Service Corporation International · NYSE:SCI
Service Corporation International — Investor Day (February 2015)
120 slides from Service Corporation International's investor day presentation, Feb 17, 2015
Slide 1: Service Corporation International Investor Day
Service Corporation International INVESTOR DAY GROWTH VALUE & DRIVING LONG - TERM New York, NY February 17, 2015 9AM – NOON (Eastern)
Slide 2: 2015 SCI Investor Day Agenda
2 2015 SCI INVESTOR DAY: 9AM - NOON Introduction DEBBIE YOUNG Director, Investor Relations Overview & Strategy TOM RYAN President and Chief Executive Officer Funeral JAY WARING Senior Vice President, Operations Cemetery & Sales Organization STEVE TIDWELL Senior Vice President, Sales & Merchandising
Slide 3: Forward-Looking Statements
3 FORWARD - LOOKING STATEMENTS The statements in this presentation that are not historical facts are forward - looking statements made in reliance on the “safe harbor” protections provided under the Private Securities Litigation Reform Act of 1995 . These statements are based on assumptions that the
Slide 4: Welcome to the 2015 SCI Investor Day
4 WELCOME TOM RYAN President and CEO TO THE 2015 SCI INVESTOR DAY
Slide 5: Management Introductions
5 MANAGEMENT INTRODUCTIONS SVP | CFO | Treasurer ERIC TANZBERGER SVP | Operations JAY WARING Assistant Treasurer Greg Sangalis President | CEO TOM RYAN Tax Elisabeth Nash VP MDIR Tammy Moore Chief Marketing Officer Debbie Young Operations Services Aaron Foley SVP SVP Business Development John Faulk
Slide 6: Business Overview
6 o INDUSTRY CHARACTERISTICS o COMPANY CHARACTERISTICS o COMPANY PERFORMANCE OVERVIEW o COMPANY STRATEGY TOM RYAN President and CEO BUSINESS
Slide 7: Industry Characteristics
7 INDUSTRY CHARACTERISTICS INDUSTRY CHARACTERISTICS COMPANY CHARACTERISTICS COMPANY PERFORMANCE BUSINESS OVERVIEW COMPANY STRATEGY
Slide 8: Funeral and cemetery business is a $19B revenue industry
8 FUNERAL CEMETERY THE FUNERAL AND CEMETERY BUSINESS IN NORTH AMERICA IS A $ 19B REVENUE INDUSTRY INDUSTRY CHARACTERISTICS ~$19B DEATHCARE Funeral Homes Cemeteries INDUSTRY North America is defined throughout as U.S. and Canada. I ndustry revenues based on data from U.S. Census Bureau and Statistics
Slide 9: Funeral is the larger industry segment
9 FUNERAL IS THE LARGER INDUSTRY SEGMENT AND IS PREDOMINANTLY INFLUENCED BY A CAREGIVER MENTALITY FUNERAL FUNERAL INDUSTRY CHARACTERISTICS • Funeral employees have a caregiver, not sales - centric focus • Inefficient industry model (~120 cases per year) − low throughput without the benefit of scale
Slide 10: Cemetery is the smaller industry segment
10 CEMETERY IS THE SMALLER INDUSTRY SEGMENT AND IS PREDOMINANTLY DRIVEN BY A SALES - CENTRIC MENTALITY CEMETERY INDUSTRY CHARACTERISTICS CEMETERY INDUSTRY CHARACTERISTICS By necessity, cemetery employees have a sales - centric focus High barriers to entry – zoning restrictions/capital requirements M
Slide 11: Concept of preneed sales
11 A UNIQUE CHARACTERISTIC OF THE DEATHCARE INDUSTRY IS THE CONCEPT OF PRENEED SALES CEMETERY FUNERAL A preneed sale consists of selling funeral and cemetery products and services prior to a death occurring (regulated by state and provincial laws) Arranging and directing services Use of funeral faci
Slide 12: Favorable demographic landscape
12 THE INDUSTRY BENEFITS FROM A FAVORABLE DEMOGRAPHIC LANDSCAPE 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2000 2010 2015 2020 2025 2030 60 - 69 70 - 79 80+ Population (in thousands) Source: Population data from US Census Bureau. Average age d ata based on SCI contract
Slide 13: U.S. deaths projected to grow at steady pace
13 1,500 1,750 2,000 2,250 2,500 2,750 3,000 3,250 3,500 1989 1994 1999 2004 2009 2014 2019 2024 2029 THE NUMBER OF U.S. DEATHS IN RECENT YEARS HAS BEEN AFFECTED BY A “DEARTH OF BIRTHS” DURING THE GREAT DEPRESSION, BUT IS PROJECTED TO GROW AT A STEADY PACE INDUSTRY CHARACTERISTICS U.S. DEATHS SCI/Ha
Slide 14: Company Characteristics
14 COMPANY CHARACTERISTICS INDUSTRY CHARACTERISTICS COMPANY CHARACTERISTICS COMPANY PERFORMANCE BUSINESS OVERVIEW COMPANY STRATEGY
Slide 15: SCI is the largest company in a fragmented industry
15 SCI IS THE LARGEST COMPANY IN THE HIGHLY FRAGMENTED DEATHCARE INDUSTRY WITH 16% REVENUE MARKET SHARE COMPANY CHARACTERISTICS We are North America’s predominant player Preneed Sales $1.5B Backlog of Future Revenues $9.3B Normalized Earnings Per Share (EPS) $1.16 - $1.28 FCF Per Share $1.48 - $1.77
