Good morning, and welcome to the Service Corporation International Fourth Quarter 2020 Earnings Conference Call. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to SCI Management. Please go ahead.

Thank you, Andrew. Good morning. This is Debbie Young, Director of Investor Relations for SCI. Welcome today to our company’s review of business results for the fourth quarter of 2020. Before the prepared remarks, let me remind you that we will be making some forward-looking statements today. 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.

Thanks, Debbie. Hello, everyone, and thank you for joining us on the call today. We hope you and your families are staying safe and healthy. This morning, I'll provide a little color on our business performance during the first quarter. Then I'll offer some commentary on our 2021 outlook with the understanding that there remains substantial uncertainty, surrounding the effects of the COVID-19 pandemic, which could change guidance significantly. However, before I begin, I would like to say a few words about this past year. 2020 has certainly been one of the most uncertain and challenging periods that any of us can remember. As I reflect back on the last 10 months, I can say with certainty that our results are a testament to our team's incredibly hard work into the resilience of our underlying business. I'm extremely proud of our entire SCI team for going above and beyond the call of duty in 2020. In this difficult period, we stayed relentlessly focused on what we do best, helping our client families gain closure and healing through the process of grieving, remembrance and celebration. The health, safety and wellbeing of our SCI family was a top priority. And not only were we able to avoid any layoffs, mandatory furloughs or reductions in pay as a result of the impact of COVID-19. We were able to recognize the incredible efforts of our frontline associates with hero bonuses and provide special bonuses for every associate that does not participate in our annual incentive plan. In 2020, our services were needed more than ever, and I’m proud that we were able to perform the significantly increased number of services without any disruptions to our business, which highlights the power of our scale. One thing that became clear throughout 2020 is that our fundamental business has not changed. We did not see a wholesale shift in the consumer preferences and our cremation rate remains stable. Although, we were restricted in our ability to have large gatherings in 2020, we heard loud and clear from our consumers that they still have a desire to memorialize and to celebrate the lives of their loved ones.

Thanks, Tom; and good morning, everybody. And like I've done many times over the past few quarters, I'm going to start by providing you with an update on the strength of our financial position that has supported us through these very volatile times. I will then move on to address our cash flow results during the fourth quarter, as well as the full year of 2020 followed by our capital deployment activities for the year. And then I'll end by providing some details of our outlook for 2021. But I think more importantly than any of that, before we begin with that, when we were reporting our 2019 earnings almost exactly a year ago today, I don't think any of us could have anticipated what we would be facing in 2020. During the year, our frontline associates helped our communities, deal with this rapidly moving virus with unparalleled poise and dignity, particularly earlier on in the year when there was more speculation than there were facts available about coronavirus. But even to this day, our teams across our network are coming together and sacrificing their personal time, being away from home, all to support their colleagues and their broader communities as well, who are managing in current COVID hotspots. So words cannot capture how thankful and proud I am of these 24,000 associates and how they have faced the adversity of this pandemic with resolve, and we'll continue to help our communities through to the end of this terrible virus. So please hear me say something this morning very clearly to all of our SCI associates. Thank you. Now I'll shift to the financial update. So while we entered the pandemic anchored by a strong financial position and a favorable debt profile, we continue to be very well positioned with…

Thank you. The first question comes from Joanna Gajuk of Bank of America. Please go ahead.

Thank you very much for the kind of question here. So a couple of things, so I guess first, I guess appreciate the comment on the 2023 EPS, close to $3. So I guess in that context frame for us, how should we think about – use around your long-term growth targets, because you had kind of made it sound like maybe you'll think this targets should be higher because previously you talked about 8% to 10%, so kind of, can you frame those kind of metrics to us? That will be great.

Sure, Joanna. I think historically, as you know, we've given an 8% to 12% range, I think more recently, it's been a bit more challenging and we've tended to be more of the 8% to 10%. And I think what COVID has taught us really are a couple of things, because I mentioned, I think we're a more powerful company coming out of this and I believe that. First of all, I think we've had the ability to gain share going forward. We can look today as an example, if you look at the atneed services, we're providing versus the preneed going atneed, which those numbers typically are pretty coordinated. We've seen a consistent increase in the number of true atneeds versus preneeds going atneed. So it tells us that we're servicing more people than we typically would. I think a lot of that has to do with our scale and our ability to deliver services, because unfortunately in many marketplaces it's just so overwhelming that a lot of our competitors aren't able to take in people, and because of our ability to scale people to acquire refrigeration and things of that nature, our ability to have cemeteries, we can perform outdoor services. And again, we're taking advantage of that opportunity to have deeper relationships with our consumers. The other thing that I think is pretty prevalent for us is, our digital footprint, in our website, our digital leads program, which feed both preneed and atneed funeral volume. So as we look forward, we think the goodwill that we've gained, the footprint that we have for outdoor services and cemeteries, the heritage that we capture by serving more customers during this time should afford us a better market share. And when you combine that with the technology advancement that I think the company has achieved over this period, we're utilizing technology more in how we serve as families, it has allowed us to be more nimble and better at sharing resources of people and things. And from a sales perspective, I believe, we now with our digital leads programs and effective direct mail programs are finding a more effective and efficient way to produce sales. And as it goes on, I think it allows us to expand our span of control, the way that we think about it. The days of traveling like we did before, particularly if you had a region that should be dramatically reduced as we look forward, clearly we need to get out and visit people. But I think at the same time, we'll have a more efficient, effective and increase our span of control going forward. So that would push us towards, in my opinion, probably closer to the upper end of our long-term range, Joanna.

