Service International(SCI) - 2024 Q2 - Quarterly Results

Financial and Operational Highlights Second Quarter 2024 Performance Summary In the second quarter of 2024, Service Corporation International reported mixed financial results, with revenue growing by $20.6 million year-over-year driven by strong cemetery segment performance, but both GAAP and adjusted earnings per share declined to $0.81 and $0.79 respectively, impacted by a higher-than-anticipated decline in funeral services, despite robust net cash from operating activities increasing significantly to $196.9 million Financial Performance Summary (Q2 2024 vs. Q2 2023) | Financial Metric | Q2 2024 (in millions) | Q2 2023 (in millions) | Change (in millions) | | :--- | :--- | :--- | :--- | | Revenue | $1,034.0 | $1,013.4 | +$20.6 | | Diluted EPS | $0.81 | $0.86 | -$0.05 | | Adjusted Diluted EPS | $0.79 | $0.83 | -$0.04 | | Net Cash from Operating Activities | $196.9 | $144.1 | +$52.8 | | Adjusted Net Cash from Operating Activities | $219.9 | $157.4 | +$62.5 | - Comparable core preneed funeral sales production increased by $9.7 million, or 4.0%[2] - Comparable core funeral sales average grew by 1.3%[2] - The CEO noted that while revenue grew due to cemetery segment performance, a decline in funeral services performed late in the quarter impacted overall profitability due to the high fixed-cost structure of the business[2] 2024 Full-Year Outlook Financial Guidance and Capital Expenditures The company has maintained its full-year 2024 guidance but now anticipates results will be in the lower end of its adjusted EPS range of $3.50 to $3.80, citing lower-than-expected funeral service volumes, while reiterating the midpoint of the adjusted operating cash flow guidance of $900 million to $960 million, reflecting continued strength, with total planned maintenance and development capital expenditures for 2024 set at $325 million 2024 Financial Guidance | 2024 Guidance Metric | Range (in millions, except EPS) | | :--- | :--- | | Diluted earnings per share excluding special items | $3.50 - $3.80 | | Net cash provided by operating activities excluding special items | $900 - $960 | - Due to lower funeral services performed in Q2, the company now expects full-year results to be in the lower end of the adjusted EPS guidance range[7] 2024 Planned Capital Expenditures | 2024 Planned Capital Expenditures | Amount (in millions) | | :--- | :--- | | Capital improvements at existing field locations | $125 | | Development of cemetery property | $165 | | Digital investments and corporate | $35 | | Total Maintenance & Development Capital | $325 | Financial Statements Analysis Consolidated Statement of Operations For the second quarter of 2024, revenue increased slightly to $1.034 billion from $1.013 billion in the prior-year quarter, but higher cost of revenue and general expenses led to a decrease in operating income to $220.8 million and a reduction in net income attributable to common stockholders to $118.2 million, compared to $132.2 million in Q2 2023 Consolidated Statement of Operations (Q2 2024 vs. Q2 2023) | (In thousands) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Revenue | $1,034,016 | $1,013,414 | | Gross Profit | $257,915 | $261,468 | | Operating Income | $220,841 | $233,501 | | Net Income Attributable to Common Stockholders | $118,166 | $132,188 | | Diluted EPS | $0.81 | $0.86 | Consolidated Balance Sheet As of June 30, 2024, total assets stood at $16.78 billion, an increase from $16.36 billion at the end of 2023, primarily driven by growth in preneed receivables and trust investments, while total liabilities also rose to $15.24 billion, with long-term debt remaining relatively stable at $4.69 billion, and total equity was largely unchanged at $1.54 billion Consolidated Balance Sheet (As of June 30, 2024 and Dec 31, 2023) | (In thousands) | June 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total Current Assets | $410,606 | $498,286 | | Total Assets | $16,780,819 | $16,355,400 | | Total Current Liabilities | $742,692 | $749,100 | | Long-term Debt | $4,688,655 | $4,649,155 | | Total Liabilities | $15,241,129 | $14,813,927 | | Total Equity | $1,539,690 | $1,541,473 | Consolidated Statement of Cash Flows For the first six months of 2024, net cash provided by operating activities increased to $417.0 million from $363.6 million in the prior year, with the company utilizing $235.8 million in investing activities, including $175.9 million in capital expenditures, and $215.2 million in financing activities, which included $176.4 million for share repurchases and $87.3 million in dividend payments Consolidated Statement of Cash Flows (Six Months Ended June 30) | Six Months Ended June 30 (In thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $417,000 | $363,643 | | Net cash used in investing activities | ($235,825) | ($211,097) | | Net cash used in financing activities | ($215,163) | ($181,599) | | Net decrease in cash | ($36,653) | ($27,723) | Segment Performance Analysis Consolidated Segment Overview In Q2 2024, the Cemetery segment demonstrated strong growth, with revenue increasing to $468.2 million and gross profit rising to $157.5 million, improving its margin to 33.6%, while the Funeral segment's revenue was flat at $565.8 million, but its gross profit fell to $100.4 million from $115.5 million year-over-year, with the gross margin contracting from 20.4% to 17.7% due to a decline in services performed Funeral Segment Performance (Q2 2024 vs. Q2 2023) | Funeral Segment - Q2 | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Total Revenue | $565.8 | $565.4 | | Gross Profit | $100.4 | $115.5 | | Gross Profit % | 17.7% | 20.4% | | Funeral Services Performed | 86,031 | 87,070 | Cemetery Segment Performance (Q2 2024 vs. Q2 2023) | Cemetery Segment - Q2 | 2024 (in millions) | 2023 (in millions) | | :--- | :--- | :--- | | Total Revenue | $468.2 | $448.0 | | Gross Profit | $157.5 | $145.9 | | Gross Profit % | 33.6% | 32.6% | Comparable Funeral Results Comparable funeral revenue in Q2 2024 decreased by 0.9% to $558.1 million, primarily due to a 2.7% decline in core funeral services performed, which, coupled with the timing of incentive compensation, caused comparable gross profit to fall by 14.2% to $99.4 million, though comparable preneed funeral sales production grew by 2.3%, driven by a 4.0% increase in core preneed sales - The decline in comparable funeral revenue was driven by a 2.7% decrease in core services performed, which was partially offset by a 1.3% increase in the core average revenue per service[23][27] - Comparable gross profit fell by $16.4 million, and the margin contracted by 280 basis points to 17.8%, attributed to lower revenue and the timing of incentive compensation costs[23][28] - Comparable preneed funeral sales production increased by $7.3 million (2.3%), led by a $9.7 million (4.0%) rise in core preneed sales from higher contract velocity and sales average[28] Comparable Cemetery Results The comparable cemetery segment performed well in Q2 2024, with revenue increasing by 2.7% to $459.5 million, driven by a $7.5 million increase in recognized preneed revenue and a $5.0 million rise in other revenue, mainly from endowment care trust fund income, consequently, comparable gross profit grew by 3.5% to $151.1 million, though comparable preneed cemetery sales production saw a modest decline of 1.9%, primarily due to a drop in large sales - Total comparable cemetery revenue grew by $11.9 million (2.7%), primarily due to higher recognized preneed revenue and increased endowment care trust fund income[29][30] - Comparable gross profit increased by $5.1 million to $151.1 million, with the gross margin expanding by 30 basis points to 32.9%[29][30] - Comparable preneed cemetery sales production decreased by $6.8 million (1.9%), which was attributed to a decline in large sales[31] Other Financial Information Other Financial Results In Q2 2024, corporate general and administrative expenses increased by $4.1 million to $39.0 million, mainly due to the timing of incentive compensation, interest expense rose by $4.9 million to $64.4 million, driven by higher debt balances and interest rates, and the adjusted effective tax rate for the quarter was 25.8%, up from 24.5% in the prior year - Corporate G&A expenses increased by $4.1 million, primarily related to the timing of incentive compensation costs[32] - Interest expense grew by $4.9 million due to higher balances and a slightly higher interest rate on floating rate debt[32] - The adjusted effective tax rate increased to 25.8% from 24.5% in Q2 2023, mainly due to lower excess tax benefits from employee share-based awards[32] Cash Flow and Capital Spending Adjusted net cash from operating activities saw a significant increase of $62.5 million to $219.9 million in Q2 2024, primarily driven by a $60.4 million reduction in cash tax payments and favorable working capital changes, while total capital expenditures for the quarter decreased slightly by $3.0 million to $96.1 million, mainly due to lower spending on digital investments Net Cash Provided by Operating Activities (Q2 2024 vs. Q2 2023) | (In millions) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $196.9 | $144.1 | | Net cash provided by operating activities (ex. special items) | $219.9 | $157.4 | - The $62.5 million growth in adjusted operating cash flow was primarily due to expected lower cash tax payments of $60.4 million and favorable working capital of $18.2 million[32] Capital Expenditures (Q2 2024 vs. Q2 2023) | Capital Expenditures (In millions) | Q2 2024 | Q2 2023 | | :--- | :--- | :--- | | Maintenance, cemetery development, and other | $86.9 | $90.3 | | Growth capital expenditures | $9.2 | $8.8 | | Total capital expenditures | $96.1 | $99.1 | Trust Fund Returns The company's consolidated trust funds generated a return of 0.8% for the second quarter and 6.4% for the first six months of 2024, with the preneed cemetery and preneed funeral funds returning 6.7% and 6.5%, respectively, for the six-month period Trust Fund Returns (Q2 and Six Months Ended June 30, 2024) | Trust Fund | Three Months Return | Six Months Return | | :--- | :--- | :--- | | Preneed funeral | 0.8% | 6.5% | | Preneed cemetery | 0.8% | 6.7% | | Cemetery perpetual care | 0.8% | 6.0% | | Combined trust funds | 0.8% | 6.4% | Non-GAAP Financial Measures Reconciliation The company provides a reconciliation from GAAP to non-GAAP earnings to exclude special items such as gains on divestitures and losses on debt extinguishment, with Q2 2024 reported GAAP net income of $118.2 million ($0.81 per share) adjusting to $115.9 million ($0.79 per share) on a non-GAAP basis Q2 2024 Non-GAAP Reconciliation | Q2 2024 Reconciliation (in millions, except EPS) | Net Income | Diluted EPS | | :--- | :--- | :--- | | As reported (GAAP) | $118.2 | $0.81 | | Adjustments (Gains on divestitures, tax effects, etc.) | ($2.3) | ($0.02) | | Excluding special items (Non-GAAP) | $115.9 | $0.79 | Q2 2023 Non-GAAP Reconciliation | Q2 2023 Reconciliation (in millions, except EPS) | Net Income | Diluted EPS | | :--- | :--- | :--- | | As reported (GAAP) | $132.2 | $0.86 | | Adjustments (Gains on divestitures, tax effects, etc.) | ($5.3) | ($0.03) | | Excluding special items (Non-GAAP) | $126.9 | $0.83 |