Slide 16: SCI's funeral business is our largest segment
16 NOTABLE DIFFERENTIATING FACTORS OF A SCI FUNERAL HOME FROM THE INDUSTRY SCI’S FUNERAL BUSINESS IS OUR LARGEST SEGMENT FUNERAL o National brand | o Service and experience f ocused vs. merchandise (i.e ., casket ) focused o Leveraging our scale from operations o Contemporary f uneral p ackage p lan
Slide 17: SCI cemetery business is our smaller segment
17 NOTABLE DIFFERENTIATING FACTORS OF AN SCI CEMETERY FROM THE INDUSTRY SCI CEMETERY BUSINESS IS OUR SMALLER SEGMENT, BUT IS EXPERIENCING ROBUST NEAR - TERM GROWTH CEMETERY o Much larger cemeteries compared to the industry average o Robust sales - centric model including expansion of sales radius th
Slide 18: Company Performance
18 COMPANY PERFORMANCE INDUSTRY CHARACTERISTICS COMPANY CHARACTERISTICS COMPANY PERFORMANCE BUSINESS OVERVIEW COMPANY STRATEGY
Slide 19: Track record of double digit EPS growth
19 $0.65 $0.80 $0.92 $1.11 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 2011 2012 2013 2014 WE HAVE A STRONG TRACK RECORD OF DOUBLE DIGIT PERCENTAGE EARNINGS PER SHARE GROWTH... NORMALIZED EPS DOUBLE DIGIT GROWTH COMPANY PERFORMANCE Normalized earnings per share is a non - GAAP financial measure. Pleas
Slide 20: Substantial growth in free cash flow
20 $295 $362 $418 $(23) $(26) $(42) -$100 $0 $100 $200 $300 $400 $500 ... WHICH HAS LED TO SUBSTANTIAL GROWTH IN FREE CASH FLOW FREE CASH FLOW (FCF) Free cash flow and Free cash flow per share are non - GAAP financial measures. Please see appendix for a reconciliation to the appropriate GAAP measure
Slide 21: EPS growth should continue in 2015
21 EARNINGS PER SHARE GROWTH SHOULD CONTINUE IN 2015 DRIVEN BY ADDITIONAL STEWART SYNERGIES, ORGANIC GROWTH, AND 2014 CAPITAL DEPLOYMENT $0.08 $1.03 $1.22 $0.00 $0.20 $0.40 $0.60 $0.80 $1.00 $1.20 $1.40 $1.60 2014 2015 Guidance Midpoint Divestitures Normalized EPS Growth Expected in 2015 Stewart Syn
Slide 22: Superior near-term and long-term returns
22 THIS SUCCESS HAS TRANSLATED INTO SUPERIOR NEAR - TERM AND LONG - TERM RETURNS 0% 11% 41% 95% - 30% 19% 22% 60% 113% 184% 261% 0% 5% 21% 28% - 19% 2% 17% 20% 39% 84% 109% -50% 0% 50% 100% 150% 200% 250% 300% SCI S&P 10 - year Total Shareholder Return COMPANY PERFORMANCE 3 - year 5 - year 10 - year
Slide 23: Company Strategy
23 COMPANY STRATEGY INDUSTRY CHARACTERISTICS COMPANY CHARACTERISTICS COMPANY PERFORMANCE BUSINESS OVERVIEW COMPANY STRATEGY
Slide 24: Looking back: building a platform for growth
24 LOOKING BACK…DELIVERING AND BUILDING A SOLID PLATFORM FOR GROWTH IN THE EARLY 2000’S HAS POSITIONED US WELL FOR DELIVERING SUPERIOR TOTAL SHAREHOLDER RETURNS THROUGH THREE CORE STRATEGIES Aggressive Consolidation Delever & Build Solid Platform For Growth Increase Total Shareholder Return • Manage
Slide 25: Demographic landscape drives our strategy
25 THE DEMOGRAPHIC LANDSCAPE DRIVES OUR COMPANY STRATEGY 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2000 2010 2015 2020 2025 2030 60 - 69 70 - 79 80+ Population (in thousands) Source: Population data from U.S. Census Bureau. Average age d ata based on SCI contract data.
Slide 26: First core strategy: revenue growth
26 OUR FIRST CORE STRATEGY , REVENUE GROWTH, HAS A THREE - PRONGED APPROACH THAT IS FOCUSED ON THE CUSTOMER Remain Relevant to the Customer REVENUE GROWTH Manage Footprint (Strategic Acquisitions & New Builds) COMPANY STRATEGY: REVENUE GROWTH Drive Preneed Sales Now and into the Future
Slide 27: Remaining relevant to our customer
27 CEMETERY FUNERAL FIRST, REMAINING RELEVANT TO OUR CUSTOMER IS KEY TO GENERATING REVENUE GROWTH IN A CHANGING CUSTOMER ENVIRONMENT GIVE customers WHAT THEY WANT o Focus on memorialization services instead of merchandise (i.e ., caskets) o New, r elevant s ervice e xperiences and product o fferings
Slide 28: Preneed sales program drives revenue growth
28 CEMETERY FUNERAL SECOND, OUR PRENEED SALES PROGRAM DRIVES REVENUE GROWTH NOW AND INTO THE FUTURE SELLING PRENEED INTO THE FUTURE KEY REVENUE GROWTH STRATEGY NOW o Preneed sales create brand awareness, grow future market share, and diversify our revenue stream in a low inflation environment o Due
Slide 29: Managing our footprint with customer-driven focus