Okay. That makes sense. And on the last point, so I guess the last quarter you talked about $10 million to $12 million cost savings versus, there is a pre pandemic cost structure. So is it kind of still the same range when you talk about a leaner cost structure, or is there additional kind of efficiencies you see going forward, because I guess at that point you kind of indicated it could be even more than that number. So any color, I guess on that number will be great too.

Yes, Joanna, it's – I think those numbers are still very safe, it might be a little bigger than that now, but again, I think a lot of it's going to determine how this shakes out and what sticks as it relates to preferences of the consumer. And also I think as we normalize whatever normalize is, into that cost structure, but I think it's safe to say that $10 million to $12 million is what we've identified, I think there is still a little bit more to be had as we go about in the post-pandemic world.

Okay. That's helpful, I guess it's kind of in line with what you were saying, but still I guess, you leave it a bit open for more, which is good. And I guess, excuse me the last question, so you did spend some money on acquisitions, it seems this fourth quarter. So kind of, how do you expect this to play out, going forward? How has the smaller competitors done during the pandemic, it sounds like some people might have been pretty much overwhelmed, so – and to your point about market share gains, are there also assets to the asset acquired because they might struggle or they might be feeling that they are too small. So kind of any color on the acquisition outlook would be great too? Thank you.

Sure, Joanna. We did have a nice fourth quarter of closings, and as we look at the pipeline, it looks pretty active as we look out into 2021 and 2022. So we feel very good about those opportunities. It's hard to say, I think it's – I think a lot of things can impact the timing of people's decisions, I think going through something like this surely makes people think twice about what they want to do with their lives. So I think it could have an impact on people, but for the most part, what we're seeing right now, what we expect is a pretty robust opportunity set as it relates to that. And then I think as Eric mentioned, we probably will continue to increase the amount of spend on new constructed funeral homes. We've also recently purchased land to construct new cemeteries in certain markets. So I think it'll be a hybrid approach to growing through acquisition and increasing our investment in new builds and new cemeteries.

Great. Thank you. I'll go back to the queue. Thanks.

Thank you.

The next question comes A.J. Rice of Credit Suisse. Please go ahead.

Thanks. Hi everybody. Maybe just to try to come at the comment about cost savings and so forth from a different perspective, when we returned to normal post the COVID environment, I guess, pre-COVID we'd always talk – or sort of talk about funeral gross margins being in the 19% to 21% range and cemetery margins being in the 29% to 30% range. I wonder, is that sort of where we land or is because of the cost adjustments and so worth is it possible it might be higher than that?

Yes, A.J., I think again, it probably depends on working through all this pull forward noise, right. It's going to be hard to predict, because we don't know exactly which years this pull forward occurred or how long the pandemic will continue to be an impact on the numbers of deaths. But I think as you get to a normalized stage, it's our belief that we probably have the ability to raise those margins you talk about another 100 basis points to 200 basis points from the ranges that you talked about. So yes, we feel confident that both margins and funeral margins and cemetery as we look out, let's say to 2023, 2024 ought to be 200 basis points or so better than the ones you quoted.

Okay. And you mentioned a little step back in pricing in the fourth quarter, I know a lot of the challenges on the pricing returning had been in tardy California and Canada, did the increase in COVID activity across other parts of the country impact pricing there, or was it pretty much still constrained to those two markets?

It really A.J. had an effect in a lot of different markets, but California and Canada had a more pronounced effect because of the government regulated restrictions in a certain other markets like Seattle, I think, again, we're pretty limited, but even anytime you have an outbreak in a market, I think people have a reluctance to gather, people have a reluctance to have a big event. So we did see it kind of consistently when you see these big surges and COVID outbreak. So it really was getting a lot better all the way through October and then November, December is when we saw that impact occur. So right now, we're still very, very busy as you can imagine and expect to continue to be in this first quarter. And then I think you would see that average as the infections go down, the hospitalizations go down, you'll begin to see people spend a little bit more money with bigger receptions in the life.

