Debbie Young - Director, IR Tom Ryan - President & CEO Eric Tanzberger - SVP, CFO & Treasurer

Chris Rigg - Susquehanna Financial A.J. Rice - UBS Robert Willoughby - Bank of America John Ransom - Raymond James

Good morning, everyone. This is Debbie Young from Investor Relations at SCI.

We hope everyone is doing well today and we appreciate you taking the time to join us as we discuss our results for the second quarter. Let me begin by covering the customary Safe Harbor language.

The comments made by our management team today will include statements that are not historical and are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections.

These risks and uncertainties include, but are not limited to, those factors identified in our press release and in our filings with the SEC that are available on our website. Today we may also refer to certain non-GAAP measurements such as normalized EPS, adjusted operating cash flow and free cash flow.

Reconciliation of these measurements to the appropriate measures calculated in accordance with GAAP is provided on our website and in our press release and 8-K that were filed yesterday. With that behind us, let’s begin with comments from Tom Ryan, SCI’s President and CEO.

Thank you, Debbie and good morning everyone and thank you for joining us on the call today. I’m going to begin my comments by giving you the highlights of the quarter then a deeper dive into both funeral and cemetery operations.

And finally, I’ll give you some color on our outlook for the back half of 2015. Beginning with an overview of the quarter, we’re very pleased to report normalized earnings per share of $0.28 which is a $0.05 or 22% growth over the prior year period that slightly exceeded our internal expectations.

This growth is even more impressive when you consider that we lost a little more than $0.03 per share from the FTC or Stewart divested businesses that we own in 2014, but we do not have the benefit of this year. This impressive earnings growth was primarily driven by strong preneed cemetery sales production, the impact of our share repurchase program, lower interest expense and a slightly lower tax rate.

I want to thank each and every one of my 24,000 teammates for all of they do everyday not only that generate these results but most importantly in helping our client families plan and assisting them on their most difficult days. Well, we’re proud of our operating performance in the first half of 2015, we also never forget it is our responsibility to deploy your precious capital in a way.

During the first half of 2015, we’ve invested $53 million in new acquisitions and have three transactions under letter of intent which should close in the third quarter. We’ve also returned over $40 million to you through our dividend and have increased your effective ownership level of purchasing approximately $152 million of our outstanding common stock.

Now for an overview of funeral operations. The results of our comparable funeral segment were better than we expected primarily on higher than anticipated volume.

When compared to the prior year our second quarter funeral revenues increased by nearly $10 million or 2.2%. This funeral revenue growth was primarily driven by a $6.9 million increase in general agency commissions generated from our preneed funeral sales.

We’re experiencing higher commission rates from our new contract terms of AMLIC as well as selling a higher value customer mix in our sales activity. Additionally we saw a $4.2 million, a 20% increase in recognized preneed revenue.

The general agency and recognized preneed revenue growth was partially offset by a $1.2 million reduction in our core funeral revenue. Funeral volumes were essentially flat in the quarter while average revenue per case was down $13 or 0.2%.

Excluding the negative currency impact, the funeral sales average grew 0.8% during the quarter driven by an increase in our atneed sales average that was partially offset by a lower matured preneed sales average. Our atneed sales average actually grew about 3% as pricing and packaging had the anticipated positive effect which was slightly offset by an increase in the commission rate.

However, our matured preneed sales average was lower as the larger number of our maturing contracts are coming from the SCI direct backlog. So, with $9.9 million increase in funeral revenues, we only put $1.7 million into profit so what gives?

Think of funeral profitability is coming from three buckets. First, general agency revenue growth should have about a 30% margin after you reduce it for selling expenses.

So, a $6.9 million revenue increase generates 2 million in profit. Second, SCI direct revenue growth of $4.2 million generated about a 20% margin or $800,000 profit.

Finally, with core revenues down $1.2 million, at a 60% margin, the negative effect on profit should be about $700,000. Altogether, that would be about $2 million profit increase, which is in line with our $1.7 million number.

So, to summarize increases in lower margin businesses, were partially offset by a decline in higher margin core revenue. As it relates to preneed, comparable funeral sales production excluding terminally imminent situations in both periods, grew 3.4%.

Year-to-date, through the first six months, our preneed funeral sales production growth was about 4% and in line with our low to mid single-digit percentage growth expectations. Now, let's turn to cemetery operations.