29 CEMETERY FUNERAL THIRD, WE WILL CONTINUE TO MANAGE OUR FOOTPRINT WITH A CUSTOMER - DRIVEN FOCUS o Strategic acquisitions and funeral location new builds o Strategic acquisitions to create more opportunities to sell to Baby Boomers through customer - driven strategy Large Scale Limited Market Larg
Slide 30: Second core strategy: leveraging scale
30 OUR SECOND CORE STRATEGY IS LEVERAGING OUR UNPARALLELED SCALE Develop Sales Organization Network Optimization Preneed Trust and Insurance Backlog COMPANY STRATEGY: LEVERAGING SCALE
Slide 31: Third core strategy: maximize capital deployment
31 OUR THIRD CORE STRATEGY IS TO MAXIMIZE CAPITAL DEPLOYMENT OPPORTUNITIES Acquisitions & Funeral Location New Builds COMPANY STRATEGY: CAPITAL DEPLOYMENT LEVERAGING SCALE Acquisitions & Funeral Location New Builds Acquisition investment expected to earn an after - tax cash return in excess of our W
Slide 32: Funeral Business
32 JAY WARING SVP, OPERATIONS o FUNERAL OVERVIEW o Remaining Relevant o Preneed Sales FUNERAL BUSINESS o Managing Footprint o CREMATION TRENDS o REVENUE GROWTH STRATEGY
Slide 33: Funeral Overview
33 BUSINESS FUNERAL OVERVIEW FUNERAL BUSINESS FUNERAL OVERVIEW CREMATION TRENDS REVENUE GROWTH STRATEGY FUNERAL
Slide 34: Serving funeral customers through two channels
34 WE SERVE OUR FUNERAL CUSTOMER THROUGH TWO CHANNELS ADDRESSING DISTINCTIVELY DIFFERENT NEEDS FUNERAL HOME NON - FUNERAL HOME CUSTOMER NEEDS Simple & direct service at low price Does not want to visit a funeral home Does not want service or memorialization Quality/Prestige Reputation Religious, eth
Slide 35: Majority of funeral customers served through funeral homes
35 THE MAJORITY OF OUR FUNERAL CUSTOMERS ARE SERVED THROUGH SCI’S FUNERAL HOMES 325,641 160,008 BURIAL 62,084 131,693 CREMATION 56,851 33,940 58,297 CREMATION FUNERAL HOME CUSTOMER NON - FUNERAL HOME CUSTOMER CUSTOMERS SERVED PRENEED CONTRACTS SOLD 177,232 2014 FUNERAL OVERVIEW
Slide 36: Preneed funeral sales benefit from demographics
36 PRENEED FUNERAL SALES WILL SOON BENEFIT FROM A FAVORABLE DEMOGRAPHIC LANDSCAPE FUNERAL OVERVIEW 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2000 2010 2015 2020 2025 2030 60 - 69 70 - 79 80+ Population (in thousands) Source: Population data from U.S. Census Bureau. Ave
Slide 37: Funeral: Revenue Growth Strategy
37 FUNERAL BUSINESS FUNERAL OVERVIEW CREMATION TRENDS REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS FUNERAL 1 ST CORE Revenue Growth STRATEGY
Slide 38: Funeral customers differentiated by specific needs
38 NORTH AMERICAN FUNERAL CUSTOMERS ARE DIFFERENIATED BASED ON SPECIFIC NEEDS (RELEVANCE – “GIVE THEM WHAT THEY WANT”) Full Service Customs Conscious Neighborhood Price Sensitive CRITICAL NEUTRAL Memorialization / Prestige Religious or cultural needs Convenience / Simplicity Price / Pre - planning P
Slide 39: Full service funeral homes serve prestige customers
39 OUR FULL SERVICE FUNERAL HOMES SERVE CUSTOMERS DESIRING PRESTIGE AND PREMIER FACILITIES o Prestige - Location o Large visitation space o White glove service o H igh staff to guest ratio FULL SERVICE CUSTOMER NEEDS George H. Lewis & Sons | Houston, TX Frank E. Campbell | New York, NY $16,576 1.5%
Slide 40: Customs conscious funeral homes
40 OUR CUSTOMS CONSCIOUS FUNERAL HOMES ADDRESS SPECIFIC CULTURAL AND RELIGIOUS NEEDS CUSTOMS CONSCIOUS CUSTOMER NEEDS o Employees who understand religious and cultural needs and can speak specific languages o Relationship with ethnic/ religious community o Large cultural visitation space Peek Funera
Slide 41: Full service and customs conscious customers are the stable foundation
41 FULL SERVICE AND CUSTOMS CONSCIOUS CUSTOMERS ARE THE STABLE FOUNDATION TO OUR FUNERAL REVENUES AND OUR CASH FLOWS WILL CONTINUE TO VALUE CHARACTERISTICS OFFERED BY THESE FUNERAL HOMES CUSTOMERS THESE Full Service Customs Conscious CRITICAL NEUTRAL Memorialization / Prestige Religious or cultural
Slide 42: Neighborhood funeral homes serve convenience customers
42 OUR NEIGHBORHOOD FUNERAL HOMES SERVE CUSTOMERS PRIMARILY LOOKING FOR CONVENIENCE NEIGHBORHOOD CUSTOMER NEEDS o Location in close proximity to family/residence o Simplicity of packaging to facilitate efficient selection experience o Desire help in determining what they want Johns - Ridout's Funera
Slide 43: Dignity package offerings
43 DIGNITY PACKAGE OFFERINGS BOTH EDUCATE THE CUSTOMER AND SIMPLIFY THE EXPERIENCE 953 942 JD Power CSI Score for Customers who DO Choose Package JD Power CSI Score for Customers who DO NOT Choose Package Average incremental revenue per funeral when packages are sold versus a la carte selection LEGA