And I guess last question in the background, we've sort of been tracking what's happening with the FTC and the funeral role. Is there any update from your perspective as to what's going on there with the new administration and all?

I’ll take that A.J., good morning. There is really no update at this point in time. We know that with the changeover in the administration, there is going to be changeover in commissioners. Some of the commissioners had moved on to other positions, there are some resignations as well. So the framework itself in terms of the commissioner makeup will be different moving forward than what it was before. Too early to tell what that means or where that's going. Certainly, there is a lot of things going on as we all know in our country that may lend itself to more important issues than the funeral. But we don't want to anticipate that the momentum is going to change one way or another at this point in time. The good news is as we've been very, very consistent is, we continue to move forward with our strategy regardless of an outcome from a Federal Trade Commission to put our best foot forward using our digital sites to put starting at prices and premium type enhanced products and service pricing out there. And in some cases, even testing some GPLs out there as well, that's not a change in our plan, that's something that I think we've been very, very consistent with you over probably more than a year that that's what we're going to continue to do for no other reason then, that's what we think is in the best interest of our consumers. And we're going to continue to meet those needs as we move forward.

Okay, great. Thanks a lot.

The next question comes from Scott Schneeberger of Oppenheimer. Please go ahead.

Thanks very much. Good morning, everyone. And Eric and Tom, I'd like to echo your thanks to your workforce, I'm certainly doing a lot of hard important work in indirect condition. The first question I’d like to ask is on the cadence of the quarterly cadence in 2021. It sounds from your prepared remarks like you're anticipating probably a lot of business activity in first quarter, but could you just give us a feel for how we should think about each of the quarters maybe as an annual contribution or something similar? Thanks.

Sure, Scott. I think in my remarks, I tried to give it a bit of a monthly impact for you. But clearly it's really about comparing back to 2020 is the hard thing. I think we're seeing a surge that has continued from the last couple of months of 2020 and the early part of 2021. So like we said, we'd expect double-digit percentage growth in funeral and cemetery really occurring throughout the first quarter and even into April. As you get into the – if you remember last year, the second quarter really was a tale of two things happening while we saw a big increase in case volume in late March and early April, the average went down pretty dramatically. And sales, we dried up in April. We had a really difficult pre-need cemetery sales going on there, but we really began to rebound as you got out of the quarter. So the second quarter is not as big of a hump because of the challenges in the first part of it. And then as you get to the back half of the year, it's really a – I think a tough comparison because you're going to see case volumes being a tough comp at-need cemetery and pre-need cemetery as well. So a big piece of this is going to be in the first quarter. I'd expect kind of a comparison to the second quarter. That'll be pretty normal. And then as you get in the back half of the year I hope that this virus is more contained. And again, then we would expect a tough comp as you get to the back half of the year, but overall, it's going to be a very solid financial performance for the company.

Thanks. In cemetery, pre-need, I'm just curious and thank you for – it's difficult with consideration of pull forward and just 2021 alone, forget about 2022, 2023 and 2024. But thank you for your thoughts on those, but just curious specifically on cemetery pre-need sales, it's been quite elevated. How are you thinking about that multi-year run rate, what we should expect, kind of a cadence for that as well. You've touched upon it, but curious to hear maybe a little bit more of the commentary on that. Thanks.

Sure. Scott, I think like we said for 2021, we'd expect it to be slightly below the level that we performed at 2020, but again, a healthy clip over 2019. And I think as we come out of that we feel very good about it because a couple of things happen. You're developing heritage as you sell into those cemeteries. And again, thinking of family trees, you're connecting to more families, more opportunities, to kind of spread out within that influence that you have. The other thing I think is we're doing a lot more outdoor services in our cemetery, so we're bringing a lot more people into the cemetery grounds, gaining familiarity, seeing what we see. So I see a lot of positive things as it relates to that, as it relates to digital leads and our ability to convert those. And so the only thing that can be a bit of a drag is the fact that in this pull forward, you'll have less people coming through the funeral homes, which again, would limit the number of new contacts that you have. But I think with technology and with a more efficient sales force, better leads and just the word and goodwill that we've gained, we expect cemeteries to return to levels where we can grow them again in the high single-digits percentages going forward in a more normalized environment.

Thanks, Tom, I'm going to sneak one more in, it's going to be two separate parts. The first is if you could just provide a project update on Beacon serving cemetery, just curious on where that stands. And then also I heard you say that you're going to be buying or have been buying some cemetery land, which I don't think is something you've been too active doing in the past. I'm curious, might we see – I'm sure that's in areas of high activity, might we see you do something like sell land as well in areas where kind of as an offset move and consideration of contribution if that were to happen? Thanks. I'll pass it on with that.

