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Operator: Good day, and welcome to the SCI’s Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to SCI management. Please go ahead.

Trey Bocage: Good morning. This is Trey Bocage. AVP of Treasury and Investor Relations. I’d like to welcome everyone to our fourth quarter earnings call. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me go over our safe harbor language. Any comments made by our management team that state our plans, beliefs, expectations or projections for the future are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated in such statements. These risks and uncertainties include, but are not limited to, those factors identified in our earnings release and in our filings with the SEC that are available on our website.

Today, we might also discuss certain non-GAAP financial measures. A reconciliation of these measures can be found in the tables at the end of our earnings release and on our website. I will now turn the call over to Tom Ryan, Chairman and CEO.

Thomas Ryan: Thank you, Trey. Hello, everyone, and thank you for joining us today on the call. This morning, I’m going to begin my remarks with some high-level color on our business performance for the quarter, then provide some greater detail around our funeral and cemetery results. I will then close with some thoughts about our 2026 business and financial outlook. For the fourth quarter, we generated adjusted earnings per share of $1.14, which was an 8% increase compared to $1.06 in the prior year. We saw moderate increases in revenues and gross profit in both the funeral and cemetery segments driven by strength in comparable and noncomparable operations as well as slightly lower adjusted corporate, general and administrative expense which, when combined, resulted in $0.04 of earnings per share growth from operating income.

Below the line, the favorable impact of a lower share count contributed an additional $0.04 of earnings per share growth. For the year, we generated adjusted earnings per share of $3.85, which was a 9% increase compared to $3.53 in the prior year. We saw solid increases in revenue, gross profit and comparable margin percentages in both the funeral and cemetery segments contributing $0.26 to adjusted earnings per share growth from operating income. Below the line, the favorable impact of a lower share count and slightly lower interest expense was somewhat negated by a higher effective tax rate, resulting in a net $0.06 favorable impact on earnings per share growth for the year. If the effective tax rate had remained constant, we would have had an additional $0.07 in earnings per share for the year resulting in $3.92 or 11% earnings per share growth over the prior year.

Now let’s take a deeper look into the funeral results for the quarter. Total comparable funeral revenues increased $3 million or just less than 1% over the prior year quarter as growth in core and non-funeral home revenue was somewhat negated by lower core general agency revenue. Comparable core funeral revenue increased by $6 million or just more than 1%, primarily due to a healthy 3.2% growth in the core average revenue per service. This core average growth was achieved despite a modest increase of 30 basis points in the core commission rate. The favorable impact from the average revenue per service growth was muted by a 1.9% decrease in core funeral services performed for the quarter. For the full year 2025, comparable funeral volume declined less than 1% as we believe the impact of the COVID pull-forward effect continues to diminish.

Non-funeral home revenue increased by $3 million primarily due to a more than 11% increase in the average revenue per service. We expect this impressive growth in the average revenue per service to continue as older preneed contracts, that are maturing out of our backlog, have higher cumulative trust earnings and more recent preneed contracts written will mature with higher value in the backlog due to our operational decision to no longer deliver preneed merchandise at the time of sale. Non-funeral home preneed sales revenue increased over $2 million or more than 11%, as increased sales production with a higher percentage underwritten on insurance-funded preneed contracts generated more than an $8 million increase in general agency revenue.

This was partially offset by a $6 million reduction in revenue recognized from merchandise deliveries in the prior year quarter. Core general agency and other revenue declined by $8 million or almost 13%, primarily due to a lower general agency commission rate versus the prior year quarter that was impacted by changes in product mix and higher cancellations resulting from the impact of our insurance partner transition. We believe the general agency commission rate to be stabilized now in the mid-30s percentage range moving forward. Funeral gross profit declined by almost $4 million, while the gross profit percentage declined by 70 basis points to just about 21%. A modest increase in revenue was more than offset by a $5 million increase in recognized selling compensation costs.

While the cash rate expended for selling costs was flat versus the prior year, recognized selling costs increased for both the core and non-funeral home segments. For core, we have shifted our sales counselor compensation to more fixed versus variable, resulting in less being deferred for preneed trust sales production. On the SCI Direct front, our conversion from trust-funded products to insurance-funded products compels the immediate recognition of the general agency commission and the related selling costs. This has the effect of replacing high-margin merchandise revenues in the prior year with lower margin general agency commissions, therefore, putting downward pressure on SCI Direct’s margins as we compare to the prior periods. The team managed fixed cost growth to less than 1% for the quarter, which had the effect of moderating the impact of the recognized selling cost increase.

