News Releases

HOUSTON, April 24, 2019 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today announced results for the first quarter of 2019. Our unaudited consolidated financial statements can be found at the end of this press release. The table below summarizes our key financial results:

Quarterly Summary:

• Diluted earnings per share were $0.43 in the first quarter of 2019 compared to $0.43 in the first quarter of 2018. The first quarter of 2019 was impacted by $8.0 million in unusual legal expenses and the first quarter of 2018 was negatively impacted by a $10.1 million loss on early extinguishment of debt. Diluted earnings per share excluding special items were $0.47 for the first quarter of 2019 and 2018. Comparable cemetery revenue growth and effective management of costs, coupled with a lower tax rate, helped to offset reduced funeral segment profits from the impact of the strong flu season that occurred in the prior year.
• Net cash provided by operating activities was $184.9 million in the first quarter of 2019 compared to $211.5 million in the first quarter of 2018. The first quarter of 2018 was impacted by a tax refund received related to an IRS tax settlement that occurred in 2017. Net cash provided by operating activities excluding special items was $184.9 million in the first quarter of 2019 compared to $205.9 million in the first quarter of 2018. This decrease was primarily due to a reduction in funeral operating profit coupled with increased uses of working capital during the quarter.
• During the first quarter, we returned $47.4 million to shareholders through share repurchases and dividends and invested $26.3 million of capital into accretive acquisitions and the construction of new funeral service locations.

Tom Ryan, the Company's Chairman and Chief Executive Officer, commented on the first quarter of 2019:

"We are encouraged as we start off 2019 on par with prior year earnings per share results as we faced a challenging funeral profit comparison driven by a strong flu season in the prior year quarter. Increases in both our cemetery and funeral preneed sales programs, effective management of our fixed costs, and a lower tax rate helped to offset the funeral revenue deficit. I want to thank our 24,000 associates for their hard work and dedication. Their continued commitment to delivering extraordinary service to client families is what sets us apart from others in the industry. Our outlook is positive as we look forward to the remainder of 2019. We will continue to build on this first quarter momentum and believe we are well positioned to achieve results within the guidance ranges we communicated to you in February. Lastly, we continue to believe in our long term growth strategy of growing revenues, leveraging our unparalled scale and deploying our capital wisely to enhance shareholder value."

OUTLOOK FOR 2019

The ranges detailed below are consistent with our previously reported outlook for 2019 and are anticipated to be in line with our expected long-term growth framework of 8%-12%. Our outlook for net cash provided by operating activities excluding special items reflects an anticipated $40 million net increase in cash taxes compared to 2018.

REVIEW OF RESULTS FOR FIRST QUARTER 2019

Consolidated Segment Results
 (See definitions of revenue line items later in this earnings release.)

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended March 31, 2019 and 2018. We consider comparable operations to be those owned for the entire period beginning January 1, 2018 and ending March 31, 2019.

(Dollars in millions, except average revenue per service and average revenue per contract sold)

• Total comparable funeral revenue decreased by $28.4 million, or 5.5%, primarily from a decrease in core revenue of $30.5 million, which was somewhat offset by higher other revenue of $4.8 million.
• The $30.5 million core revenue decrease was primarily the result of a 5.5% decrease in core funeral services performed and a 1.6% decrease in core average revenue per service. Comparable funeral services performed were negatively impacted by a mild flu season this year relative to the same period last year. Organic sales average growth of 0.7% was more than offset by a 200 basis point increase in the core cremation rate.
• Recognized preneed revenue declined $1.7 million, or 5.2%, compared to the prior year as a result of fewer contracts sold through our non-funeral home channel resulting from a temporary disruption caused by the conversion and on-boarding of sales associates from independent contractors to employee status.
• Other revenue increased $4.8 million, primarily due to higher General Agency revenue as a result of an increase in insurance-funded preneed sales production coupled with a decrease in cancellations compared to 2018.
• Comparable funeral operating profit decreased $17.0 million to $104.8 million, primarily due to the impact of lower core revenue, but was favorably offset by an intended decline in fixed costs from both field operations and corporate overhead. The operating margin percentage decreased 210 basis points to 21.7%.
• Comparable preneed funeral sales production increased $5.0 million, or 2.3%, in the first quarter of 2019 compared to 2018. We experienced an impressive 3.9% growth in our core locations due in part to the higher usage of Beacon, our recently implemented customer facing preneed sales system. Preneed sales production in our non-funeral home locations decreased 3.5% related to the sales disruption previously mentioned for our non-funeral home channel.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended March 31, 2019 and 2018. We consider comparable operations to be those owned for the entire period beginning January 1, 2018 and ending March 31, 2019.

