Service Corporation International (SCI) Q1 2025 Earnings Report, Transcript and Summary

Good day, and welcome to the SCI First Quarter 2025 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there'll be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would like to turn the conference over to SCI Management. Thank you, and over to you.

Good morning, everyone. This is Trey Bocage, Director of Investor Relations and Strategic Finance. Welcome to our first quarter earnings call of 2025. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, let me quickly go over the 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 make certain non-GAAP financial disclosures. A reconciliation of these measures can be found in the tables at the end of our earnings release and on our website. With that out of the way, I will now turn it over to Tom Ryan, Chairman and CEO.

Thanks, Trey. Hello everyone, and thank you for joining us on the call today. 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 current outlook for the year 2025. For the first quarter, we generated adjusted earnings per share of $0.96, which compares to $0.89 in the prior year. We saw impressive increases in funeral revenue and gross profit, partially offset by slightly lower cemetery revenue and gross profit, which, when combined, resulted in $0.07 of earnings per share growth from operating income. Below the line, the favorable impact of a lower share count and a slightly lower interest expense was effectively offset by a higher effective tax rate. The higher tax rate was the result of the non-deductibility of certain excess tax benefits from the settlement of stock option awards. If the tax rate had remained constant, we would have had an additional $0.04 in earnings per share, resulting in 12% earnings per share growth over the prior year quarter. Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenue increased over $23 million, or about 4% over the prior year quarter, as strong core revenue and core general agency revenue growth exceeded declines in SCI Direct non-funeral home pre-need sales revenue. Comparable core funeral revenue increased by $18 million, or about 4%, primarily due to a healthy 2.5% growth in the core average revenue per service and a 1% increase in core funeral services performed. This core average growth was achieved despite a modest increase of 40 basis points in the core cremation rate. SCI Direct non-funeral home revenue decreased by $3 million, driven primarily by a $7 million decline in non-funeral home pre-need sales revenue, resulting from the anticipated negative effect of operational changes to defer merchandise deliveries. This was partially offset by growth in general agency commissions, as we are in the process of switching from a trust to an insurance-funded pre-need model. This net decline from pre-need sales revenue was partially offset by a $4 million increase in non-funeral home revenue, generated by an impressive 6% increase in non-funeral home services performed, and a 10% improvement in the average revenue per service from the effect of higher value contracts maturing from the backlog. Certain of these contracts now include merchandise or travel protection that more recently was deferred from the time of sale into the backlog. This healthy average revenue per service growth should continue as more contracts with merchandise and travel protection mature over the coming years. Poor general agency and other revenue grew by an impressive $8 million, primarily due to growth in general agency revenue, driven by higher average commission rates derived from our new preneed insurance marketing agreement, as well as the effect of selling a larger percentage of underwritten insurance products, which carry a higher commission rate versus a flex or a non-underwritten product. Funeral gross profit increased by about $21 million, while the gross profit percentage increased by 240 basis points to over 24%. This gross profit increase was the result of the solid 4% revenue increase, combined with managing fixed costs to about a 1% increase for the quarter. Preneed funeral sales production decreased by $32 million or about 10% over the first quarter of 2024. Core preneed funeral sales production decreased by $12 million or 5%, primarily due to the transition to our new preneed insurance provider during the back half of 2024. We anticipate comparable core preneed sales production to normalize later in the back half of 2025. Non-funeral home preneed sales production decreased $20 million or 26%, as SCI Direct transitions from the sale of trust to insurance-funded preneed contracts. This transition required many of our sales counselors