Our cemetery segment had an impressive second quarter performance and came in well above our expectations. Comparable cemetery revenue increased more than $26 million or more than 10% over the prior year quarter, led by strong preneed sales and higher trust fund income.

The largest component of the 26 million revenue increase was 18.7 million from recognized preneed cemetery revenue. While this 12.7 increase is impressive, our actual preneed sales production grew by 31.6 million, or almost 17%.

That means the net $13 million we did not recognize in the second quarter will get recognized in a future period when the revenue recognition trigger is completed, via construction, delivery or 10% down payment occurs. These successes are being driven by higher productivity as our sales velocity or volume increased approximately 10% during the quarter.

[Indiscernible] demographics continue to fuel more sales opportunities, which our sales teams are able to capitalize on, by further leveraging our investments in tools like our new customer relationship management platform. We continue to train and manage the right sale behaviors which results in improved outcomes.

In addition to increase velocity, we saw more than a 7% increase in average spent per contract, as our peered inventory strategy continues to expand and enhance the value of our product and service offering. Trust fund income growth of $5 million for the quarter was elevated due to capital gain distributions from our perpetual care trust that we're anticipating.

Our success in preneed cemetery sales production is a real testament to the talent of our sales organization and the support from the rest of our team. Due to first six months of the year, total cemetery preneed production was up a remarkable 17.2%.

On this strong performance, we would anticipate the comps to comps to moderate somewhat in the back half of 2015, which's still reading to a low double-digit percentage growth for the full year. Comparable cemetery profits increased $18.4 million in the quarter and margin percentage grew 450 basis points to 26.6%.

Again like funeral, let's think of cemetery profits in three buckets. First, we had a $21 million revenue increase from core operations, which were at-need and pre-need recognized cemetery production.

This should have about a 65% margin, or call it 13.6 million increase in our profit. Second, we had a $5 million increase in trust income, which essentially has a 100% margin.

And finally, we backlog $13 million in cemetery sales for which we incurred and recognized the selling expense during the period. So, in approximate 20% cost, this had a negative $2.6 million effect on profitability at cemetery.

The net effect of these three items result in a $ 16 million projected increase in cemetery profits, which approximates our reported increase of $18.4 million. So, to wrap it up, we are very pleased about our performance thus far in the year.

For the first six months, our same-store funeral profits were up nearly $16 million and funeral margins have increased by 90 basis points. In the same period, comparable cemetery profits have grown 27.6 million margins have improved 350 basis points.

We sold more than $750 million in combined preneed funeral and cemetery sales; representing a growth of just over 70 million or more than 10%. This all has resulted in a year-to-date normalized earnings per share growth of $0.08 or nearly 16% to $0.59 per share.

Keep in mind, all of this was accomplished against the backdrop of losing the contribution from the FTC or its Stewart divestitures. So, on the heel of this strong year-to-date performance, we feel comfortable that we're training towards the high-end of our full year 2015 guidance range for normalized earnings per share that we have previously provided.

Our current expectations is that normalized earnings per share will range between $1.22 and $1.28 versus our previous expectation of $1.16 to $1.28. This brings the midpoint of our guidance up by $0.03.

As we begin the second half of the year, we feel good about our ability to continue to delivering solid performance and deploying capital for the benefit of our shareholders to enhance the long term value of the company. With that I will turn the call over to Eric.

Thank you and good morning everybody. At first I want to echo Tom's comments about how pleased we are with the performance in the quarter as well as the first six months of the year.

So, as usual today, I am going to start by commenting on our cash flow results for the second quarter. And now I would like to talk a little bit about our cash flow outlook for the remainder of 2015.

Also, I want to touch on how we deployed our capital this quarter to continue to enhance shareholder value. So, as you saw in our press release that we issued yesterday, our adjusted operating cash flow grew $4 million since second quarter to a total of $102 million year-to-date which exceeded our expectations primarily due to the higher than anticipated very strong cemetery preneed sales production.

So, little bit more color on this. Similar to what we said last quarter, this growth in cash flow from operations was accomplished despite contributions from FTC divested properties in 2014 that did not benefit us in 2015.

And this was the headwind of about $12 million when you talk about cash flow from operations. Higher cash receipts primarily on the strong preneed cemetery sales production and higher trust withdrawals helped to offset higher payroll payments.