Preneed sales production increased by $29 million or about 11% over the fourth quarter of 2024. Core preneed funeral sales production increased by $25 million or 12%. Non-funeral home preneed sales production increased by over $4 million or 8% over the prior year quarter. We feel great about our momentum in both channels, now having had the time to work out the kinks of the insurance partner transition in the core segment. And as of the end of 2025, we have now rolled the insurance product into 100% of our SCI Direct locations. Now shifting to cemetery. Comparable cemetery revenue increased by $5 million or about 1%, primarily due to an $8 million increase in other revenue, slightly offset by a $3 million decline in core revenue. The core revenue decline was primarily due to a $3 million decline in atneed revenue.

Total recognized preneed revenue was essentially flat as a $6 million increase in preneed merchandise and service revenue was offset by a $6 million decline in recognized preneed property revenue. Preneed merchandise and service sales production was up $15 million over the prior year number, growing the preneed sales backlog by over $9 million. Other revenue was higher by $8 million compared to the prior year quarter primarily from an increase in endowment care trust fund income. Comparable preneed cemetery sales production increased by $8 million or about 2%. Core sales accounted for a $13 million sales production increase powered by impressive velocity growth, which was slightly offset by a $5 million decline in large property sales, which was comparing against a very strong prior year large property sale quarter.

For the full year 2025, preneed cemetery sales production grew by about 4%. We feel very good about the momentum our team carries into 2026. Cemetery gross profit in the quarter grew by $5 million or about 3% and the gross profit percentage increased by 70 basis points, generating an operating margin percentage over 36%. While recognized revenue growth was 1%, high-margin trust income was slightly offset by lesser margin core revenue declines. And when combined with our team managing fixed cost growth slightly higher than 1%, this resulted in gross profit growth and margin percentage expansion. Now let’s shift to a discussion about our outlook for 2026. As you saw in our earnings release, we provided a normalized earnings per share range of $4.05 to $4.35 for 2026 or a midpoint of $4.20.

The 2026 range is 5% to 13% growth with a 9% growth at the midpoint. Within our funeral segment, we expect flat to slightly down funeral volume compared to 2025 with the average revenue per case growing at inflationary rates, slight negated by the effect of a modest cremation mix increase. We do expect to see higher general agency revenue from increased preneed sales production as well as slightly higher selling costs recognized, not cash, from the effect of the shift to a higher percentage of fixed compensation that does not get deferred. Finally, we believe we can continue managing fixed costs slightly below inflationary levels with higher productivity, which all in should drive profit growth for the funeral segment, increasing the gross market percentage by 20 to 60 basis points.

We expect preneed funeral production for both the core and SCI Direct businesses to grow in the low to mid-single-digit percentage range. For the cemetery segment, we anticipate that we can grow preneed cemetery sales production in the low to mid-single-digit percentage range, resulting in cemetery revenue growth of about 2% to 5%. This, combined with our continued focus on managing inflationary costs, should result in impressive segment profit dollar growth, expanding our gross margin percentages by 30 to 60 basis points as compared to 2025. Below the line, we expect a net favorable impact on earnings per share as the positive effect of a lower share count is slightly offset by higher interest expense and a slightly higher tax rate as compared to 2025.

For our shareholders, know that we are laser-focused on growing your great company as best we can for the long term, growing revenues, leveraging our scale and deploying capital to its highest and best use. In conclusion, I want to acknowledge and thank the entire SCI team for their daily commitment to our customers, our communities and to one another. Your dedication is the foundation of our success. Thank you for making a difference every day. With that, operator, I will now turn it over to Eric.

Eric Tanzberger: Thank you, Tom. Good morning, everybody. Thanks for joining us today. Before I begin, I’m going to continue Tom’s last thought and I want to take a moment to really sincerely thank our more than 25,000 associates at SCI across our entire network. Your dedication, your compassion, your commitment to excellence truly make a difference each and every day. We are deeply grateful for the care you provide the families we are honored to serve and the positive impact you continue to have in the communities that we are lucky enough to serve. So today, I’m going to start by reviewing our cash flow results and capital investments for the fourth quarter followed by a recap of our full year performance in ’25. After that, I’ll provide an outlook for our 2026 cash flow and capital investments, and I’ll conclude with an update on our overall very positive financial position.

So in the fourth quarter, we generated strong adjusted operating cash flow of $213 million. This exceeded the high end of our most recent guidance range for the quarter. Compared to the prior year, neutralizing for an expected $21 million increase in cash taxes, our adjusted operating cash flow decreased $34 million. So breaking this down a little further, adjusted operating cash flow was positively impacted by higher adjusted operating income of $8 million, highlighting the strength in our underlying funeral and cemetery operations during the quarter. However, cash interest was higher by $24 million, primarily due to the timing of a lower interest in the prior year quarter due to the bond financing and reduction of our drawn bank credit facility that we completed in September of 2024.