to go through extensive training and obtain insurance licenses and change the term to payment terms for customers financing their preneed, all of which contributed to a temporary slowdown in sales. As of today, we've made the transition in markets that represent 80% of our production. So, this too should stabilize over the next few months and begin to grow again, probably sometime during the fourth quarter of 2025. Now, shifting to cemetery. Comparable cemetery revenue decreased by $8 million or about 2%. The core revenue decline of $10 million was partially offset by a $2 million increase in other revenue. The core revenue decline over the prior year quarter was primarily attributable to a $12 million decrease in recognized preneed property revenue due to lower sales production. Within recognized preneed property revenue, the negative effect of lower recognition rates on the new construction and preneed merchandise was offset by higher merchandise and service trust income. Remember, this deferred sales production enhances our backlog and will be recognized in future periods. The $12 million decline in recognized preneed property revenue was partially offset again by a $2 million increase in internal care fund income. Comparable preneed cemetery sales production declined by $8 million or about 3%, as a modest increase in core production was more than offset by a decrease in large sales. We believe the decline in large sales is a timing issue that could be recovered in future quarterly periods. While we have not yet closed the books, April Preneed Cemetery sales production looks very good. Cemetery gross profit in the quarter decreased by $6 million, and the gross profit percentage declined by 80 basis points, generating an operating margin of 32%. Our 2% revenue decline was somewhat mitigated by a less-than-inflationary 1% growth in our fixed costs. Now, let's shift to a discussion about our outlook for 2025. As you saw in the earnings release, we are confirming our normalized earnings per share guidance range of $3.70 to $4.00 for 2025. We're at the midpoint of $3.85. The current midpoint of the range represents a 9% year-over-year growth in earnings per share. Again, neutralizing the increased tax rate caused by the loss of deductibility of certain excess tax benefits from the settlement of stock options would result in the midpoint generating 12% earnings per share growth. For the full year 2025, within our funeral segment, we expect a flat to slightly down funeral volume compared to 2024, with the average revenue per case growing at inflationary rates, slightly negated by the effect of a modest cremation mix increase. While we're still absorbing the temporary negative financial effects of our SCI Direct transition, we do expect to see higher general agency revenue generated from the favorable impact of our new insurance agreement. When combined, this should result in healthy profit growth for the funeral segment, increasing the gross margin percentage by 80 to 120 basis points. Transitioning to pre-need funeral, we expect pre-need funeral sales production to be slightly lower in 2025, as we continue the transition of SCI Direct to an insurance-funded model, and we adapt to the new policies and products from our new insurance partner in our core channel. While sales production may be down for the year, for some perspective, the $1.2 billion of pre-need funeral sales production we expect for 2025 is 27% higher than 2019, or a 4% compounded growth rate over the last six years. As we think out to 2026, we would expect pre-need funeral sales production to return to a low to mid-single-digit percentage growth rate. From a cemetery perspective, we anticipate that we can grow pre-need cemetery sales production in the low single-digit percentage range, resulting in cemetery revenue growth of about 1% to 2%. The volatility in the equity markets and the potential impact on trust income for the rest of the year has caused us to dial back our expectations a bit. Continued focus on managing inflationary costs should result in some segment profit-dollar growth while maintaining our impressive gross margin percentages in the 32% to 33% range. Below the line, we expect favorable impacts from slightly lower interest expense and a lower share count that will be negated for the most part by the higher effective tax rate caused by the loss of deductibility of excess tax benefits from stock auction exercises. 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 skill, dedication, and attention to detail is the foundation of our success. Thank you for making a difference every day. With that, operator, I'll now turn the call over to Eric.