Slide 44: Unique product and service offerings
44 UNIQUE PRODUCT AND SERVICE OFFERINGS AVAILABLE A LA CARTE OR WITHIN PACKAGES PROVIDE OPTIONS TO FAMILIES 5 % REMAINING RELEVANT
Slide 45: Price sensitive customer served by non-funeral home locations
45 FINALLY, OUR PRICE SENSITIVE CUSTOMER IS INCREASINGLY SERVED BY OUR NON - FUNERAL HOME LOCATIONS REMAINING RELEVANT NEPTUNE MARGIN PRICE SENSITIVE CUSTOMER NEEDS 12% to 18% 2014 2011 o No preference for memorialization o No stigma of a funeral home o Lower price o Fewer options to aid decision ma
Slide 46: Funeral: Revenue Growth Strategy
46 FUNERAL BUSINESS FUNERAL OVERVIEW CREMATION TRENDS REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS FUNERAL 1 ST CORE Revenue Growth STRATEGY
Slide 47: Preneed sales program grows future revenues
47 $523 $596 $633 $400 $450 $500 $550 $600 $650 $700 2012 2013 2014 OUR SCALE ALLOWS US TO DIFFERENTIALLY GROW FUTURE REVENUES THROUGH OUR PRENEED SALES PROGRAM Comparable Businesses (in millions) Comparable Preneed Funeral Sales Production 1.8% 14.0% 6.2% Growth Rate PRENEED SALES 2015 Preneed Fune
Slide 48: Matured preneed average exceeds atneed average
48 OUR MATURED PRENEED AVERAGE NOW EXCEEDS OUR ATNEED AVERAGE WHICH BODES WELL FOR FUTURE REVENUES 2014 2013 2012 Sales averages are from comparable businesses owned at December 31, 2014, and exclude non - funeral home customer contracts in all periods. PRENEED SALES ATNEED ATNEED ATNEED PRENEED PRE
Slide 49: Funeral: Revenue Growth Strategy
49 FUNERAL BUSINESS FUNERAL OVERVIEW CREMATION TRENDS REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS FUNERAL 1 ST CORE Revenue Growth STRATEGY
Slide 50: Geographically diverse location footprint
50 OUR LOCATION FOOTPRINT IS GEOGRAPHICALLY DIVERSE WITH SCALE THAT IS UNMATCHED IN THIS INDUSTRY 45 STATES* 1,388 Funeral Homes 456 Cemeteries BROAD GEOGRAPHIC COVERAGE 8 PROVINCES 171 Funeral Homes 10 Cemeteries IN TOTAL 1,559 Funeral Homes 466 Cemeteries (258 Combo Locations) SCI has 258 combos w
Slide 51: Targeting favorable markets for expansion
51 WE TARGET MARKETS WITH FAVORABLE CHARACTERISTICS TO EXPAND EITHER THROUGH ACQUISITIONS OR NEW BUILDS Large Scale Limited Market Large Scale Attractive Market Limited Scale Limited Market Limited Scale Attractive Market CUSTOMER/MARKET ATTRACTIVENESS POTENTIAL FOR SCALE MARKET CHARACTERISTICS UTOP
Slide 52: Acquisitions yield highest return on investment
52 ACQUISITIONS YIELD THE HIGHEST RETURN ON INVESTMENT FOR US DUE TO SIGNIFICANT SYNERGY OPPORTUNITIES ACQUISITION SPEND Revenue growth through improved merchandising and packaging Cost synergies through shared functions & resources as well as purchasing opportunities Elimination of duplicative fina
Slide 53: New build opportunities with attractive returns
53 WE ALSO EXPAND THROUGH NEW BUILD OPPORTUNITIES WITH ATTRACTIVE RETURNS o 6,000 - 9,000 square feet on 1.5 - 2.0 acres o Average spend of $ 2M - $4M per new project (depending upon size and cost of real estate) o Positive cash flow generally by year 2 o 7 - 10 year payback o IRRs at minimum of 12%
Slide 54: Cremation Trends
54 FUNERAL BUSINESS FUNERAL OVERVIEW CREMATION TRENDS REVENUE GROWTH STRATEGY CREMATION TRENDS BUSINESS FUNERAL
Slide 55: Growing cremation mix creates manageable headwind
55 A GROWING CREMATION MIX CREATES A MANAGEABLE HEADWIND FOR US… Burial Cremation Holding all else equal, for every 1% mix shift from Burial to Cremation services, we lose ~$7M in Adjusted EBITDA REVENUE Adjusted EBITDA $9 $7 million million ($14) million ($19) million ($10 million) ($7 million) $3.
Slide 56: Successfully counteracted in revenues and expenses
56 We can tactically manage shifts in the cremation mix at the location level to limit the impact on margins by: …THAT WE HAVE SUCCESSFULLY COUNTERACTED IN BOTH REVENUES AND EXPENSES 2.1% Funeral Average Growth 1.9% 2.1% 2.5% 2011 2012 2013 2014 Sales average growth and cremation mix change represen
Slide 57: Burial business creates stable base
57 ADDITIONALLY, WE EXPECT OUR BURIAL BUSINESS WILL CREATE A STABLE BASE FOR US TO MANAGE GROWING CREMATION RATES IN THE FUTURE CREMATION TRENDS Historical U.S. data and projections from Cremation Association of North America U.S. BURIALS VS. CREMATIONS (in millions) 1.46 1.46 1.44 1.38 1.32 1.33 2.
