Conference call on Tuesday, February 16, 2021, at 8:00 a.m. Central Time

HOUSTON, Feb. 15, 2021 /PRNewswire/ -- Service Corporation International (NYSE: SCI), the largest provider of deathcare products and services in North America, today reported results for the fourth quarter of 2020.

Tom Ryan, the Company's President, Chairman, and Chief Executive Officer, commented on COVID-19 and fourthquarter results:

"As we experienced another quarter that will be remembered for its significant challenges, our associates can look back with pride for the innovative ways in which our teams stepped up to serve our communities, our customers, and each other. The steadfast dedication and courage of our teams has been nothing short of heroic over these many months and is reflective of our compassionate culture at SCI. I want to say to our entire SCI family, and particularly to our frontline associates, thank you for your courage and resolve, and for continuing to focus on the importance of the safety of our client families, communities, and colleagues.

Today we are reporting fourth quarter earnings per share of $1.15 and adjusted earnings per share of $1.13, a $0.53 increase over adjusted earnings per share for the prior year quarter. The growth was driven by elevated COVID-19 mortality which resulted in an increase in both funeral services performed and burials in our cemeteries. We also continued to benefit from a more efficient cost structure that helped drive significant improvement in both funeral and cemetery margins. Comparable preneed cemetery sales production continued to be strong and was higher by $40 million, or 16%, compared to the prior year quarter due to a higher velocity of contracts sold. Net cash provided by operating activities grew approximately $88 million over the prior year quarter, primarily due to increased operating profit."

Fourth Quarter Highlights:

• Revenue grew $120 million, or 14%, over the prior year quarter to $970 million.
• GAAP earnings per share were $1.15.
• Adjusted earnings per share grew $0.53 over the prior year quarter to $1.13.
• Net cash provided by operating activities increased $88 million, or 56%, to $245 million.
• Comparable funeral gross profit grew 44% and margin expanded 640 basis points to 27.5%.
• Comparable cemetery gross profit grew 42% and margin expanded 680 basis points to 39.0%.
• Cemetery preneed sales production grew $40 million, or 16%.

FOURTH QUARTER AND FULL YEAR SUMMARY

Details of our fourth quarter 2020 financial results and the consolidated financial statements can be found in the Appendix at the end of this press release. The table below summarizes our key financial results.

• Diluted earnings per share were $1.15 in the fourth quarter of 2020 compared to $0.79 in the fourth quarter of 2019. The prior year quarter was positively impacted by a $48.1 million pre-tax gain on divestitures. Diluted earnings per share excluding special items were $1.13 in the fourth quarter of 2020 compared to $0.60 in the fourth quarter of 2019. The increase of $0.53 is due to higher gross profit from higher funeral services and burials performed, as well as strong growth in cemetery recognized preneed revenue. Our current period results also benefited from lower shares outstanding, lower interest expense, and a lower adjusted effective tax rate compared to the prior year quarter.
• Net cash provided by operating activities increased $88.3 million to $244.9 million in the fourth quarter of 2020 compared to $156.6 million in the fourth quarter of 2019 primarily from robust growth in gross profit combined with lower cash interest payments and deferred payroll taxes (as allowed under the CARES Act). These increases in operating cash were partially offset by higher cash tax payments associated with higher earnings for the current period as well as other unfavorable working capital changes.

OUTLOOK FOR 2021

The guidance provided below has a wider range than usual due to the continued uncertainty around the impact of the COVID-19 pandemic. This outlook assumes that the impact of COVID-19 will continue into the first half of 2021. Our outlook for net cash provided by operating activities excluding special items reflects an estimated $20 million of payroll tax payments in 2021 that were deferred from 2020 as allowed under the CARES Act. We will also incur normal payroll taxes in 2021 of approximately $40 million (which we were able to defer in 2020). These combined items represent a $60 million of additional cash outflows when compared to 2020.

CONFERENCE CALL AND WEBCAST

We will host a conference call on Tuesday, February 16, 2021, 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 numbers are (888) 317-6003 (US) or (412) 317-6061 (International) with the passcode of 2558326. 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 February 23, 2021 and can be accessed at (877) 344-7529 (US) or (412) 317-0088  (International) with the passcode of 10150691. Additionally, a replay of the conference call will be available on our website for approximately one year.

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 December 31, 2020, we owned and operated 1,470 funeral service locations and 483 cemeteries (of which 297 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.

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:

• Unforeseen effects from the COVID-19 pandemic could have material adverse consequences for our business and results of operations.
• 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.
• 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 publicity could affect our reputation and business.
• 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.
• 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 funeral and cemetery industry is competitive.
• If the number of deaths in our markets declines, our cash flows and revenue may decrease. Changes in the number of deaths are not predictable from market to market or over the short term.
• If we are not able to respond effectively to changing consumer preferences, our market share, revenue, 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.
• Unfavorable results of litigation could have a material adverse impact on our financial statements.
• Cemetery burial practice claims could have a material adverse impact on our financial results.
• 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.
• 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.

For further information on these and other risks and uncertainties, see our Securities and Exchange Commission filings, including our 2020 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 and make no undertaking 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.

SERVICE CORPORATION INTERNATIONALAPPENDIX: RESULTS FOR THE FOURTH QUARTER OF 2020

Comparable Funeral Results

The table below details comparable funeral results of operations ("same store") for the three months ended December 31, 2020 and 2019. We consider comparable funeral operations to be those businesses owned for the entire period beginning January 1, 2019 and ending December 31, 2020.