Thank you, Tom, and good morning. Thank you to everyone joining the call today. As I usually do, I want to start to take the first moment to express my deepest appreciation to each of our 25,000-plus dedicated associates. The exceptional service that you provide continues to make a meaningful and lasting impact on the lives of the families and communities that we are so proud to serve. I'm truly proud of the work that you do each and every day and want to say very clearly, thank you. So, with that, today, I'll begin my remarks by providing highlights on our cash flow results and our capital investments in the quarter. I'm going to make a few comments on corporate G&A and then conclude the remarks by an update on our overall financial position. So, starting with cash flow, we generated a very solid adjusted operating cash flow of $316 million in the quarter. This did exceed our expectations and was a substantial improvement, a little over $90 million improvement over the prior year. So, let's break this down a little bit. Adjusted operating cash flow was supported by higher operating income and that was about $20 million, which again highlighted sustained strength in the underlying business during the quarter that Tom just walked through and addressed. Cash interest had a timing issue that was, so it was lower by about $15 million. The timing issue associated with the bond financing that we did in the fall of last year and coincided with a reduction of our bank credit facility that we completed this past September, as well as a little bit lower rates on our floating rate debt. Offsetting these items, cash taxes of $5 million was slightly higher than the prior year by about $3 million. Finally, working capital provided a significant source this quarter of $65 million from $37 million of higher installed cemetery installment receipts and other pre-working capital timing, as well as favorable $28 million source of cash as a result of one less payroll cycle, when you compare this current quarter to the prior year quarter. Now, let's talk about capital investment. In the first quarter, we invested $95 million into existing locations, new build and expansion opportunities, business acquisitions, and real estate. So, breaking this down, in line with expectations, we invested about $67 million of maintenance capital back into our current funeral homes and cemeteries, with $41 million allocated to high returning cemetery development projects, $41 million into our current funeral and cemetery locations and $5 million into digital investments and some other miscellaneous corporate spend. We also invested $13 million of growth capital in the first quarter towards the purchase of real estate, construction projects of new funeral homes and crematories and the expansion of existing funeral homes and cemeteries. Finally, we invested $15 million towards business acquisitions during the quarter. And we again remain optimistic about the deal pipeline that's currently out there in the industry, and we do expect to achieve our $75 million to $125 million of acquisition investment, which is our target for the full year of 2025. So, moving to distributing and investing this capital, we returned a substantial $176 million of capital to shareholders in the first quarter, which was done through $46 million of dividends and $130 million of share repurchases. To dive in a little bit deeper on that, we repurchased just under 2,000,000 shares, it's about 1,600,000, 1,700,000 shares at an average price of $79 during the quarter, bringing the number of shares outstanding to approximately 143,000,000 shares at the end of the quarter. Subsequently, we have completed another 900,000 shares purchase for about $71 million, which works out to an average repurchase price of about $78. So, I'd like to now shift gears a little bit and make a brief comment about our corporate G&A expense during the quarter. G&A expense has increased about $3 million quarter over quarter, primarily due to higher worker compensation claims, as well as higher expenses related to the timing of some of the incentive compensation accruals, but as we look forward for the rest of the year and the next three quarters, we continue to expect that corporate G&A expense will average probably about $39 million to $41 million a quarter for each of these quarters for the remainder of the year. Although, as you've seen before, we do expect some variability in this due to our long-term incentive compensation plans that could push us above or below this kind of range during a particular quarter based on how the company is performing in the future during the year. So, now shift to further more information of the outlook. As you may have seen in the release, we confirmed our 2025 adjusted operating cash flow guidance range of $830 million to $890 million, with a midpoint of $860 million. After deducting $315 million, which is the expected maintenance capital, we expect impressive adjusted operating free cash flow of almost $550 million for the full year of 2025, and as we've addressed several times in the past, seems like numerous quarters, cash taxes will revert to a more normalized level in '25, following a change in tax accounting policy that has benefited our cash flows since really the mid or third quarter of 2023. As the federal cash tax payments are generally not made in the first quarter, the headwind, which is about $150 million to remind you, year over year, that we've discussed, will be more pronounced beginning next quarter or the second quarter, as we're in right now as we speak. As we've addressed in previous quarters, we also expect our effective tax rate in 2025 to be about 25% to 26%. And again, as Tom mentioned, excess tax benefits are no longer recognized on the settlement of certain executive employee share-based awards. So, I'd like to now conclude my comments with an update on our financial position. We continue to have a very attractive and manageable debt maturity profile with substantial liquidity. We ended the quarter with liquidity of about $1.6 billion, consistent of approximately $230 million of cash and approximately $1.35 billion available on our long-term bank credit facility. Our leverage declined during the quarter. It went from about 3.65x, that again is net debt to EBITDA at the end of the year, to 3.59x at the end of this first quarter, which again is toward the lower end of our long-term leverage target range of 3.5x to 4x. So, in conclusion, our strong balance sheet position we just walked through, our liquidity combined with substantial robust cash flows, really continue to underpin the continuation of a very strong capital investment program, which again provides us tremendous flexibility to invest opportunistically for the long-term benefit of our company, our associates, and our shareholders. Finally, I just want to again reiterate how extremely proud we are of the entire SCI team. The way you continue to serve the families in need at their greatest time is truly inspiring, and again, thank you for everything that you're doing. So, operator, with that, that concludes Tom and my remarks, and we'll go ahead and turn it back to you, and we'll open the call up to questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Joanna Gajuk with Bank of America. Please go ahead.