Slide 58: Funeral business summary
58 IN SUMMARY, WE ARE STRATEGICALLY POSITIONED TO DRIVE FUNERAL REVENUE GROWTH IN THE FUTURE REMAIN RELEVANT GROW FUTURE REVENUE THROUGH PRENEED SALES POSITION OURSELVES THROUGH ACQUISITIONS & NEW BUILDS TO BE READY FOR DEMOGRAPHIC WAVE FUNERAL BUSINESS SUMMARY
Slide 59: Cemetery Business
59 o CEMETERY OVERVIEW o Remaining Relevant o Preneed Sales CEMETERY BUSINESS o Managing Footprint o REVENUE GROWTH STRATEGY STEVE TIDWELL SVP, SALES & MERCHANDISING
Slide 60: Cemetery Overview
60 BUSINESS CEMETERY OVERVIEW CEMETERY BUSINESS CEMETERY OVERVIEW REVENUE GROWTH STRATEGY CEMETERY
Slide 61: Cemetery segment serves burial and cremation customers
61 OUR CEMETERY SEGMENT SERVES THE NEEDS OF BOTH THE BURIAL AND CREMATION CUSTOMER CEMETERY OVERVIEW 170,221 12,966 CREMATION 17,106 INTERMENTS PRENEED PROPERTY CONTRACTS SOLD 111,924 2014 157,255 BURIAL 94,818
Slide 62: Notable characteristics of our cemetery business
62 NOTABLE CHARACTERISTICS OF OUR CEMETERY BUSINESS DIFFERENTIATE US FROM THE INDUSTRY Some of the notably larger and premier cemetery p roperties Sales - centric organization with a keen focus on deeper market penetration Breadth and assortment of tiered cemetery inventory development CEMETERY OVER
Slide 63: Cemetery segment benefiting from favorable demographics
63 OUR CEMETERY SEGMENT IS BENEFITING FROM A FAVORABLE DEMOGRAPHIC LANDSCAPE TODAY CEMETERY OVERVIEW CEMETERY OVERVIEW 0 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 2000 2010 2015 2020 2025 2030 60 - 69 70 - 79 80+ Population (in thousands) Source: Population data from U.S
Slide 64: Baby Boomers driving recognized preneed revenue growth
64 THE BABY BOOMERS ARE IMPACTING OUR CEMETERY BUSINESS TODAY, RESULTING IN STRONG RECOGNIZED PRENEED REVENUE GROWTH $237 $235 $237 $232 $238 $366 $409 $448 $485 $514 $82 $94 $99 $105 $136 $0 $100 $200 $300 $400 $500 $600 $700 $800 $900 $1,000 2010 2011 2012 2013 2014 Atneed Recognized Preneed Other
Slide 65: Cemetery: Revenue Growth Strategy
65 CEMETERY BUSINESS CEMETERY OVERVIEW REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS CEMETERY 1 ST CORE Revenue Growth STRATEGY
Slide 66: Three-pronged approach to remain relevant
66 WE HAVE IDENTIFIED A THREE - PRONGED APPROACH TO MAINTAIN RELEVANCE WITH THE CEMETERY CUSTOMER REMAINING RELEVANT REMAINING RELEVANT CEMETERY CUSTOMER TO Simplified selection process Tiered property inventory offerings to provide customers more choices Innovative product offerings for both burial
Slide 67: Tiered cemetery inventory options for burial customers
67 FOR BURIAL CUSTOMERS, WE CONTINUE TO DEVELOP CONTEMPORARY TIERED CEMETERY INVENTORY OPTIONS Bench Estate Private Mausoleum Natural Estate Gated Estate Walled Estate Hedge Estate Ground Burial/ Lawn Crypt Garden Mausoleum 1 3 2 5 6 4 9 7 ($75,000 - $5,000,000) ($4,500 - $25,000) ($40,000 - $100,00
Slide 68: Burial business creates stable base
68 REMEMBER, WE EXPECT OUR BURIAL BUSINESS WILL CREATE A STABLE BASE FOR US TO MANAGE GROWING CREMATION RATES IN THE FUTURE Historical U.S. data and projections from Cremation Association of North America REMAINING RELEVANT U.S. BURIALS VS. CREMATIONS (in millions) 1.46 1.46 1.44 1.38 1.32 1.33 2.46
Slide 69: Cemetery options for cremation customers
69 FOR CREMATION CUSTOMERS, WE CONTINUE TO DEVELOP CONTEMPORARY CEMETERY OPTIONS Glass Front Niches Cremation Estate Pedestal 6 % Growth in cremation property sales average since 2011 ( vs 8% for burial) $2,639 C remation property sales average ( vs $4,014 for Burial) 15% Preneed cremation property
Slide 70: Property inventory for ethnic and religious needs
70 CEMETERY PROPERTY INVENTORY IS DEVELOPED TO SERVE VARYING ETHNIC AND RELIGIOUS NEEDS REMAINING RELEVANT
Slide 71: Simplified selection process grows property and merchandise revenues
71 OUR SIMPLIFIED SELECTION PROCESS HAS RESULTED IN GROWTH OF PROPERTY AND MERCHANDISE REVENUES REMAINING RELEVANT $1.2 $1.3 $1.5 $1.7 $3,041 $3,253 $3,469 $3,803 $0 $1,000 $2,000 $3,000 $4,000 $0.0 $1.0 $2.0 $3.0 2011 2012 2013 2014 Average Production per Cem (in millions) Average Cem Property Sale
Slide 72: Cemetery: Revenue Growth Strategy
72 CEMETERY BUSINESS CEMETERY OVERVIEW REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS CEMETERY 1 ST CORE Revenue Growth STRATEGY
Slide 73: Strong track record for preneed cemetery sales growth
73 WE ANTICIPATE OUR STRONG TRACK RECORD FOR PRENEED CEMETERY SALES GROWTH WILL CONTINUE Comparable Businesses 13.0% 10.4% 11.1% 7.0% Comparable Growth Rate (In Millions) Cemetery Mid to High Single Digit % Growth Preneed Cemetery Sales Production Preneed property sales drive current period revenue.