I'll take Beacon first, Tom. Beacon is going well, believe it or not during the pandemic, we've been able to continue to work diligently through all of our process and get this, get it rolled out, particularly just so everybody remembers to our cemetery segment. It was previously rolled out to most of our funeral segment, still have some issues around the pandemic or rolling out like in Canada and places like that. Cemetery, we're probably about 90% there. And we're really pleased with the progress that we've seen. With that, I think our expectations were to see a little bit of a favorable decrease in our discount rate as we did that, as well as some favorable movement in average sale. I caution the way I would say this because I think we're seeing positive results, but at the same time, I don't know the good analogy, but it's kind of like trying to measure the afternoon breeze during a hurricane is very difficult with the type of activity that we've had, just the credible growth that we had in our cemetery sales to kind of isolate everything and attributed just very specifically to Beacon. So I say that with that caveat, but hear me say very clearly it continues to be finalized and rolled out. It continues to be working well, and it's continuing to meet our long-term expectations in our opinion, in terms of helping grow average sale in the cemeteries, as well as continuing to reduce discounts as well. The next step for the funeral segment is probably moving on to our SCI direct brands. And we'll continue to work on that during 2021. And we're very excited about that as well. Tom, you wanted to comment on the purchase of cemetery property then.

Sure. Scott, the cemetery property we're talking about is generally in very high velocity markets for us. So it's places where we've got a big presence of sales and marketing and places where we felt like it was in the best long-term strategic interest for us to expand into different parts of larger city. So pretty isolated and there's really no land to sell. I'd say to fund it. We just – in all of these cases, it's cemeteries that we're going to immediately begin to develop and expect to begin selling. But some of these, as an example, I'll give you one, as we did not have a big presence in Southwest Houston and a lot of the growth of Houston, if you're familiar with it is going out West and is out South. And so we just felt it was prudent to position ourselves in that area where all this growth was. Now, not all of it is the ideal age for us, but we've got to kind of have that ready. And I think it affords us an opportunity to manage the West side of Houston in a different way, but that's just an example, and I don't think you see a lot of it, but it's important for us to do.

Thanks for all the color, guys.

Thanks Scott.

The next question comes from John Ransom of Raymond James. Please go ahead.

Hey, good morning, everybody. Just a couple of cleanups, what was the – Eric, what was the year-end share count?

Year-end share count was right around 170 million.

Okay. And as I think about your kind of first half versus second half, maybe an earnings and EPS percentage first half versus second half, and your guide would be helpful. And also, what are you assuming that cap in terms of at-need funeral volume decline and how do we think about the detrimental margin from that self comparison?

Yes, I think the way I think about it is when you looked at 2020, kind of played out John, from a first half, second half basis, a lot of the first quarter obviously was pre-COVID, but when you really look at the $2.92, you're looking, I think of it as more as a general statement as one third in the first staff and two-thirds in the back half of the year. So, the logic would tell you, it would probably flip on us in a normal type year. And so you're probably looking at, somewhere in the ballpark of, if you think of the center of the guidance, being $2.70, you're looking at something like two-thirds in the first half of the year and one-third in the back half of the year. So, the real question is, that's pretty logical what I just said, doesn't give you too much insight, but it's very difficult to know, when's the COVID pandemic going to ease. And when is the volume going to ease. We certainly are seeing that as we speak into January, as you know, and it starting to trickle a little bit down in February. When you think of the components in the back half related to funeral volume, all-in, you could easily see something in the mid-teens, high-teens, maybe even down into the very low 20% type range. Again, it all depends on efficacy of vaccines, speed of vaccines, where it's going. But that is kind of what we're modeling right now as we speak.

And if you had to guess, I know you've talked about this before, and it's interesting, I guess, in a morbid way that if you look at the excess death in 2020 versus the COVID death, they're about the same, but as we know, COVID wasn't 100% of the excess death. So if you had to guess, in the excess death stats, what percent do you think truly are COVID versus other things that we talked about, depression, suicide, lack of cancer screenings and whatnot.

I don't know how to venture a guess, Tom, you go ahead if you want to grab that?

Yes, I've looked at this – I'm just going off the CBC data. And I would say John, that about two-thirds of it are COVID deaths, somewhere around that number, which leaves a third of what we'll call excess deaths, not directly related to the coronavirus causing death, but maybe the impact of what's happening with the lack of healthcare access, the lack of to drugs and things of that nature. So, yes, I think it's probably that, and that was a little harder to model because you'd say what's the long-term impact on our mental health and our physical health of going years without screenings or access to doctors or appropriate drug regimen. So you got to kind of treat them a little bit differently.

Sure. Thank you. That's it for me.

Okay, thanks John.

It appears there are no more questions. Therefore, this concludes our question-and-answer session. I would like to turn the conference back over to SCI Management for any closing remarks.

We want to thank you everybody for being on the call today, please stay safe. We look forward to speaking to you again at the end of the first quarter, which will be in a late April. So be careful. Talk to you soon.

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