Hey, good morning. Thanks so much for taking the question. So, maybe first on the cemetery preneed sales production being done. So, it sounds like some of it was worse, right? So, now, you're kind of guiding to a little bit slower growth. So, can you maybe talk about what you assume for the large services score? It sounds like large was worse, but maybe core was a little bit better, and in that context, can you also talk about your, I guess, experience at the Rose Hills location because I guess that the community or the communities around Rose Hills were impacted by the wildfires. So, I just wonder if there's any slowdown there.

Thanks, Joanna. Good to hear from you. So, as it relates first to the first part of your question around production and large sales, it's probably good to remind everybody kind of the cadence of large sales. In 2019, on an annualized basis, we had about $90 million of production. For the last three or four years, we've probably averaged about $180 million. So, on an average basis, we'll sell $45 million a quarter, but what we've seen is kind of a lot of volatility between quarters really just about the timing of when they close. So, we've seen a range of $30 million in a quarter to $57 million in a quarter, and again, they tend to kind of level out. The first quarter was towards that $30 million number. So, it isn't a place that we haven't seen before, and I think our expectations right now, at least, based on what we're seeing out there and the appointments being set, we see a pretty strong pipeline. April is turning out to be a really good sales quarter, both on a core and on a large scale. So, from what we see in the business today, we feel confident that sales look pretty good as we go forward. We're not blind to what's going on outside. There's a lot of pressure right now, I think, discretionary purchases in other industries, you're seeing in retail, and others. So, what I want to remind people is we've been through this movie before. In 2008 and 2009, and then again in '20 and '21, discretionary purchases really kind of fell off the map in a lot of industries. And the nice thing about us that I see in our business is, we're viewed as a mature sale, or call it a taking care of business type of sale. We're not a big-screen TV. We're not a sports car. This is a responsible decision. So, we always saw these sales tend to come back very quickly, relative to other discretionary purchases. So, we feel pretty good about the rest of the year and feel like the large sale pipeline, we're still seeing a lot of interest and activity there. As it relates to Rose Hills, again, I think, of course, there were some distractions as it relates to these fires. Regionally, we're going to have that quarter-to-quarter. Our team has done a fantastic job, I think, selling through that and taking care of their community. So, we feel good about the rest of the year as it relates to Rose Hills. There's a lot of exciting things happening and a lot of new projects that are scheduled to open later in the year and in early 2026. So, hopefully that answers your question, Joanna.

Yeah, no, thank you. And Rose Hills, in particular, or the West Coast, in terms of the Qingming festivities, I guess it sounds like, at least in Rose Hills, based on your response when you said you feel good about things there, sounds like those kind of progressed as normal in terms of just the product that's available and the food traffic around those festivities.

Yes, I would say we've had a very good Qingming, and the various markets around the country were that strong. So, yeah, we feel good about that and through the first quarter and the momentum into April. So, again, we're not seeing anything that concerns us right now, but we're very aware and we're on top of the fact that there's a lot of uncertainty out there, and so we're trying to manage people through it as best we can. And again, I think it was a pretty solid first quarter, and in April, again, it's only a month, but it looks to be really solid.