Additionally, during the quarter, with a net $18 million use of other working capital, primarily due to the timing of payroll funded in the current year quarter. For the year — for the full year, we finished 2025 with impressive adjusted operating cash flow of $966 million. Compared to 2024, when you exclude cash taxes and special items in both years, 2025 cash provided by operating activities increased an impressive $108 million or 11%. So going back to the fourth quarter, we invested $174 million of capital into our funeral homes and cemeteries, new growth opportunities, business acquisitions and real estate, all of which resulted in our full year capital investment in these categories of $508 million. So in the quarter, we invested $107 million of maintenance capital back into our current businesses with $47 million allocated to high return in cemetery development projects, $51 million into our funeral and cemetery locations and $8 million into our digital strategy and other corporate investments.

For the full year, we invested a total of $328 million in maintenance CapEx, slightly below prior year and ahead of the high end of our guidance range. We dedicated a portion of the strong cash flow from operations during the fourth quarter towards reinvestment into the maintenance of our funeral homes to improve the customer event experience and into cemetery development, creating new tiered options for our customers. We also invested $31 million of growth capital in the quarter towards the construction of new funeral homes, the expansion of existing funeral homes as well as the purchase of real estate for future new build and expansion opportunities. This brought total 2025 growth capital to $79 million, which is down about $25 million from 2024, which was anticipated.

So turning to acquisitions. We invested $36 million into business acquisitions in the fourth quarter and in locations in North Carolina, Arizona, Florida and Canada. In total, we finished the year with $101 million of acquisition spend, which was in the middle of our annual guidance target of $75 million to $125 million. We are really thrilled about these high-quality funeral homes and cemeteries joining our company, and we’re happy to welcome all of these new associates to our SCI family. So moving on to capital distributions. We returned $107 million of capital to shareholders in the quarter through $59 million of share repurchases and $48 million of dividends. We repurchased just under 1 million shares during the quarter at an average price of about $79 per share.

For the year, we returned $645 million to shareholders through $461 million of share repurchases and $184 million of dividends, bringing the number of shares outstanding today to just under 140 million shares. Subsequent to year-end, we repurchased another 500,000 shares for about a $40 million investment at an average price of about $80 per share. So before we get into our 2026 outlook, I want to make a brief comment about our corporate G&A expense during the quarter. Corporate G&A expense increased $19 million over the prior year quarter to $34 million. This was primarily a result of the prior year quarter having benefited from the reduction of a legal reserve of about $20 million. So when you exclude this prior year impact, G&A expenses actually declined about $1 million quarter-over-quarter.

And as we look forward to next year, 2026, I should say, we expect that corporate G&A expense will average around $40 million to $42 million per quarter with, again, a reminder that this rate could be impacted one way or the other by the timing of our accruals related to our short-term and long-term compensation plans. So shifting now to outlook for cash flow. As you saw disclosed in the press release, our 2026 adjusted operating cash flow guidance range consists of a $60 million range from about $1.0 billion to $1.06 billion. The midpoint of this range assumes the following: we expect our cash earnings at the midpoint of our EPS guidance range to grow about $70 million, reflecting growth in our underlying funeral and cemetery operations. Cash taxes are actually expected to decline by about $20 million, which will result in $120 million of cash taxes as the impact of higher expected earnings on cash taxes are being more than offset by an anticipated tax benefit from an investment in renewal energy projects.

As we look beyond 2026, though, we anticipate returning to a normalized cash tax rate of about 24% to 25%, absent additional tax planning strategies or regulatory additional changes. From an effective tax rate perspective on our income statement, we expect 2026 to really trend in line with 2025, which is about a 25% to 26% effective tax rate. And then lastly, we expect a modest decrease in cash paid for interest this year due to higher average balances being more than offset by lower rates. So now let’s talk about capital investment in 2026. We expect maintenance CapEx in 2026 to be about $325 million, which is generally in line and flat with the levels we incurred in 2025. Of this target spend, we expect to invest $135 million into improving our funeral homes and cemeteries, $165 million into cemetery development projects with high rates of return and $25 million into our digital strategy investments and other corporate investments.

We expect to invest again an additional $75 million to $125 million towards acquisitions, which is in line with kind of the annual acquisition spend target we’ve had in the last couple of years. In addition to the maintenance CapEx and acquisition spend targets, we also plan to spend roughly $70 million to $80 million of growth capital on a new funeral home construction and real estate opportunities, which together drive low to mid-teen after-tax internal rates of return. Finally, as been our strategy for many years, we continue — we plan to continue returning capital to our shareholders through dividends and our share repurchase program in a very consistent and disciplined manner, absent other higher return investment opportunities. So in closing, I’d like to provide some commentary about our current liquidity and our financial position.