And a little bit of color here as well. The higher payroll funding is simply a timing issue due to the way the July 4th holiday sale this year and we will see that timing benefit us next quarter.

Also, during the second quarter we paid about $15 million more in cash taxes which was expected. And it was partially offset by the client of $9 million in cash interest payments due to our accretive refinancing that we completed in the prior year quarter.

Maintenance and cemetery development CapEx for the quarter came in at approximately $36 million, which was about $8 million higher than the prior year and a little higher than our expectations. But we do believe this is only related to the timing of this capital deployment and does not change our opinion or affect our full year 2015 CapEx expectations.

So, when you deduct these recurring CapEx items, we calculate our free cash flow for the second quarter to be $56 million. A little bit lower than the prior year due to the higher CapEx timing I just noted above, but above our internal expectations.

So, at the end of the day, that's a really good quarter for us in terms of cash flow. So mid-year through 2015 year-to-date, adjusted cash flow from operations has grown $38 million or 14% to $300 million, resulting from an earnings growth that Tom has just highlighted, as well as improved collections on our preneed sales.

So, based on our first half strong results, we feel comfortable that we’re trending toward the high end of our original 2015 guidance range with our current expectations for adjusted cash flow from operations now between $475 million to $500 million. And this was previously $450 million to $500 million.

Our cash tax testament for 2015 based on the mid points of our models remains unchanged at approximately a $125 million for the full year of 2015. Our guidance for capital spending in 2015 for maintenance and cemetery development CapEx also remains unchanged at a $130 million to a $140 million as I just mentioned, gave you a little color on that.

Deducting these recurring CapEx items from our 2015 adjusted cash flow from operations expectations will result in free cash flow in 2015, ranging from $335 million to $370 million, which equates to a $1.72 of free cash flow per share at the midpoint of this guidance using a fully diluted weighted average share count of about 205 million shares. This is only $0.04 less than the $1.76 free cash flow per share we reported on an adjusted basis in 2014; which is pretty impressive when you consider the expected $80 million increase in cash taxes year-over-year and the head win from the loss of cash flows from the Stewart FTC divestiture properties that I just previously mentioned.

So, let’s talk about how we deploy this free cash flow in our capital in general during the quarter. So, to begin with, we finished the quarter with healthy liquidity of a little more than $400 million, consisting of about $200 million of cash on hand and $200 million of availability on our credit facility.

This liquidity positions us well to strategically execute our capital deployment plans. During the quarter, we acquired a funeral cemetery combination facility in South Texas for a total investment of approximately $6 million.

Our leverage which is calculated as net debt to EBITDA in accordance with our credit facility was 3.55 at the end of the quarter. This is at the lower end of our current targeted leverage range as defined of 3.5 to 3.7, which we continue to believe is the appropriate range for our company and positions us well as we move forward in 2015.

Natural, we gave back to our shareholders. We returned an impressive $100 million of value to our shareholders during the quarter.

In addition to $20 million in dividend payments in the quarter, we also repurchased about $80 million or 2.8 million shares during this quarter. Subsequent to the end of the quarter, we have also repurchased just over 1.4 million additional shares for a total investment of approximately $42 million.

Therefore when you look at what we have done so far in 2015 we are repurchased about 7.2 million shares through today for a total investment of over $190 million. Currently, we have just over 200 million shares outstanding and about $46 million of remaining share repurchase authorization from our Board of Directors.

So, in conclusion, we are proud of our performance in the first half of the year. And as we look forward, we continue to be excited about the remainder of 2015.

And we've been on the road quite a bit this year with our Investor Day as well as meeting with investors and a common theme we continue to hear as that SCI has summed up a boring story but a great cash flow generator that deploys this cash flow back to its shareholders. And by the way, we love being that boring cash flow generator.

So, I think that appropriately sums up the SCI story right now and be assured that our management team will continue to work hard to increase the value of your investment in our company. So, operator that concludes our prepared remarks at this time.

We would like to go ahead and turn it over to you to take questions.

Hi, good morning guys. On volumes, I think your annual guidance initially was down 1% to 2%.

Obviously, at this point you are tracking quite a bit better through mid-year. Can you give us a sense of how you are thinking about volumes in the back half of the year and for the year overall?

Thanks.

Yeah Chris, this is Tom. I think we are very pleased with the comparable volume statistics on the first six month of the year.