And if I may, another, I guess, item that's quite topical outside of the discretionary, obviously the tariffs. So maybe you could walk us through how you're thinking about this. Obviously, things are very fluid, but based on what you know, how would you think about any incremental costs? This year, are you including anything in your guidance? And also, if you can give us some sense in terms of the exposure for your purchases to China specifically and other markets. Thank you.

Thanks, Johanna, it’s Eric. We feel pretty good about it in this particular category. We do have -- when you think about things that would logically, maybe be affected by this, you're going to talk about the merchandise that we're selling, both in our funeral segment and our cemetery segment. That's primarily going to relate to caskets on the funeral side. It probably relates to some urns for cremated remains on both the funeral and cemetery side. And on the cemetery side, specifically, it's going to relate to granite and bronze and those types of products that are used in terms of celebration at the cemeteries themselves. Ultimately, that's a couple of hundred million dollars for us in terms of costs when I've lumped all of that as a very general category, but I got to tell you, there's a good 60% or two-thirds that we already source within the U.S., and the things that we are -- that we're sourcing externally, I give you two comments really. One, as a very general statement, we have entered into long-term production-type contracts with our business partners, and those, without getting into too much detail, I think those are going to generally protect us from a lot of these situations in the near term. The other thing is, our teams here are doing a really good job of just actively managing it. There's flexibility here where you don't have to take things from China or India, and you can source it here in the U.S. We don't want to overreact to that because we do have some long-term protection in some of our contracts, but we do think that we will continue to actively manage it and keep our pulse on it, so to speak, so we understand it as we move forward. But to talk specifically about it, we have not really affected our guidance or affected our model in a way that I should mention that would be material because of all these situations that I just described to you.

Okay. So, you're saying immaterial and you don't assume anything incremental in the guidance as in like you, you can manage this year. I guess, we'll see how things goes, in terms of next year, later. But, yes, thanks for taking the questions.

Yes, Joanna.

Thank you. The next question comes from Scott Schneeberger with Oppenheimer. Please go ahead.

Thank you very much. Good morning, all. I'd like to start off asking about funeral volume. It's a pretty big swing from down 3.8% in fourth quarter to up 1.8% year-over-year in the first quarter. Could you speak to the drivers of that in the first quarter? Just maybe the top three by degree of magnitude? And then, I'll follow up on that. Thanks.

Yes, Scott. I think sometimes, because of the volatility between quarters, it's tough. You got one quarter that was weak last year, and you're comparing it to a strong one this year. So, it's much easier to kind of evaluate over annual periods versus quarters, but I would say, as we track these things, we feel really good about the fact that it's not perfect science, but we are continuing to slightly grow our overall market share. I think it's a belief that we have. Obviously, that's different in each market, and some of that's probably because of our strong preneed program historically. I mean, I think a lot of the efforts that we put in, in the past are bearing fruit today and that those may be the biggest drivers as you think about the year. Quarter-to-quarter, again, you just have some of this volatility, and the pull forward effect continues to have a more diminished effect, but it's still out there. So, I think it's harder and harder to compare and predict, but we feel very good about the first quarter and feel like again between preneed and competing more effectively that we are enhancing our national market share.

Thanks. And when you referenced pull forward, you were speaking to the longer term COVID trend and reversion or perhaps, I think this is a heightened flu season. Just if you could clarify that. Thanks.

Yes. I'm sorry, Scott. That was really more about the COVID pull forward, and again, kind of that diminishing effect as time goes on, but it's still out there, right? And we still had early deaths that may or may not have occurred in this period, and I think that's the way we think about it. There was, I've heard some things around the flu season. I don't think we saw anything too dramatic there, but I have heard some statistics that, that is up and probably has some effect.

Thanks. So, the takeaway here is that it could be, I think the full year expectation was flat to slightly down. Sounds like you're trending obviously, you're trending well against that out of the gate. Just curious kind of how you see that shaping over the end of the year, and any change to that specific outlook? Thanks.