I’d first like to note that in November, we entered into a new $2.5 billion bank credit facility, which consists of a funded $750 million term loan and a $1.7 billion revolving credit facility, both now maturing in November of 2030. This transaction increased our liquidity by over $350 million and our current liquidity today is about $1.7 billion. Our leverage ended 2025 generally in line with prior year-end just above 3.65x, which is at the lower end of our long-term net debt-to-EBITDA leverage target range of 3.5x to 4x. So our strong balance sheet, this enhanced liquidity position that I just mentioned, and consistent and predictable cash flows continue to support our capital deployment program, which gives us remarkable flexibility as we enter 2026 to invest opportunistically for the long-term benefit of SCI, our associates and our shareholders.

So with that, operator, this concludes our prepared remarks. And so I’m now going to turn it back to you to open the call for questions.

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Operator: [Operator Instructions] Our first question comes from Joanna Gajuk from Bank of America.

Joanna Gajuk: So first, on the cemetery preneed sales production, it sounds like you expect low to mid-single-digit growth for ’26. So can you kind of break down your assumptions in there for the large sales versus the core? I mean, it sounds like in Q4 large sales declined year-over-year because of the comp, but it sounds like the number must have been good. So if you can give us a sense of the magnitude of the amount for the year for ’25 and then what you assume for ’26, I guess?

Thomas Ryan: Sure, Joanna. Thank you. So on that, you’re right. In the fourth quarter, we’re slightly down comparing against a tougher number. I think for the year, we’re slightly up around 2% or so on the large sales, maybe 3% for year-over-year. And as we think about next year, I’d tell you, I feel very confident about the momentum we carry into 2026. We feel really good about our start and both on the large sale and on the core sales. So I think, again, as you think about large sales, it’s always really hard to predict, as you can imagine. But think of that as being slightly lower, so maybe a 2% to 3% increase there and then maybe a more robust increase as you think about the core customer. But as you well know, large sales are tough to predict. It could be — that’s the piece that can be a little bit volatile to the upside. And in times of stress, maybe something that isn’t there.

Joanna Gajuk: If I may, in the, I guess, current period, any indications, how things are tracking so far this year, specifically in your [ Brookfield ] location and maybe elsewhere? If you can comment any disruption to the sales process and such because of the — some winter storms in some of the markets?

Thomas Ryan: Yes. We continue to see very positive trends on both preneed cemetery sales and on funeral sales. We’ve had a real focus. Our sales team is really focused around 3 things this year, and this plays a little bit into something we’ve talked about. We’ve shifted more compensation to fix from variable that we talked a little bit about in my comments. And that was a strategic decision to focus on people power, focus on retention of our key employees by giving them the stability of that higher guaranteed pay. So the 4 things we’re working on are people power or call it, people retention. We believe if we can increase the number of preneed seminars that are out there, it’s going to increase the number of good leads. And then once we have those leads, a real focus on the lead to sale rate, which is really the conversion of the leads.

And then finally, really focused big time on large sales, making sure we have the inventory, making sure they have the presentations right, that we’re finding people that could be customers in this category. So those 4 things really drive our sales, and we’re laser-focused. Jay has got everybody laser-focused on those things, and we’re seeing great results. We’re seeing both at the high end and at the core level on funeral and cemetery.

Joanna Gajuk: Any color on [ Brookfield ] activity so far?

Thomas Ryan: Well, again, I don’t want to give percentages, but as you think about January, two things to keep in mind. One is funeral volume last year was pretty strong. So we’re comparing against a pretty tough number. We’ve not seen — it’s been a bit sluggish when you think about volume. But on the sales side, we’re seeing tremendous out-of-the-gate results, both on funeral and cemetery, particularly cemetery. But again, one month is not a year make. So we’re excited about it. We love — I think the team is focused on the right things, and we feel very good about our opportunities for 2026.

Joanna Gajuk: Great. [indiscernible], last one, I guess, staying on the cemetery side. Can you talk a little bit more about the opportunities to grow cementery for cremation customers? So you noted the shift to cremation is slowing down, but 65% of services are cremations. And I guess you kind of talk last time about opportunities to grow cemetery, I guess, sales for the cremation customers. So can you give us an update of where things stand and kind of what are your goals for this year?

Thomas Ryan: Sure, Joanna. We actually have piloted in a few markets now in the process of rolling out to more a specific focus on that cremation consumer. And some of that is putting videos into our locations that can show the opportunities to the cremation customer and just making it more visible to our visitors and to the clients that we’re serving. So, yes, we’re doing a lot of things as it relates to media and the like to create that awareness and hopefully drive some opportunities in that market. I’d say early days, we feel very good about it. And it’s going to take a while to roll it out to the entire network, but we’re in the beginnings of doing that now and are excited about the results to come.