Slide 74: Preneed selling strategies across Stewart portfolio
74 $73 $71 $64 $56 $18 $18 $22 $40 $- $25 $50 $75 $100 $125 2011 2012 2013 2014 Property Merchandise & Services WE BEGAN IMPLEMENTING OUR PRENEED SELLING STRATEGIES ACROSS THE STEWART PORTFOLIO IN MID - 2014 PRENEED SALES We believe the Stewart portfolio will be a strong contributor to growth in pre
Slide 75: Cemetery: Revenue Growth Strategy
75 CEMETERY BUSINESS CEMETERY OVERVIEW REVENUE GROWTH REVENUE GROWTH STRATEGY STRATEGY Ɣ Remaining Relevant Ɣ Preneed Sales Ɣ Managing Footprint BUSINESS CEMETERY 1 ST CORE Revenue Growth STRATEGY
Slide 76: Targeting acquisition of large cemeteries
76 WE TARGET THE ACQUISTION OF LARGE CEMETERIES TO SUPPORT CONTINUED REVENUE GROWTH MANAGING FOOTPRINT High barriers to entry limit new - builds Allows for additional market share growth and cross - marketing opportunities with our funeral home portfolio Ability to serve varying customer needs by pr
Slide 77: Cemetery segment has solid platform for growth
77 IN SUMMARY, OUR CEMETERY SEGMENT HAS A SOLID PLATFORM FOR CONTINUED GROWTH Preneed sales is the primary driver of revenue growth and margin expansion Differential capital investment in contemporary tiered inventory offerings sets us apart in the markets we serve Demographic tailwind has arrived i
Slide 78: Develop Sales Organization
78 SALES DEVELOP ORGANIZATION LEVERAGE SCALE LEVERAGE SCALE 2 ND CORE STRATEGY LEVERAGE SCALE
Slide 79: Preplanning provides three key attributes
79 PREPLANNING PROVIDES CUSTOMERS THREE KEY ATTRIBUTES P lanning P rotection P eace of Mind DEVELOP SALES ORGANIZATION
Slide 80: Preneed sales success driven by four key elements
80 PRENEED SALES SUCCESS IS DRIVEN BY FOUR KEY ELEMENTS STAFFING TRAINING STREAMLINED OFFERINGS ACTIVITY MANAGEMENT DEVELOP SALES ORGANIZATION KEY ELEMENTS
Slide 81: Field sales force of approximately 4,700 professionals
81 WE HAVE A STRONG, WELL - ORGANIZED FIELD SALES FORCE OF APPROXIMATELY 4,700 PROFESSIONALS 2,300 Penetrating existing relationships established through servicing atneed families 1,800 Radiating into new relationships created through awareness in the community− supported by lead generation such as
Slide 82: Investing in development of our team
82 WE CONTINUE TO INVEST IN THE DEVELOPMENT OF OUR TEAM North American Sales Development Program Dignity University™ Developing top performers Focus on Sales Manager development Distance learning p latform We plan to increase the number of sales counselors as productivity increases over time DEVELOP
Slide 83: Investing in tools to enable sales force
83 Direct Mail/Website WE LEVERAGE OUR SCALE BY INVESTING IN TOOLS TO ENABLE OUR SALES FORCE TO ACHIEVE GREATER SALES SUCCESS Customer Relationship Management (CRM) Platform NEW TOOL Our recent CRM implementation will lead to greater efficiencies, stronger effectiveness and hence more sales producti
Slide 84: Plan to increase number of sales counselors
84 GUIDED BY KEY METRICS, WE PLAN TO INCREASE THE NUMBER OF SALES COUNSELORS, OVER TIME INFRASTRUCTURE & TRAINING PAST INCREASE PRODUCTIVITY EXPAND SALES HEADCOUNT OUR SCALE ALLOWS US TO EXPAND OUR SALES FORCE IN A MANNER THAT OUR COMPETITORS CANNOT AFFORD TO REPLICATE PRESENT FUTURE DEVELOP SALES O
Slide 85: Network Optimization
85 ELISABETH NASH SVP, OPERATIONS SERVICES NETWORK OPTIMIZATION LEVERAGE SCALE 2 ND CORE STRATEGY LEVERAGE SCALE
Slide 86: Leveraging scale delivers margin improvement
86 LEVERAGING OUR SCALE HAS HELPED DELIVER SIGNIFICANT MARGIN IMPROVEMENT FROM ORGANIC COST SYNERGIES Acquisition Synergies ORGANIC COST SYNERGIES Fewer Vendors & Spend Consolidation Leveraging Technology Process Improvement, Standardization & Outsourcing Organization Structure Changes NETWORK OPTIM
Slide 87: Managing supply chain costs
87 WE AGGRESSIVELY MANAGE OUR SUPPLY CHAIN COSTS THROUGH ENHANCED SPEND ANALYSIS, CENTRALIZATION OF PURCHASING DECISIONS, AND ROBUST VENDOR REVIEWS 187 9 2 00 8 PRESENT PAST FUNERAL CASKET CEMETERY GRANITE NETWORK OPTIMIZATION SUPPLIERS SUPPLIERS
Slide 88: Investing in technologies for efficiencies
88 WE HAVE THE CAPITAL TO INVEST IN TECHNOLOGIES TO DRIVE FRONT AND BACK OFFICE EFFICIENCIES Aggregating ordering, receiving & payment Human capital & payroll management Manage leads & contacts Simplified point - of - sale system developed for d eathcare industry Tracking & scheduling for our person
Slide 89: Scale allows process standards and reduced costs
89 OUR SCALE ALLOWS US TO DEFINE AND LEVERAGE PROCESS STANDARDS, ENHANCE QUALITY AND REDUCE COSTS Cemetery Land Care Outsourcing Accounting & IT Outsourcing NETWORK OPTIMIZATION Over $3 million saved Over $8 million saved
Slide 90: Streamlined management structures for personal care centers
90 PCCs are centralized processing and preparation centers each servicing multiple funeral homes in a geographic area WE HAVE USED OUR SCALE TO STREAMLINE OUR MANAGEMENT STRUCTURES TO DRIVE PROCESS IMPROVEMENTS, WHICH LOWER COSTS Centralized management of these facilities Greater ability to drive sp