Sure. I think we're taking the approach of one quarter does not a year make. So, we're very pleased with the first quarter. It was ahead of our expectations. We haven't altered our annual guidance because, again, it's the first quarter, but I'd say that we feel a lot better now about that than probably we did as we started the year. So, yes, I'm optimistic that it could be a really good solid funeral volume year, as it relates to market share and continues to compete in our marketplace.

Thanks. Appreciate that. And just for my follow-up, curious on the cremation makeshift. It's been a little bit below historical average for a while now, over a year I believe. Just comments on what you're seeing there, if you think a new trend is shaping.

It's hard to answer that, but I guess I would say this, when you get to these highest numbers, as you get close to 60%, it just becomes harder and harder to move the needle, I think, if you look at other demographics, different countries, as their cremation makes change, because you got a lot of Northern Europe and Canada and Australia with high cremation rates, and I don't think it's unlike that. So, I'm not surprised. I think it can still, we used to say 100 to 150 basis points. I don't think we think 150 basis points in the cards anymore, but I don't think 100, if that snuck up in a quarter, would surprise me either. So, yeah, I think you, as you think about that, less than 100 basis points is very, very possible as we move forward.

Thank you. The next question comes from A.J. Rice with UBS. Please go ahead.

Part of your pre-need funeral volume to insurance, I think, when you inked the contract last summer, the discussion was around $700 million, $800 million -- a couple of hundred million of SCI Direct, so it's sort of roughly $1 billion of premium. I may have those numbers wrong; correct me if they're wrong. It sounds like now, with this push, you're going to have meaningfully more premium that comes under this agreement. Do you sort of have a target as to where you think you'll end up as to how much insurance annual premium you're going to generate from pre-need funeral contracts?

A.J., I think we're still kind of figuring that out because you mentioned two things. One is we're transitioning completely on SCI Direct. That was a 100% trust. We're now converting to effectively almost 100% insurance, and so, as that transition occurs, how quickly can you do it? How many people can you get on board, because you're seeing the production levels drop because it takes, it's a lot harder to transition from a trust to an insurance product. So, it's really more about the timing and when that can get back. And then the other thing is, what type of insurance commission can you drive, and what would drive that? Well, a single-pay insurance product doesn't pay nearly as much as a multi-pay, so what's the mix between the two? So, you can begin to appreciate why it's hard to completely predict. I will tell you that you're right in your thinking in that that number is probably going to be north of what you originally thought once we get through the noise. Same thing on the core side, even though it's still an insurance product, we've got different policies and procedures as it relates to these things. You can take into account the Social Security numbers, are not having Social Security numbers. That can be a difference as an example of a policy that one insurance provider may have versus a previous insurance provider, and then as you think again about the products that we sell, it's slightly different. The sales force has to understand it, convey the value. So, I think we're in a little bit of a lull, but as we come out of this, the back half of this year, I really expect us to be hitting all cylinders in 2026, and again, assuming that all your SCI Direct for the most part will come under this insurance product and will go back to, call it, 3% to 5% growth on the core, as it relates to preneed funeral. So, those numbers are the ones, I'd be dialing as you get into ‘26.

Okay. And then, just want to also go back to the comment that I think Eric made about more of the cases coming out of the backlog have merchandise and travel associated with them. I know, obviously, the case is coming out of the backlog, you got the investment income build up and so on. But I wonder incrementally, how much do those two things tend to contribute to revenue per case, if there's more of that coming out, and is that fully reflected in the run rate you're seeing now, or do you think that will, the percentage of cases that have those two dynamics will continue to increase for a while?

A.J., it's going to increase very consistently, very dramatically for a long period of time because remember the function here is we used to sell merchandise and deliver it. We used to sell away from home protection and provide it, and in both those cases, we had a revenue recognition event. Now, what you're seeing happening for the most part is all of those being deferred and being put on for the most part an insurance product. So, we're going to get a G&A revenue now and that's why we've got to diminish profits as we're losing some of that immediate delivery of merchandise and immediate recognition of away from home and they're going into a contract in the backlog. So, long-term, think about today or previously, if we sat around $1,400, $1,500 a contract, SCI Direct one day, that average should go to north of $3,000, and that's the path that it's on. Now, it takes those new loaded contracts to become at need to drive it, and so, it's going to be a trickle at first and it's going to get bigger and bigger and bigger. So, as you think about the average on SCI Direct from a service perspective, it's been growing at 10% each quarter so far. I'd be surprised, if it varies much from that for a very long time.