Operator: Up next, we have A.J. Rice with UBS.

Albert Rice: First of all, just on the comments that Eric made on G&A. You explained the 4Q’s impact, but I think your 4Q of ’24 the comp, but 4Q of ’25, you’re only at about $34 million. I think we had been thinking you’d be more like $38 million to $40 million based on the third quarter call. What drove the better performance on G&A?

Eric Tanzberger: Two things, really, A.J. The first one is that we have short-term and long-term ICP accruals, and this is primarily a long-term situation, an LTIP situation. And just to remind you, we have some performance units that get compared to the S&P MidCap 400. And that’s going to move quarter-to-quarter, which is what I was trying to say during my conference call remarks. Sometimes you have a $2 million, $3 million, $4 million headwind and sometimes you have a $2 million, $3 million, $4 million tailwind. And that’s what occurred during the fourth quarter. Absent that kind of volatility on LTIP, you should see a $40-ish million, $42 million-ish per quarter G&A expense as we move forward. That’s kind of the middle-of-the-road expectations as we move forward.

The other thing that can move it that you kind of have seen us talk about in the last few quarters, sometimes you have some positives and negatives related to some of the insurance being self-insured. This primarily could be Workers’ Comp, sometimes general liabilities, sometimes auto liability, sometimes even the health care accruals. Generally, those aren’t moving as much as we’ve seen kind of the LTIP accruals move in. But any of those at any point in time can do that, and we’ll explain that to you. But in terms of modeling, I think I’m pretty comfortable with that $40 million to $42 million a quarter right now.

Albert Rice: Okay. When you think about the changeover toward more insurance, you’ve got — you’ve called out commission normalization and then you also talk about the impact of SCI Direct. Are we pretty much going to have more straightforward going forward? And what are the implications on the commission run rate? It sounds like it’s a little lower in the back half of ’25. Do we have to annualize that in the first half of ’26 or something else? And then SCI Direct go forward from here. It sounds like the restructuring of that is done, and we should have more normalized trends, but I just want to make sure of that.

Thomas Ryan: Yes, that’s correct, A.J. Answering the SCI Direct piece, we are 100% implemented in having the insurance product in those markets. There will still be some trust sales because some people aren’t insurable. But I would say over 90% of the sales are going to be insurance and therefore, generate a commission and generate the associated selling costs. So as we think about SCI Direct, it’s going to trend in a positive direction year-over-year and it’s been a while since that’s happened. So we’re excited about it. On the other commission front, as you think about selling costs and you look at the — what we talked about, when you looked at funeral, remember, we had 11% preneed sales production growth. So part of our selling cost increase is the fact that we’re selling a lot more that’s driving that cost up.

We also saw a slight bit of transition to a fixed cost plan that I mentioned before as opposed to variable. And so as you think about the trust product that we sell, not the insurance, less is getting deferred and more is getting recognized. No cash increase, just the type of compensation that occurs. And yes, I think as you think about SCI Direct, like I said, positive from here as you think about trend-wise.

Albert Rice: Okay. And you also called out, I think this may be the second straight quarter of the improvement in velocity you’re seeing in the cemetery production area. Can you just maybe drill down a little bit more about what you’re seeing there and what’s driving that and what might implications of that be?

Thomas Ryan: Yes. I think, A.J., a lot of that’s back to those 4 metrics or particularly the first 3. Having one, the aim to try to have higher retention of our good people and getting them quality leads and then really focusing on the training to take that lead and convert it to a sale. And so as I think about our success in being able to do that and focusing on those types of things, we’re seeing, again, trends that we really like. And so we are seeing velocity drive our success as we think about the core cemetery sales. So I just attribute that to focus. You mentioned the cremation consumer before. We are seeing a higher lift of people, cremation consumers choosing to buy into our cemeteries. So all those cumulatively bode very well as we think about cemetery production going forward.

Operator: Our next question comes from Tobey Sommer with Truist.

Tobey Sommer: I was wondering if you could talk about the drivers of lower than inflation expense growth. That’s pretty impressive, particularly if you think that your ability to achieve that has legs.

Thomas Ryan: Sure. Some of the things that are happening within the current year 2025 is our focus on the products that we sell. And the things that we’re selling, the types of products we sell, who we’re buying from. And so our supply chain team, led by Michael Johnson, have done a lot of great things as we think about the products that we retail to consumers and how we price those and how, again, we’re — what types of products we’re buying and selling. So we’ve seen on that really on the merchandising cost side, some enhancements as we think about it. The other thing that I think is probably the most powerful and it gets back to kind of labor efficiency. So we utilize — we empower our operators really to proactively managing staffing levels and giving them the tools to do it as you think about overtime, part-time roles, they’re using metrics.

