Service International(US:SCI)2025-07-31 19:59PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited condensed consolidated financial statements for the three and six months ended June 30, 2025, and 2024, including detailed notes on accounting policies and segment performance Consolidated Statement of Operations Highlights (in thousands, except EPS) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Revenue | $1,065,444 | $1,034,016 | $2,139,611 | $2,079,398 | | Operating Income | $224,459 | $220,841 | $476,146 | $453,045 | | Net Income | $122,924 | $118,220 | $265,851 | $249,494 | | Diluted EPS | $0.86 | $0.81 | $1.84 | $1.69 | Balance Sheet Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $17,980,205 | $17,379,438 | | Preneed receivables and trust investments | $7,065,296 | $6,739,332 | | Total Liabilities | $16,419,852 | $15,700,769 | | Long-term debt | $4,976,111 | $4,751,448 | | Total Equity | $1,560,353 | $1,678,669 | Segment Gross Profit (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Funeral Gross Profit | $115,977 | $100,426 | $269,955 | $232,300 | | Cemetery Gross Profit | $155,461 | $157,489 | $292,900 | $299,828 | | Total Segment Gross Profit | $271,438 | $257,915 | $562,855 | $532,128 | - The company repurchased 4,129,431 shares of common stock for an aggregate cost of $325.9 million in the first six months of 2025, with $491.8 million remaining under the increased repurchase authorization79 - Total debt increased to $5.04 billion as of June 30, 2025, from $4.84 billion at year-end 2024, with approximately 81% at a fixed interest rate6970 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance, highlighting a $16.4 billion backlog of future revenue from preneed sales as a key financial strength and detailing capital allocation priorities and operational results for both segments - The company's financial position is enhanced by a $16.4 billion backlog of future revenue from both trust and insurance-funded preneed sales as of June 30, 202596 - Capital allocation strategy prioritizes investing in acquisitions, returning excess cash to shareholders through dividends, and managing debt to maintain a target leverage ratio of 3.5x to 4.0x106107108 - The company's leverage ratio was 3.68x as of June 30, 2025, which is within the target range and below the maximum of 5.00x allowed per the credit agreement103 Financial Condition, Liquidity, and Capital Resources The company maintains adequate liquidity with $477.6 million in operating cash flow for the first six months of 2025 and $1.19 billion in borrowing capacity, supported by a growing $16.42 billion backlog of deferred revenue Change in Operating Cash Flow (Six Months 2025 vs 2024) | Driver | Impact (in millions) | | :--- | :--- | | Increase in cash receipts from customers | $50.3 | | Increase in General Agency (GA) commission receipts | $43.4 | | Decrease in employee compensation payments | $37.7 | | Increase in cash tax payments | ($87.4) | | Total Increase in Operating Cash Flow | $60.6 | Total Backlog of Preneed Contracts (Fair Value, in billions) | Backlog Component | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Trust-funded deferred revenue | $7.99 | $7.64 | | Insurance-funded revenue | $8.43 | $8.37 | | Total Backlog | $16.42 | $16.01 | - Preneed insurance-funded sales production increased to $402.3 million in the first six months of 2025 from $374.5 million in the prior year period, driven by a significant increase in the number of contracts sold (78,572 vs 59,923)120 - Preneed cemetery sales production grew to $694.4 million in the first six months of 2025, up from $681.6 million in the same period of 2024123 Results of Operations - Three Months Ended June 30, 2025 & 2024 For Q2 2025, net income attributable to common stockholders was $122.9 million ($0.86 per diluted share), driven by a 15.5% increase in funeral segment gross profit, while cemetery gross profit slightly decreased by 1.3% Q2 2025 Funeral Segment Performance (Comparable) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $576.8M | $561.6M | +2.7% | | Gross Profit | $114.6M | $99.8M | +14.8% | | Gross Profit % | 19.9% | 17.8% | +210 bps | | Average Revenue per Service | $5,809 | $5,634 | +3.1% | Q2 2025 Cemetery Segment Performance (Comparable) | Metric | Q2 2025 | Q2 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $470.0M | $468.2M | +0.4% | | Gross Profit | $153.3M | $157.6M | -2.7% | | Gross Profit % | 32.6% | 33.7% | -110 bps | - Funeral segment revenue growth was driven by a 3.1% increase in comparable average revenue per service, offsetting a 0.9% decrease in services performed, with the cremation rate rising by 40 basis points to 64.3%149 - Cemetery preneed sales production increased by 5.3% ($18.5 million), expected to benefit future periods as properties are constructed and revenue is recognized155 Results of Operations - Six Months Ended June 30, 2025 & 2024 For H1 2025, net income was $265.7 million ($1.84 per diluted share), with funeral gross profit up 16.2% due to revenue growth, while cemetery gross profit decreased by $6.9 million due to timing of revenue recognition H1 2025 Funeral Segment Performance (Comparable) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $1,202.5M | $1,163.8M | +3.3% | | Gross Profit | $267.0M | $231.5M | +15.3% | | Gross Profit % | 22.2% | 19.9% | +230 bps | | Average Revenue per Service | $5,774 | $5,623 | +2.7% | H1 2025 Cemetery Segment Performance (Comparable) | Metric | H1 2025 | H1 2024 | Change | | :--- | :--- | :--- | :--- | | Revenue | $902.9M | $908.9M | -0.7% | | Gross Profit | $290.1M | $300.2M | -3.4% | | Gross Profit % | 32.1% | 33.0% | -90 bps | - The increase in funeral gross profit margin was attributed to revenue growth and continued focus on managing the fixed cost structure170 - The decrease in comparable cemetery revenue was primarily due to a $14.1 million decline in recognized preneed property revenue related to the timing of new construction, partially offset by a $4.6 million increase in atneed revenue173 Quantitative and Qualitative Disclosures About Market Risk This section addresses the company's exposure to market risks, primarily related to changes in interest rates and the prices of marketable equity and debt securities held within the preneed trust funds - The company's primary market risk exposure stems from the equity and debt securities held in its affiliated trust funds, which are used to fund preneed operations and are sensitive to market price fluctuations187188 Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of June 30, 2025189 - No changes were made during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting190 PART II. OTHER INFORMATION Legal Proceedings This section refers to Note 9 of the financial statements for information on legal proceedings, including ongoing unclaimed property audits by various states regarding preneed trust funds - The company is subject to unclaimed property audits from approximately forty states regarding the escheatment of unused preneed trust funds, with audits resolved in eighteen states89 Risk Factors The company states that there have been no material changes to the risk factors previously disclosed in its Annual Report on Form 10-K for the fiscal year ended December 31, 2024 - There have been no material changes in Risk Factors from those set forth in the Annual Report on Form 10-K for the fiscal year ended December 31, 2024193 Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's share repurchase activities during the second quarter of 2025, where a total of 2,493,090 shares were repurchased, primarily under the publicly announced program Share Repurchases for Q2 2025 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | 916,075 | $77.82 | | May 2025 | 976,955 | $76.79 | | June 2025 | 600,060 | $78.77 | | Total Q2 | 2,493,090 | - |