• Comparable cemetery revenue increased $20.9 million, or 7.5%, in the first quarter of 2019 compared to the first quarter of 2018. The revenue growth over the prior year quarter is due to increased recognized preneed revenue from sales into existing developed cemetery property projects, increased revenue from the completion of cemetery property construction projects, and higher endowment care trust fund income. These increases were partially offset by lower atneed cemetery revenue as activities were reduced from a milder flu season compared to the prior year.
• Comparable preneed cemetery sales production increased $12.7 million, or 6.3%, due to mid-single digit increases in both preneed property sales production and preneed merchandise and service sales production.
• Other revenue increased $7.6 million, or 38.6%, primarily as a result of outperformance in our endowment care trust funds during the first quarter of 2019 compared to the first quarter of 2018.
• Comparable cemetery operating profit increased $11.2 million to $86.5 million and the operating margin percentage increased 190 basis points to 28.8%, primarily reflecting the higher recognized preneed revenue and endowment care trust fund income.

Other Financial Results

• General and administrative expenses increased $7.7 million to $42.5 million in the first quarter of 2019. The current year quarter included unusual legal expenses of $8.0 million. Excluding these costs, general and administrative expenses were relatively flat compared to the first quarter of 2018.
• Interest expense increased $3.8 million to $47.4 million in the first quarter of 2019 due to higher interest rates on our floating rate debt as well as an increase in the overall balance of our total debt.
• We incurred a $10.1 million loss on early extinguishment of debt in the first three months of 2018 to manage our near-term debt maturity profile and lower our effective interest rate by refinancing our 2018 notes.
• The GAAP effective income tax rate for the first quarter of 2019 was 21.0%, down from the prior year first quarter of 25.7% for 2018. Our adjusted effective income tax rate was 21.4% in the first quarter of 2019, compared to an adjusted effective income tax rate of 25.8% in the prior year quarter. The decrease in these rates is primarily due to higher excess tax benefits on the increased exercises of stock options.

Cash Flow and Capital Spending

Set forth below is a reconciliation of our reported net cash provided by operating activities prepared in accordance with GAAP to net cash provided by operating activities excluding special items (or sometimes referred to as adjusted operating cash flow). We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.

Net cash provided by operating activities excluding special items decreased $21.0 million to $184.9 million in the first quarter of 2019 from $205.9 million in the prior year quarter. This decrease was primarily due to lower funeral operating profit and increased working capital uses during the quarter. Increased working capital uses during the quarter are primarily related to the 9.3% growth in cemetery recognized preneed revenue. Recall that the cash collections for cemetery recognized preneed revenue generally occur over a period of time rather than at the time the sale occurs.

A summary of our capital expenditures is set forth below:

Total capital expenditures increased as expected in the current quarter by $5.4 million reflecting continued development of cemetery property in accordance with our tiered product strategy as well as investments to construct new funeral service locations.

TRUST FUND RETURNS

Total trust fund returns include realized and unrealized gains and losses and dividends and are shown without netting of certain fees. A summary of our consolidated trust fund returns for the three months ended March 31, 2019 is set forth below:

NON-GAAP FINANCIAL MEASURES

Earnings excluding special items and diluted earnings per share excluding special items shown above are non-GAAP financial measures. We believe these non-GAAP financial measures provide a consistent basis for comparison between quarters and better reflect the performance of our core operations, as they are not influenced by certain income or expense items not affecting continuing operations. We also believe these measures help facilitate comparisons to our competitors' operating results.

Set forth below is a reconciliation of our reported net income attributable to common stockholders to earnings excluding special items and our GAAP diluted earnings per share to diluted earnings per share excluding special items. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with GAAP.