I think I'd say it this way, I think we feel pretty good about the year ending on positive note. Having said that, in most years where you see an advanced flu season like we have this year, it tend to see some follow-up on the back half of the year.

The only other thing I would add in there is that since we created SCI direct, the volume statistics on that business are different than say the national trend. Because they are so preneed oriented as a company, we are in that segment, we are driving higher volume through the backlog.

So, as an example, I think in the first half of the year, SCI direct up almost 10%. So, that type of trend I would expect that could continue at those types of levels on the back half.

I'd expect the core part of the business to retract somewhat, but again I think at this point because what we've seen the first half of the year, it's a positive year for volume.

Okay, great. And then just on the acquisitions, can you just clarify a little bit, I got a little confused, so we spent just under $37 million through the first six months, but you have done some stuff after the quarter closed.

Can you just tell me better understand exactly what the moving pieces are at this point. Thanks.

Sure. We actually I think Eric talked to this at the first.

In the first quarter, we closed on to businesses in California and the actual purchase price we had some 10 31 was closer to I think $45 million purchase price. In the second quarter as Eric mentioned, we purchased the businesses in South Texas, businesses around $6 million.

We actually had [Indiscernible] letter of intent actually believe we closed one last night that was in South Carolina. So, what we’ve reported so far today are the California and the Texas pieces.

We expect, again more to come. The pipeline looks as we’ve said before, pretty good.

And we’re excited about continuing to grow with businesses that fit our footprint and really some great people and some great businesses coming to the company.

Got it. And then, just one last one, not directly related to the quarter.

When we were out on the road a few weeks back, the concept of having a white paper with regard to preneed accounting came up. Can you give us a sense for where that stands and when we might see something?

Thanks a lot.

Sure Chris. As you know, the accounting is somewhat straightforward on the atneed side but there are some challenges in terms of complexity on the preneed side.

So we have taken our disclosures that are in all of our filings and just kind of taken that same information, no new additional information, but taken that same information and just tried to simplify some things in tabular formats and use some examples and etcetera. So, we have been working on that Chris, after that request, and I anticipate that getting out on to our investor tab of our website shortly.

When I say that, I am going to say in the next few weeks, so everyone should look for that and hopefully that’s a document that would clarify some things but most importantly, simplify some things as well for our shareholders and investors.

Perfect, thanks a lot.

Hello everybody. Maybe just a follow up on the acquisition question, maybe stepping back a little bit further.

A) Is there any change in what you see in pricing wise, competition for deals and B) is there, it seems like there may be a little pick-up in activity. Is that right or would you characterize it as a sort of steady stay?

Sure A.J. I would say that we’re really not seeing any real changes.

I think where these deals are crossing the line are pretty much consistent. We have seen a lot more activity and it’s hard to describe.

I think part of it we believe is related to the whole Stewart transaction because if you think about it, with us and Stewart talking, obviously we were out of the market for acquisitions for a little bit and then you get a lot of the divestitures, they were going to come out. So a lot of our smaller competitors were raising money in order to buy those and so I think there was a pint up number of build that probably we are experiencing now.

Having said that I also think demographic plan to everything and we are just noticing kind of it as an industry its generational businesses seem to be turning over more with this generation than the previous one. We are not seeing as many kids wanting to go into the business and so there is probably more deals that are beginning to come out just because of the simple demographics, but that's a bit of speculation but we are pleased with the number of businesses.

They are coming available and we are excited about continuing to grow.

Okay. Maybe then switching over to the cremation, it sounds like the above average growth is happening on the Neptune side and then maybe your legacy cremation business pre-Neptune is more tracking what you saw with the atneed business A) is that right and maybe second if the Neptune growth being driven by new market entrance or sales percentage or what’s behind that would you say?

Yes, I think it's two things A.J. We study this quite a bit when we entered the business and purchased Neptune back when we did and we really saw these two businesses as two separate consumers that we’re trying to drive penetration with.

And because remember we said that what Neptune was doing was aggressively preneed selling to consumer that was primarily driven by price. And so, I think that consumer is very likely to preneed that consumer wasn't likely to come to one of our funeral homes before.

So, I think you are exactly right we are seeing more growth on that that side of the business partially because of the way we approached that consumer. I think on the SCI direct side probably 20% to 25% of our business that need walk-in and 75% to 80% is preneed going atneed, you can almost reverse that for the core business.

