Service Corporation International — FY2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022. This is an annual filing; the supplied text does not provide a separate fourth-quarter results summary. SCI is North America’s largest deathcare provider, operating 1,474 funeral service locations and 490 cemeteries across the U.S. and Canada. Its preneed backlog was approximately $13.7 billion at year-end.
Financial performance and liquidity
| Metric | FY2022 | FY2021 |
|---|---|---|
| Total revenue | $4.109 billion | $4.143 billion |
| Gross profit / margin | $1.155 billion / 28.1% | $1.323 billion / 31.9% |
| Operating income / margin | $927.3 million / 22.6% | $1.191 billion / 28.7% |
| Net income attributable to common stockholders | $565.3 million | $802.9 million |
| Diluted earnings per share | $3.53 | $4.72 |
| Net cash from operating activities | $825.7 million | $920.6 million |
| Capital expenditures | $369.7 million | $303.7 million |
| Cash and cash equivalents at year-end | $191.9 million | $268.6 million |
| Total debt and finance leases, aggregate principal | $4.3 billion | — |
Year-end current maturities of debt were $90.7 million. SCI reported $396.5 million of borrowing capacity under its revolving facility and was in compliance with debt covenants. Its leverage ratio was 3.24 against a 4.75 maximum, and interest coverage was 7.83 against a 3.00 minimum. In January 2023, SCI refinanced its 2024 term loan and credit facility with a $675 million term loan and a revolving facility of up to $1.5 billion, due in 2028; reported available capacity under the new facility was $1.0 billion.
Material changes versus FY2021
- Revenue decreased 0.8%, while net income attributable to common stockholders declined about 30%. Management cited lower COVID-19-related activity, inflationary costs, and lower trust-fund income.
- Funeral gross profit fell 14.7%; comparable funeral services performed declined 4.6%, while comparable average revenue per service rose 2.0% to $5,454. Comparable funeral gross margin declined to 23.7% from 27.6%.
- Cemetery gross profit fell 10.9%; comparable cemetery gross margin declined to 34.1%, down 3.9 percentage points. Lower atneed revenue and trust income, alongside higher labor and maintenance costs, contributed.
- Operating cash flow declined $94.9 million. SCI attributed the decline principally to lower operating income and higher vendor, employee compensation, and interest payments.
- Interest expense increased to $172.1 million from $150.6 million, reflecting higher rates on floating-rate debt and higher balances. About 72% of debt was fixed-rate at year-end, versus 79% in 2021.
- Trust investment returns were negative in 2022: combined trust funds returned -11.5%, compared with +14.4% in 2021. SCI reported no required charge for expected losses on contract delivery as of year-end.
Outlook, commentary, risks, and unusual items
- Management’s strategy is to grow revenue, leverage scale, and invest capital, including through preneed sales, acquisitions, new locations, and customer-facing technology. It expects demographic aging and the Baby Boomer generation to support long-term demand, but provided no quantified earnings or revenue guidance in the supplied filing text.
- Preneed production increased: insurance-funded sales were $664.6 million versus $636.9 million; trust-funded funeral sales were $506.2 million versus $451.0 million; and cemetery preneed sales were $1.377 billion versus $1.337 billion. Preneed contracts are generally price-guaranteed, creating exposure if future service costs rise faster than contract funding.
- Cremation represented 61.1% of comparable services in 2022, up from 59.2%. SCI notes that average cremation revenue is lower than traditional burial revenue and views continued development of cremation memorialization offerings as important.
- SCI recorded a $64.6 million pretax charge for certain legal matters, mainly estimated preneed contract refunds in California and Florida, plus anticipated California investigative costs and other legal expenses. The company was in settlement discussions with California authorities; a Florida matter had a tentative settlement with an immaterial payment and enhanced cancellation rights.
- Other material risks include inflation and labor costs, trust-asset market declines or required trust replenishments, interest-rate exposure, competition, changing consumer preferences and death rates, weather and public-health events, cybersecurity and technology disruption, regulatory changes, unclaimed-property claims, and litigation. SCI states that the potential loss from the unclaimed-property audits and certain lawsuits cannot be reasonably estimated.
- SCI repurchased 10.36 million shares for $661.1 million in 2022 and paid $160.0 million in dividends. The year-end quarterly dividend rate was $0.27 per share. Future dividends and repurchases remain subject to board decisions and debt-covenant limits.
- The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting. The audit identified goodwill impairment testing for the funeral reporting unit as a critical audit matter involving significant forecasts and valuation assumptions.
Important facts for investors to verify
- Track funeral and cemetery margins as pandemic-related volume normalizes and inflation affects labor, energy, merchandise, and maintenance costs.
- Review trust investment performance, funding requirements, and the relationship between preneed obligations, associated assets, and future fulfillment costs.
- Monitor outcomes and cash exposure from California and Florida legal matters, state unclaimed-property audits, and other cemetery or employment litigation.
- Assess leverage, floating-rate debt exposure, refinancing terms, covenant headroom, and the use of cash for acquisitions, dividends, and share repurchases.
- Evaluate cremation trends, preneed backlog conversion, and whether higher average revenue per service and new memorialization offerings offset lower cremation revenue.