• Total comparable funeral revenue increased by $48.5 million, or 10.0%, in the fourth quarter of 2020 compared to the same period of 2019, primarily driven by significant growth in core funeral revenue of $53.3 million.
• The increase in core funeral revenue of $53.3 million, or 13.1%, was primarily the result of a 17.0% increase in core funeral services performed, which was somewhat offset by a 3.4% decrease in core average revenue per service. The core average revenue per service continued to be negatively impacted by social distancing effects from the pandemic resulting in fewer and smaller funeral memorial services. The core cremation rate increased by 120 basis points, which was in-line with expectations.
• Non-funeral home revenue increased $3.4 million, or 25.2%, as a result of a 21.6% increase in services performed and a 3.0% increase in the average revenue per service.
• Recognized preneed revenue decreased $3.8 million, or 11.0%, primarily driven by higher than usual merchandise deliveries in the prior year quarter.
• Other revenue decreased $4.4 million, or 14.1%, primarily due to lower general agency revenue as a result of a decrease in insurance-funded preneed funeral sales production as described below.
• Comparable funeral gross profit increased $44.7 million to $147.3 million and the gross profit percentage increased 640 basis points to 27.5%. Funeral margins continued to be positively impacted by growth in higher margin core business activities coupled with a more efficient cost structure that is partially due to the fewer and smaller memorial services mentioned above.
• Comparable preneed funeral sales production decreased $3.6 million, or 1.6%, in the fourth quarter of 2020 compared to 2019. We experienced a 2.5% decrease at our core funeral locations somewhat offset by a 2.4% increase at our non-funeral home locations. Although these results are improved from previous quarters, we continued to be impacted by social distancing restrictions on two of our primary lead sources, in-person seminars and in-home follow-up visits.

Comparable Cemetery Results

The table below details comparable cemetery results of operations ("same store") for the three months ended December 31, 2020 and 2019. We consider comparable cemetery operations to be those businesses owned for the entire period beginning January 1, 2019 and ending December 31, 2020.

• Comparable cemetery revenue increased $63.9 million, or 17.8%, in the fourth quarter of 2020 compared to the fourth quarter of 2019. The increase was primarily due to a $59.6 million, or 18.1%, increase in core revenue.
• The core revenue growth of $59.6 million was a result of a $24.9 million, or 30.2%, increase in atneed revenue that was driven by a higher number of burials performed and a $34.7 million, or 14.1%, increase in recognized preneed revenue driven by strong comparable preneed cemetery property sales production for the period as described below.
• Other revenue increased $4.3 million, or 14.5%, primarily from higher endowment care trust fund income due to the timing of capital gains and other distributions.
• Comparable cemetery gross profit increased $49.0 million to $164.5 million. The gross profit percentage increased 680 basis points to 39.0%, resulting from the favorable cemetery revenue increases described above coupled with a more efficient cost structure.
• Comparable preneed cemetery sales production was favorable by $39.6 million, or 16.0%, primarily driven by increases in contracts sold as well as higher large sales activity for the period. Similar to what we experienced in previous quarters, our continued expansion of virtual tools, customer sales incentives, and improved leads from atneed services and Company-generated leads, drove higher sales velocity. We continued to experience higher conversion and close rates due to the consumer's increased awareness related to the possible impact of COVID-19, coupled with an increase in location traffic due to higher funeral services and burials performed.

Other Financial Results  

• Corporate general and administrative expenses increased $6.1 million to $31.1 million in the fourth quarter of 2020 compared to the same period in 2019. This was primarily related to higher legal expenses in the current year quarter. Additionally, the fourth quarter of 2019 benefited from $3.3 million of insurance proceeds for damages caused by various hurricanes.
• Interest expense decreased $8.2 million to $36.2 million in the fourth quarter of 2020 primarily due to lower interest rates on our floating rate debt and other debt refinancing activities over the last twelve months.
• The GAAP effective income tax rate for the fourth quarter of 2020 was 19.4% down from 24.6% in the prior year quarter. Our adjusted effective income tax rate was 20.4% in the fourth quarter of 2020 compared to 24.3% in the prior year quarter. The lower tax rates in the current period were primarily due to less state taxes due to the release of valuation allowances coupled with greater excess tax benefits on a higher number of exercised stock options during the quarter.

Net cash provided by operating activities increased $88.3 million to $244.9 million in the fourth quarter of 2020 compared to $156.6 million in the fourth quarter of 2019. This increase is primarily due to higher gross profit of $97.5 million coupled with $28.1 million lower cash interest payments resulting from recent debt transactions. We also continued to benefit by $12.6 million from the deferral of payroll taxes as allowed under the CARES Act. These increases were partially offset by an increase in federal and state cash tax payments of $24.9 million compared to the prior year quarter predominately due to higher earnings in the current period as well as increased preneed working capital uses during the quarter. The reduction in working capital primarily related to the substantial growth in cemetery preneed property sales in the quarter. Recall that cash receipts related to preneed property sales are generally received on an installment basis over a three to five year period. 

A summary of our capital expenditures is set forth below:

Total capital expenditures increased in the current quarter by $3.8 million primarily due to the timing of various cemetery development and construction projects throughout the year as we navigate the COVID-19 pandemic.

Trust Fund Returns

Total trust fund returns include realized and unrealized gains and losses and dividends and are shown gross without netting of certain fees. A summary of our consolidated trust fund returns as of December 31, 2020 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 years, and better reflect the performance of our core operations, as they are not influenced by certain income or expense items not affecting 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.

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SOURCE Service Corporation International