They’ve got daily dashboards. And so what it allows us to do with those labor efficiency metrics is manage that and then, as a team, we’re taking best practices and sharing those across the entire portfolio. So think of it that way, and then at the very top, we’ve got a cross-functional margin improvement committee that’s been in place for a number of years now that really focus on dissemination of these best practices. So we think we’ve got a pretty good grip as we think about volumes aren’t as high as we thought they were. We’re going to manage the variable cost, particularly around staffing. So really a testament to our great operations management team and how they’re utilizing those tools to manage costs effectively.

Tobey Sommer: So would you say that you think that this sort of spread could be achieved beyond 2026 or take it one year at a time at this stage?

Thomas Ryan: I think it’s kind of a one year at a time. And I do believe that’s true, but it kind of gets back to volume, right? If we begin to see volumes ticking up, it becomes a little more complicated as you think about staffing costs, you’re going to see some rises in that because, again, these are variable costs. But at the same time, I think it really allows us in the challenging volume periods to manage costs as low as you see us do it. But I’d expect those to trend back up as volumes begin to increase as we anticipate over the coming years.

Tobey Sommer: If I could sneak one more in from an acquisition perspective, you closed out the year and right down the fairway for your total capital deployed. When you look at the pipeline, is there any change in the composition such that something might be a little bit bigger this year?

Eric Tanzberger: I think we’re seeing a similar type pipeline, Tobey. I think we’re very excited about it. As I’ve said before, it’s generally going to be more of larger independent type transactions that are both funeral and cemetery. And the best that we could do in those situations were places that we already exist and already have local scale. And that’s the best of both opportunities for our company as well as those independent funeral homes that are decided to join our company, and we can continue the great service and the way they’re treating their consumer in those markets that we are already in and guarantee that really, but the pipeline is good. The pipeline is healthy. We’re very busy. I think I’ve been saying that for a couple of quarters now. And I think I’m going to still say the same thing. I think it’s pretty good and pretty busy, and we’re excited about it.

Operator: Our next question comes from Tomohiko Sano with JPMorgan Chase.

Tomohiko Sano: This is Tomo from JPMorgan. Could you talk about the plans for developing selling premium cemetery inventory and your outlook for recognition rates? And could you talk about how do you view price elasticity as well, please?

Eric Tanzberger: We’re going to deploy capital, which is the first part of your question, similar to last year, which our metric right now is about $165 million of very high returning opportunities. As you’re describing as you saw Memorial Oaks during your tour, we’re going to invest in tiered type inventory at each of our cemeteries that are going to give offerings all the way to the higher end in terms of families that want like private estates and such, then you go all the way down to the semiprivate areas, and then you get to some of the initial more lower-tier type offerings. I think that it continues, coupled with our sales force, to be the best value opportunity that we can get and the highest return opportunities we can get for that type of capital.

In terms of the cemeteries themselves, there’s relatively high barriers to entry. We’re very lucky to have this 35,000 acres that we had that were built over many, many decades by really the founder of this company over a long period of time where metropolitan areas have grown around these cemeteries, but yet we still have a tremendous amount of capacity and years left within these cemeteries. What you saw in Memorial Oaks, which Houston has now grown out and surrounded, still has many years left, many decades left in terms of inventory. For those of you all on the call have been to Rose Hills, that’s a similar situation where L.A. has grown around it and many years left in that. So we’re very lucky to have it. We have good barriers to entry.

We’re going to price it based on the tiering effect and type the value proposition that exists that we’ve always had. We feel that there’s a lot of opportunity with a strong cemetery consumer, especially as the demographics over the long term turn our way over a period of time.

Tomohiko Sano: Very helpful. Just one follow-up on the M&A pipeline in 2026. Could you talk about prioritization for expansion, especially what drove the recent acquisition in locations of North Carolina, Arizona, Florida and Canada? And are you continuing to target these locations or more broader-based M&A?

Eric Tanzberger: No. It’s going to continue to be, as I said, we want to be in markets that we already exist in as the first stack ranking because we already have — we carry the national scale anywhere that we’re buying. But when we already have that local scale, it can really make 2 plus 2 equal 5, so to speak, when we have these larger really nice independents joining our company. So we’ll continue — you know, we have a broad base across the United States. We also have a wonderful business in Canada really from anchored in the West all the way over to the East, especially in Toronto. And you’ll continue to — for us to develop very long-term relationships with a valuable pipeline that we have with those relationships and as those individual businesses and their owners and their families kind of raise their hand and are interested in discussing the next step and discussing liquidity event, we have the advantage of having tremendous liquidity and speed and really making it a win-win situation with our independent partners.

