, the average length of the contracts in the backlog are about 12 years, 10 years- 12 years. Let me 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 are 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 years- 12 years later when those families need our service because a contract turns at 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%-8% in terms of that. You know, with on average 3%-4% inflation over a long period of time, you know, you have a nice positive real return that essentially is incremental cash flows and incremental margin to SCI at that time. 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've 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. 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. What Joanna was saying, for example, if you have a real tough down market, 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%-8% return on average. 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 nth degree, so to speak, during the 2008, 2009.
2010 financial crisis, and proved out very, very well for us.
You, the very last question.
Sure.
Because I know the aspect of this business and the company we like is the free cash flow generation. Right? Maybe talk about the priorities in terms of using the cash.
Yeah. Free cash flow will be somewhere around $700 million a year after $300 million of CapEx and $1 billion of cash flow. A wonderful 125%-ish conversion, a wonderful 6% yield on our free cash flow. We'll have a couple million of that $700 million go to our dividend.
Of the $500 million, it's gonna 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. We'll continue to shrink the equity with a share repurchase program. 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. 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 a large incremental margin activity that we would expect.
Great. This is all the time we have. Thank you so much, Eric. Thanks.
Thanks, Joanna. Thank you.
Thank you.