Conference Call and Webcast

We will host a conference call on Thursday, April 25, 2019, at 8:00 a.m. Central Time. A question and answer session will follow a brief presentation made by management. The conference call dial-in number is (800) 708-4539 or (847) 619-6396 with the passcode of 48539321. The conference call will also be broadcast live via the Internet and can be accessed through our website at www.sci-corp.com. A replay of the conference call will be available through May 1, 2019 and can be accessed at (888) 843-7419 or (630) 652-3042 with the passcode of 48539321#. Additionally, a replay of the conference call will be available on our website for approximately one week.

Cautionary Statement on Forward-Looking Statements

The statements in this press release that are not historical facts are forward-looking statements made in reliance on the "safe harbor" protections provided under the Private Securities Litigation Reform Act of 1995. These statements may be accompanied by words such as "believe," "estimate," "project," "expect," "anticipate," or "predict," that convey the uncertainty of future events or outcomes. These statements are based on assumptions that we believe are reasonable; however, many important factors could cause our actual results in the future to differ materially from the forward-looking statements made herein and in any other documents or oral presentations made by us, or on our behalf. Important factors, which could cause actual results to differ materially from those in forward-looking statements include, among others, the following:

• Our affiliated trust funds own investments in securities, which are affected by market conditions that are beyond our control.
• We may be required to replenish our affiliated funeral and cemetery trust funds to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.
• Our ability to execute our strategic plan depends on many factors, some of which are beyond our control.
• Our credit agreements contain covenants that may prevent us from engaging in certain transactions.
• If we lost the ability to use surety bonding to support our preneed activities, we may be required to make material cash payments to fund certain trust funds.
• The funeral and cemetery industry is competitive.
• Increasing death benefits related to preneed contracts funded through life insurance or annuity contracts may not cover future increases in the cost of providing a price-guaranteed service.
• The financial condition of third-party insurance companies that fund our preneed contracts may impact our future revenue.
• Unfavorable results of litigation could have a material adverse impact on our financial statements.
• Unfavorable publicity could affect our reputation and business.
• If the number of deaths in our markets declines, our cash flows and revenue may decrease.
• If we are not able to respond effectively to changing consumer preferences, our market share, revenue, cash flows, and/or profitability could decrease.
• The continuing upward trend in the number of cremations performed in North America could result in lower revenue, operating profit, and cash flows.
• Our funeral and cemetery businesses are high fixed-cost businesses.
• Regulation and compliance could have a material adverse impact on our financial results.
• Cemetery burial practice claims could have a material adverse impact on our financial results.
• We use a combination of insurance, self-insurance, and large deductibles in managing our exposure to certain inherent risks; therefore, we could be exposed to unexpected costs that could negatively affect our financial performance.
• A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.
• Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.
• Declines in overall economic conditions beyond our control could reduce future potential earnings and cash flows and could result in future impairments to goodwill and/or other intangible assets.
• Any failure to maintain the security of the information relating to our customers, their loved ones, our associates, and our vendors could damage our reputation, could cause us to incur substantial additional costs and to become subject to litigation, and could adversely affect our operating results, financial condition, or cash flow.
• Our Canadian business exposes us to operational, economic, and currency risks.
• Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, and may prevent us from fulfilling our obligations under our indebtedness.
• A failure of a key information technology system or process could disrupt and adversely affect our business.
• Failure to maintain effective internal control over financial reporting could adversely affect our results of operations, investor confidence, and our stock price.
• The application of unclaimed property laws by certain states to our preneed funeral and cemetery backlog could have a material adverse impact on our liquidity, cash flows, and financial results.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2018 Annual Report on Form 10-K. Copies of this document as well as other SEC filings can be obtained from our website at www.sci-corp.com. We assume no obligation to publicly update or revise any forward-looking statements made herein or any other forward-looking statements made by us, whether as a result of new information, future events or otherwise.

About Service Corporation International

Service Corporation International (NYSE: SCI), headquartered in Houston, Texas, is North America's leading provider of deathcare products and services. At March 31, 2019, we owned and operated 1,479 funeral service locations and 482 cemeteries (of which 287 are combination locations) in 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Through our businesses, we market the Dignity Memorial® brand, which offers assurance of quality, value, caring service, and exceptional customer satisfaction. For more information about Service Corporation International, please visit our website at www.sci-corp.com. For more information about Dignity Memorial®, please visit www.dignitymemorial.com.

SOURCE Service Corporation International