Slide 91: Cost synergies through acquisitions
91 THESE SCALE PROFICIENCIES HAVE ENABLED US TO REALIZE TREMENDOUS COST SYNERGIES THROUGH ACQUISITIONS We have a PROVEN TRACK RECORD of successfully and quickly INTEGRATING LARGE ACQUISITIONS delivering their significant & COST SYNERGIES $80M STEWART $8M KEYSTONE $75M ALDERWOODS 2006 2010 2013 Syner
Slide 92: Scale gives competitive advantage
92 IN SUMMARY, SCALE GIVES US A TREMENDOUS COMPETITIVE ADVANTAGE AND WILL DRIVE CONTINUED FUTURE EFFICIENCIES LEVERAGE SCALE We can negotiate better supplier terms and work with core strategic vendors, which reduce costs in our business We have access to higher quality services & systems both on and
Slide 93: Preneed Backlog: Trust & Insurance
93 PRENEED BACKLOG LEVERAGE SCALE 2 ND CORE STRATEGY TRUST & INSURANCE ERIC TANZBERGER SVP, CFO AND TREASURER LEVERAGE SCALE
Slide 94: $9.3 billion backlog in trust funds and insurance
94 OUR $9.3 BILLION BACKLOG IS PRIMARILY INVESTED IN TRUST FUNDS AND 3 RD PARTY LIFE INSURANCE POLICIES (In Billions) BACKLOG OF DEFERRED REVENUES CEMETERY TRUST $2.53B FUNERAL TRUST $2.03B FUNERAL INSURANCE $4.85B 10 - 14 years Funeral & Cemetery Average length of time from date of sale to maturity
Slide 95: Balance between trust and insurance funding
95 WHEN FUNDING PRENEED SALES, WE MAINTAIN A BALANCE BETWEEN TRUST & INSURANCE 22,000 Funeral Homes 4,000 Cemeteries TRUST INSURANCE Portion retained which we a re e ntitled to by state law 45% 55% NEW PRENEED SALES PRODUCTION Funeral & Cemetery Funeral Only General A gency revenue & cash from insur
Slide 96: Trust management outsourced and overseen by independent trustees
96 OUR TRUST MANAGEMENT FUNCTION IS OUTSOURCED AND OVERSEEN BY INDEPENDENT TRUSTEES SCI Members of SCI Management & Board SCI Wholly - Owned Registered Investment Advisor Professional Money Managers Independent Registered Investment Advisor Independent Trustees PRENEED TRUST & INSURANCE BACKLOG
Slide 97: Preneed trust portfolios diversified and achieving return targets
97 OUR PRENEED MERCHANDISE AND SERVICES TRUST PORTFOLIOS ARE DIVERSIFIED AND ACHIEVING RETURN TARGETS % OF TOTAL ASSETS 60% 19% 3% 9% 9% Equities Fixed Income Alternative Investments Other Cash PRENEED MERCHANDISE & SERVICES TRUST $1.6B $1.5B FUNERAL MERCHANDISE AND SERVICES TRUST CEMETERY MERCHANDI
Slide 98: Cemetery perpetual care trust portfolio
98 OUR CEMETERY PERPETUAL CARE TRUST PORTFOLIO IS STRUCTURED TO GENERATE DISTRIBUTABLE INCOME 20% 66% 5% 9% Equities Fixed Income Alternatives Cash CEMETERY PERPETUAL CARE CEMETERY PERPETUAL CARE $1.3B PRENEED TRUST & INSURANCE BACKLOG Provide an income stream that helps offset maintenance and care
Slide 99: Impact of down market minimized by diversity and deferral
99 THE IMPACT OF A DOWN FINANCIAL MARKET IS MINIMIZED BY PORTFOLIO DIVERSITY AND DEFERRAL OF TRUST INCOME UNTIL DELIVERY $114.0 $82.6 $70.1 $83.2 $101.4 $111.3 $131.6 $183.4 3.5% - 38.5% 23.5% 12.8% 0.0% 13.4% 29.6% 11.4% -50.0% -40.0% -30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% ($250) (
Slide 100: Scale benefits preneed programs
100 SCALE DIFFERENTIALLY BENEFITS US WITH OUR PRENEED PROGRAMS LEVERAGE SCALE We have access to preeminent money managers and lower fee structures We also enjoy favorable terms with our insurance provider We benefit from a lower cost of administration for both trust and insurance Trust Management In
Slide 101: Free Cash Flow & Capital Deployment
101 FREE CASH FLOW & FREE CASH FLOW & CAPITAL DEPLOYMENT CAPITAL DEPLOYMENT 3 RD CORE STRATEGY CAPITAL DEPLOYMENT
Slide 102: Free cash flow robust in 2015
102 FREE CASH FLOW WILL CONTINUE TO BE ROBUST IN 2015 DESPITE EXPECTED INCREASES IN CASH TAXES FREE CASH FLOW (FCF) 2015 Guidance Midpoint ($310 - $370) Free cash flow and Free cash f low per share are n on - GAAP financial measures. Please see appendix for a reconciliation to the appropriate GAAP m
Slide 103: Free cash flow deployed to enhance shareholder value
103 OUR SIGNIFICANT FREE CASH FLOW ALLOWS US TO CONTINUE TO DEPLOY CAPITAL TO ENHANCE SHAREHOLDER VALUE Free cash flow is a non - GAAP financial measure. Please see appendix for a reconciliation to the appropriate GAAP measures and for other disclosures . Dividends $80M Acquisitions $50 - $100 milli
Slide 104: Commitment to share repurchases and growing dividend
104 100 200 300 400 500 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 $0 $100 $200 $300 $400 $500 $600 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Dividends Share Repurchases WE HAVE DEMONSTRATED A COMMITMENT TO REDUCING EQUITY THROUGH OUR SHARE REPURCHASE PROGRAM WHILE PAYING A
Slide 105: Favorable debt maturity profile