Operator: Our next question comes from Parker Snure with Raymond James.

Parker Snure: Just wanted to drill down on the GA revenue in the funeral segment a little bit more. With your core preneed funeral production up 12%, but the GA commissions were down just a bit. Maybe just talk us through some of the drivers there. I know there were some comments on the commission rate. I know you previously made some comments on a flex product that comes in with lower commission, maybe just drill down on some of the dynamics driving that.

Thomas Ryan: Sure, Parker. I’ll take that. So as you think about the timing of all this, the fourth quarter of 2024, we’re relatively new into the new contract with our new insurance partner. And so at the time, we’re really hesitant to talk about what we think the rate is going to be because there are so many factors that play into that. Any kind of new plan is going to have new pricing, new learning, new forms, new processes, new rules. So there’s just a lot of change management engaging in there. So the two things I mentioned on the call, Parker, were product. And so as you think about that, you rightly pointed out that we opened up the flex product in the mid part of 2025 that we didn’t offer at the end of ’24. So some of this is we’re offering a flex product with a dramatically lower commission rate than the traditional insurance.

That’s a little piece. Another one is kind of what we call early payoffs. You try to predict who’s going to sign up for these things and then pay off within a year with the early payoff rates slightly higher, and that again would drive it down. The other factor is, if someone pays a single pay upfront versus a multi-pay over time, there’s different commission rates there. So we’re trying to predict how many people are going to buy a single pay, how many people are going to buy a multi-pay. So those are the 3 things that kind of impacted the product piece. And then the other thing we mentioned was cancellation rate. And again, two things there. One is you’ve got cancellation rate from the old insurance provider in that business. And we saw an increase of older contracts from the previous supplier that, again, kind of happens from time to time it isn’t as predictable.

And I don’t think that’s going to continue at those rates. And then finally, we’re seeing a slightly higher cancellation rate than we used to experience with the previous insurance provider. I would attribute that to, again, the new plan learning. We’re learning how — what are the points where customers are frustrated with processes, rules, forms. And so I think we’ll get better at that as time goes on. So we came out and said, let’s look for kind of a mid-30s type of percentage rate going forward. We think that’s probably a fair way to think about it as you model ’26, ’27. Hopefully, we’ll get a little better over time at some of these things like cancellation. But we’re very comfortable that now we’re in a place that we understand it and we should try to improve from here.

Parker Snure: Okay. Great. That’s super helpful. And yes, just a follow-up on that. On the — it sounds like there was almost like a bad debt accrual for the cancellation rate. Maybe if you could just help us like give us a number for the magnitude of that? And is that expected to be a onetime item? Or is that going to be kind of an ongoing accrual that’s constantly flowing through the numbers?

Thomas Ryan: Well, I think it’s — like you said, the cancellation rate experience we’re having is a little higher than we thought, which requires us under — when you’re making estimations to catch up. So maybe think about 200 bps as being the impact of catching up this quarter, which again, we’ve factored into going forward, what we think about 2026. So as you model, I’d just go back to that kind of mid-30s and that would encompass any catch-up that we think we need to have. And like I said, I hope operationally over time, and I believe this is true, we’re going to get better at this because there’s typically a reason. And again, this gets back to new products, forms, processes, people, us getting used to them. So I expect this over a period of time to get better.

It’s just the part of change management that’s tough. But look, at the end of the day, we’ve got a better product for our customers. We’re generating higher commission rates. So we’re very, very pleased with our partnership and expect it to continue to trend to the positive.

Parker Snure: Yes, absolutely. Understood. And then just if I can squeeze in one more. On the perpetual care trust, that was up $8 million year-over-year. I think for the full year, it’s up about $16 million. Maybe just help us with what is expected in your guidance for 2026 for perpetual care trust revenue? And maybe just remind us on the accounting treatment of how that portfolio is accounted for.

Eric Tanzberger: Yes. We had a great year across all the trust funds, as you saw Parker, at a 15% return. We normally expect and model kind of about half that, kind of about a 7%-ish type market return in the trust funds. That’s true for the internal care funds just like it’s true for the MST funds. The internal care fund is really split into two components. One is a prudent person approach, which is the same 60% equity, 30% fixed income, 10% alternatives type mix that you would expect from that type of portfolio. There’s still though a few states in the internal care fund, which don’t follow that method and primarily are invested in fixed income securities. When that occurs, when there are gains or losses from those portfolios, that flow through that particular line.