And is the average life on the SCI Direct preneed contracts the same as in the core funeral business?

I think for the most part, maybe slightly shorter, but I think not dramatically different than the backlog.

All right. I just might ask one last thing on your capital deployment. It sounds like you're expecting the deal activity to be about, which a budget $75 million to $125 million. I know you stepped up buybacks in the quarter share repurchases. Any comment on that? And do you think you'll see elevated share repurchase activity as you progress through the rest of the year?

Yes. I think we'll have to wait and see, in terms of the valuation of each one of those options, A.J. I mean, that's how we've always done it as you've known us. Let's talk about shares first. I mean, the shares were very nice returns. We were buying shares in the high 70s, and we think that's a very nice value return for us to continue to invest capital in, and we went probably a lot a little heavier in the quarter than what we originally expected, but based on what we were seeing, and then, as we saw the quarter month-to-month get better, we got a little bit more confident, and as you know, April was a very good month as Tom has said as well. From a deal perspective, it's going to ebb and flow. The important thing is to say we have numerous discussions at any point in time going on, including as we speak, and as you've heard me say many, many times, I'm pretty excited about the pipeline. I think $75 million to $125 million is generally a good number. Last year I was wrong, if you remember, it was about $180 million that we ended up investing in, and if we have those opportunities, they're normally a really nice return that could be in the almost low teens type after-tax IRRs, which as a general statement may be share repurchases depending on where things are trading. So, look, quarter to quarter, we're going to put the capital to the highest relative return opportunity. This quarter, it was shares. That doesn't mean we are passing up high return opportunities for M&A. It just means that we continue to develop very long-term relationships with independents, and the timing of which kind of ebbs and flows, but we're very excited about the future in terms of M&A over the long term.

The next question comes from Tobey Sommer with Truist Securities. Please go ahead.

I wanted to start out asking you a question about the sales force, and maybe you could highlight for us what new initiatives and focus you have for this year, sort of headed into next, and what you think the resulting impacts can be on the financials of the business?

Sure, I'll take that one, Tobey. I think right now, obviously, a lot of the traditional things that we do is related to, for instance, developing high-end cemetery property and making sure we have the right product on the field, if you will, to get that going. What's a little bit different now, too, is we are very acutely focused on the lead pipeline, how we're getting leads in, how we're working the leads, all the efficiencies around doing that. So, we currently have a project we're working to that we believe is going to enhance our ability to close sales, to work the sales more effectively. So again, utilizing technology to help us get better in how we're approaching the sales process and enhancing the ability of our salespeople to be successful. A lot of sales forces have trouble retaining. There's a lot of high turnover, and one of the focuses we're having now is working with our people to make sure we can ensure their success, and so we believe that's going to bear some fruit. It's going to take some time, but our focus now is really on that retention, making our people successful, and utilizing better data and knowledge around how we bring a lead that comes to the door and how it ends up as a contract.

And then, how do you enter this late spring or early summer period from a pre-need delivery and RevRec perspective on cemetery? Could you give us a little bit of the buildup of sales production over the last couple of quarters as we look to the better weather quarters ahead of us?

Yeah, I think as you think about the typical cadence. We tend to have stronger delivery of cemetery construction in the back half of the year. So, it's typically lighter in the first and second quarters. It gets a little better in the third, and then, fourth quarter is typically the bonanza quarter. Now that seasonality is consistent, right? So, you're comparing against the quarter that has the same characteristics. But I think as we think about it, the second quarter we'd anticipated probably being slightly down as we think about the cadence, and third quarter year-over-year should be a good one, I think as we think today, but again, these projects can slip. Fourth quarter will be very strong, but so was last quarter. So, I think that's probably the way to think about it, and again, with the idea that sometimes things can typically they're going to come late, not early, right? I guess, it could be the other way around.