105 OUR FAVORABLE DEBT MATURITY PROFILE GIVES US TREMENDOUS FINANCIAL FLEXIBILITY $60 $60 $90 $160 $ - $ - $ - $ - $ - $ - $197 $295 $250 $200 $150 $425 $550 $200 $235 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2027 7.500% Senior Notes 8.000% Senior Notes 5.375% Senior Notes 4.500% Senior Not
Slide 106: Earnings growth with disciplined leverage
106 WE HAVE GROWN EARNINGS SIGNIFICANTLY OVER TIME WHILE MAINTAINING A DISCIPLINED APPROACH TO LEVERAGE We target a leverage ratio of 3.50x – 3.70x Leverage Ratio and Adjusted EBITDA by Year Our bank credit facility leverage ratio is calculated as Net Debt divided by Adjusted EBITDA. Adjusted EBITDA
Slide 107: Strong free cash flow positions us to drive shareholder return
107 OUR STRONG FREE CASH FLOW UNIQUELY POSITIONS US TO DRIVE TOTAL SHAREHOLDER RETURN FREE CASH FLOW & CAPITAL DEPLOYMENT SUMMARY Acquisitions & Funeral Location New Builds CAPITAL DEPLOYMENT Acquisitions & Funeral Location New Builds Acquisition investment expected to earn an after - tax cash retur
Slide 108: Key Takeaways
108 TOM RYAN PRESIDENT & CEO KEY TAKEWAYS
Slide 109: Continued growth and capital deployment drive EPS growth
109 CONTINUED GROWTH FROM OUR BASE BUSINESS AND STRATEGIC CAPITAL DEPLOYMENT WILL DRIVE STRONG EPS GROWTH BASE BUSINESS GROWTH WITH STRATEGIC CAPITAL DEPLOYMENT FAVORABLE LONG - TERM GROWTH OUTLOOK FOR EARNINGS Tuck - in Acquisitions Share Repurchases LOW SINGLE DIGIT LOW EARNINGS PER SHARE GROWTH L
Slide 110: Base business growth delivering mid-single digit EPS growth
110 OUR BASE BUSINESS GROWTH WILL CONTINUE DELIVERING MID - SINGLE DIGIT EARNINGS PER SHARE GROWTH… ROBUST AND CONSISTENT KEY TAKEAWAYS STABLE FUNERAL & CEMETERY INDUSTRY PREDOMINANT PLAYER IN REMAIN RELEVANT THROUGH SERVICE EXCELLENCE AND NEW PRODUCTS & SERVICES PRENEED SALES DIFFERENTIAL GROWTH TH
Slide 111: Capital deployment pushing to 9% to 12% EPS growth
111 …WITH CAPITAL DEPLOYMENT ACTIONS PUSHING US TO 9% to 12% EARNINGS PER SHARE GROWTH KEY TAKEAWAYS CEMETERY NOW THE BABY BOOMERS IMPACT SIGNIFICANT RETURN SHAREHOLDERS DRIVES EQUITY BASE WILL SEE DISCIPLINED & BALANCED CAPITAL ALLOCATION TO FUNERAL IN FUTURE & HIGHER RETURNS ON EQUITY IN THE FUTUR
Slide 112: Management incentive programs aligned to shareholder return
112 MANAGEMENT SHORT AND LONG - TERM INCENTIVE PROGRAMS ALIGNED TO DRIVE SUPERIOR TOTAL SHAREHOLDER RETURN SHORT - TERM Annual performance - based incentives paid in cash • Normalized earnings per share • Free Cash Flow per share • Cemetery & Funeral Production Growth • Return on Equity LONG - TERM
Slide 113: Our value proposition: superior total shareholder return
113 OUR VALUE PROPOSITION: DELIVERING SUPERIOR TOTAL SHAREHOLDER RETURN KEY TAKEAWAYS GROW REVENUES & FREE CASH FLOWS DEPLOY CAPITAL EFFECTIVELY LEVERAGE SCALE TOTAL SHAREHOLDER RETURN DELIVER SUPERIOR
Slide 114: Appendix
APPENDIX. IME
Slide 115: Non-GAAP Financial Measures
115 NON - GAAP FINANCIAL MEASURES This information should not be considered in isolation or as a substitute for related GAAP measures. Additionally, these measures as calculated by the Company may not be comparable to similarly titled measures used by other companies.
Slide 116: Normalized EPS
116 NORMALIZED EPS EARNINGS PER SHARE FROM CONTINUING OPERATIONS EXCLUDING SPECIAL ITEMS We use Normalized EPS, or Earnings from continuing operations excluding special items, as an underlying operational performance measure of the continuing operations of the business and to have a basis to compare
Slide 117: Free Cash Flow and Free Cash Flow Per Share
117 FREE CASH FLOW AND FREE CASH FLOW PER SHARE ADJUSTED CASH FLOW FROM OPERATIONS MINUS RECURRING CAPEX Adjusted cash flow from operations or Net cash provided by operating activities excluding special items ▪ We use Adjusted cash flow from operations, or Net cash provided by operating activities e
Slide 118: Free Cash Flow and Free Cash Flow Per Share
118 FREE CASH FLOW AND FREE CASH FLOW PER SHARE ADJUSTED CASH FLOW FROM OPERATIONS MINUS RECURRING CAPEX APPENDIX (In millions, unless noted otherwise) 2012 2013 2014 Net Income $ 155.4 $ 152.6 $ 178.8 Income from discontinued operations, net of tax (0.3) (0.4) (2.2) Losses (gains) and premiums paid
Slide 119: EBITDA and Adjusted EBITDA
119 EBITDA AND ADJUSTED EBITDA (In millions) 2007 2008 2009 2010 2011 2012 2013 2014 Net income attributable to common stockholders 247.7 97.1 123.1 126.1 147.3 153.8 147.3 172.5 Provision for income taxes 143.7 65.7 76.3 92.5 79.4 90.1 93.0 226.0 Interest expense 146.9 134.3 129.0 128.2 133.8 135.1
Slide 120: Financial Outlook for 2015
120 FINANCIAL OUTLOOK FOR 2015 (A) Reconciliations to GAAP net cash provided by operating activities and to net income are not provided for these forward - looki ng estimates because GAAP net cash provided by operating activities for the fiscal year ending December 31, 2015 is not accessible and rec
Service Corporation International — Investor Day (February 2015) on 6ix