The issue was not during the fourth quarter of ’25, but in the fourth quarter of ’24, we had a liquidation related to a portfolio manager and that created a $4 million, $5 million, $6 million loss that came through. So it’s not that the portfolio looks so much better than last year is that last year was pressured by that particular event in the internal care funds.

Operator: Our next question comes from Scott Schneeberger with Oppenheimer.

Scott Schneeberger: I have probably a total of three questions. I’m going to ask the first two upfront. We heard a lot about the flu in the fourth quarter, certainly carryover into the first quarter. But funeral volumes were pretty light in the fourth quarter. Just kind of curious what you’re seeing on the flu front. And then the second part of the question is, the guide for 2026 on funeral volumes flat to slightly down. When are we going to see that? I mean that’s kind of in the trend, but is there a conservatism in there? Or is that the trend? I was thinking we might be seeing that start to improve a bit. So just thoughts on those.

Thomas Ryan: You bet, Scott. So as it relates to flu, you’re correct, we did hear about the cases. I think as it relates to creating funeral volume that we’re not seeing any of that. We’re not hearing any of that. And as we think about trends in volume, it’s probably good to take a step back for a second. So we know that the COVID impact occurred. We knew that we’re going to have the COVID pull-forward effect, and we’ve modeled that. And we think we’ve got a little bit of diminishment there, but less year-over-year. The other thing just to point out that we don’t talk about as much, but you’ll recall us talking about it during COVID, was the term excess deaths. And what did that mean? And we said that was kind of the ripple effect of COVID.

We saw increases in drug overdose, suicide, traffic fatalities, murders, lack of cancer screenings. And so we couldn’t explain this excess volume that has occurred even beyond COVID. And I think as you look at the statistics now, and this is a positive for us as a society, I think goodness, right, drug overdose down, suicide down, traffic fatalities down, murders down, cancer screenings back to levels, and you’re seeing deaths from cancers trend down. So as you look at the national data and again, it’s not perfect, as a country, volumes were down in 2024. Preliminary ’25, they’re down. So I think what we’re going through is a little bit of a trying to normalize out of this strange period. The other thing that we do is we go back and look at the CAGR of the 2019 numbers.

So if you go back and look at pre-COVID and you said, let’s expect volumes to increase 1% over the next few years. If you do that and look at our current volumes, you’d be very pleased about where we stand. As you think about market share, as you think about demographics. So it’s very confusing, and I understand why it is. It’s frustrating for us sometimes too. And look, we’re paranoid. We’re going to fight for volume for market share. Are there markets we could do better as we think of cremation pricing, maybe, and we’re doing that every day and trying to fix it. But I think if you really take a step back and do the compounded impact of ’19, you feel very good about the volumes that we’re experiencing today. We still believe the demographics of this business, just the pure aging of society is going to have an impact, and it’s just challenging to understand exactly when you’re going to be able to see that.

It isn’t being clouded by some of these other trends. But again, we’re going to manage our costs. We’re ready to take care of that. On the good news front, so as I think about ’26, yes, we think it’s probably going to be flat to slightly down. January is a little soft, as we mentioned earlier, but we’d expect it to trend back towards flat. I think as you get out to ’27, ’28, ’29, we expect to see funeral volumes increase is the way our models are working. So we think we’re close. We’re poised and ready to do it. I’d say on the positive front, on the cemetery side, we’re seeing a lot of great things in our sales activity, both in large sales and in core. So still feeling good about ’26. Volumes could be slightly down to flat, like we said.

Scott Schneeberger: Great. Appreciate that color, Tom. And then the last question, it kind of dovetails off all that. The guide for 2026 EPS is growth of 5% to 13%. That certainly encompasses your 8% to 12% midpoint kind of in the bottom half of that. It feels about right, but just curious what has you concerned that could put you at the lower end? What are the drivers that could put you up at the higher end or above?

Thomas Ryan: Yes. So I think at the lower end right now, I think we think that would be continued soft funeral volumes. If we saw volumes that came in at down and down, let’s say, 200 basis points or something, that’s tough to overcome. If we get flat, I think we feel very good about the higher end because, again, what we’re seeing in our — through the windshield is a lot of sales activity and feeling really, really good about it. I think we feel good about SCI Direct trending the other direction. I think we feel good about our arms around the expense category. So to me, the part that would put you challenging to the lower end would be a continued year-over-year decline in volumes. And again, we’re going to do everything we can to push you towards the higher end of that EPS guidance. But that’s probably the most difficult one for us to overcome if it’s not there.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to SCI management for any closing remarks.

Thomas Ryan: We want to thank everybody for being on the call today. We look forward to speaking to you again soon. I guess next call will be at the end of April. So everybody be safe out there. Thanks again.

Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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