And Toby, I'll add to that too, just by the recognition rates specifically. Last year, it ended up being about 95% of production. It's been like that now for a couple of years. And I think I just want to say that we probably expect nothing different. Despite the quarterly volatility, I think, annually, you're probably looking at the recognition rate of somewhere between 95%, 97% like you did last year.

That's helpful. And we haven't, I don't think we talked about it here. Anything on the funeral rule or anything from a regulatory perspective that you're anticipating this year?

Well, there's a lot going on in Washington, so, but we don't have an update. Again, it's the same update that is out there. I think a lot of things are changing, as we all read the paper together and understand it. I don't know where this is going to exactly shake out, but again, we feel very good about where we are from a regulatory standpoint, and if anything comes out, we'll adapt very quickly. It kind of sounds like we're ahead of the curve in some of the cases that you've heard us talk about over several quarters, in terms of if there's anything that needs to be posted online or anything along those lines, but ultimately, whatever it is, there's nothing that's been out there to be very clear that appears to have any type of material effect on our company or our financials.

Thank you. The next question comes from Parker Snure with Raymond James. Please go ahead.

Hey, good morning. Yes, this is Parker on for John Ransom. Maybe just going back on the macro pressure, I understand the pressure on the preneed cemetery production with the tough environment, but do you expect any trade down on the atneed funeral side for the funerals that are kind of truly at any, not coming out of the backlog? Would you expect any trade down there, maybe accelerating ship to cremation, maybe trading down on the catering or the flowers? Is that something that you expect or is that something that has historically happened under other tough macro cycles?

Yes, Parker, I can only speak to experience, right, but I'd say, as I look back over the last 20, 25 years, I've been involved in all this. I typically would tell you that we have seen not much. In other words, I think it's an emotional purchase. I think it's one that people find very important, and so, of course, on the fringe, you could have some trade down, but I'd say for the most part, people want to do what they want to do, and it's important to them. So, yes, we do not tend to see any kind of big trend down, as it relates to funeral. Cemetery, as we talked about, is a little different because it's a discretionary purchase that can have a different impact, right? But I think when, in the immediate need, people want what they want, and we try to help them deliver that.

And then maybe just on the impact from M&A, looks like there was a few points of help on the funeral volumes side from the non-same store. Looks like, roughly 2% good guy to volumes. Is that a good way to think about it for the rest of the year? And maybe just remind us how you're thinking about the M&A benefit you're getting this year from the bulls of M&A that you did last year, maybe just on total earnings and also on funeral volumes?

When you think about total earnings, and you go back to the original formula of the 8% to 12%, and the midpoint of our guidance is about 9%, as we've talked about before this quarter and the prior quarter, I mean, M&A is going to ebb and flow, as I keep saying, but generally, when you look historically, Parker, M&A can be a couple of percentage points, call it 1% to 3%, of the 8% to 12% over complete formula. It just depends on what you did in the prior year. We had a good year in investment last year, and so maybe that M&A is going to be in that kind of 2% of the 8% to 12% kind of area, but I can't say it enough. It just depends on when the deals come and timing of those particular deals, what kind of impact it's going to have. Of course, the volume numbers that we give are same-store, so they're being adjusted for that, so they're not influencing the 1.8% that we said, enough volume for the quarter. That's purely an apples-to-apples same-store scenario, and it depends on what you buy. If you have a heavy acquisition year that's heavy in the cemetery, well, that really doesn't matter for the funeral volume model. So, there's all kinds of different plays back and forth, but generally, I would call M&A maybe a 1% to 2%, 1% to 3% growth driver if you have some solid years behind you.

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

Okay, thank you, everybody, for being on the call today. We appreciate you, and we'll talk to you again after our second quarter results. Thanks so much.

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