It's probably 30%, 35% walk-in I am sorry, 60% - 65% walk-in and 35% preneed going atneed so that's the reason for seeing I would say more market share pickup within that segment on SCI direct. So, I would say you – I pause this is correct as far as I am concerned A.J.

Okay. And then, my last one maybe is last year lot of things have been going on last 18 months in the organization obviously integrates Stewart you had the initiative last fall around your restructuring some of the preneed sales commissions, it seems like a lot of that is now in place.

Is this just the time sort of blogging and run the business or are there some other initiatives looking out 12 to 18 months, 12 to 24 months that it will be worth maybe highlighting?

I think it's a constant challenge to wake up every morning and drive. If you think about it A.

J. the biggest things on our plate right now really won't change the tools we use maybe different one is relevance to the consumer we got irrelevant, we got to provide products and services that people find value in, life well celebrated is the campaign that we have rolled out and continued to emphasize the changing consumer wants and needs and making sure we are adapting to those.

And then, the big part of our strategy has always been preneed. We think preneed differentiates us from our competitors.

We think it's a real strategic advantage for us and so we invest lot of money and time and attention on continuing to go preneed cemetery as well as preneed funeral which we know will enhance our market share in the future as the baby boomers begin to impact the funeral segment. So, really our strategies haven't changed.

We may have new tools that we are introducing but we are laser focused on the customer and laser focused on both the atneed customer and on the preneed customer.

Okay, great, thanks a lot.

Thank you. Eric did you mention what the expected divested store facility hit might be in the third quarter?

No, it didn't. It terms of cash flow it was about $24 million year-to-date so if you think of an earnings per share perspective then it's about $3.5 first quarter, $3.5 second quarter and I think it's like another penny in the back half.

So really moderate in the back half of the year, Robert.

Okay, and just thinking about the balance between the share repurchases and the deals given where the stock is, is there a level in your mind where the deals will take greater precedence here, you obviously stepped them up, but could we see the deals slow pickup more meaningfully and ensure both come down a bit at some point here?

Well, I think the deals are out like the share repurchases today, I mean the IRA is that we have been doing as we have disclosed being anywhere from 12% to 22% and that's a tremendous value to our shareholders to deploy capital with that type of return, so frankly growing the business as well on top of that capital deployment, is a strong desire of ours that, frankly, has been outranking it. But it’s the time where you have to have the deals come to us in a meaningful way, as we’ve described before.

Ultimately when you shift then to deployment to our share repurchases, it’s a function of various matrix and forming an opinion internally on what we think the intrinsic value of the company is. And there’s plenty of different ways that we do that, whether it’s DCF calculations or other various quantitative means.

But at the end of the day we are comfortable if these levels continuing to repurchase our shares and deploy capital back to our shareholders.

Okay, and maybe lastly, just in terms of focusing on the deals and the returns that they can generate. Have there been any renewed thoughts about looking overseas again?

We did a deeper dive on that a while back, Robert. And I then concluded that the best thing we can do right now, there is more than ample opportunity in the markets that we already are in here in the States and Canada.

So, that remains our near term focus to grow the business. We are constantly will look at things from evaluating and risk reward and I’d say our best risk reward is right here in the U.S.

and Canada.

Perfect. Thank you.

Yes.

Hi, good morning. Did you guys say you were boring?

I think that’s bad, I don’t believe that.

No, he told us we are boring, if you remember.

Well, I and buddy, the boring, it is. Let’s talk a little bit if you don’t mind, about Canada.

I think that market is maybe a little less known than the U.S. So, could you talk about how – I know you talked about your market share in the U.S.

plus Canada, but what’s the Canadian opportunity? How many big, lumpy assets are there?

How does pricing compare? How does the fundamentals compare to the U.S.

and how do you rank the attractiveness other than obviously its 1/10th the size of the U.S. in terms of number of people.

Yeah. I guess, John I’d say this.

I don’t have the specific market share of Canada but I'd say it pretty well reflects -- it's probably about the same or slightly above the U.S. our market share.

All right.

We love Canada.

[Indiscernible], you will get carried away.

Oh, I do. I like him.

I mean, Rush is from Canada and a lot of great bands. So, we’ll continue to look at those markets and we’re having conversations all the time in the Canadian markets.

I think the pricing is relatively similar. So, we're excited about the ability to grow in Canada and particularly in Toronto and Vancouver and places where we've really got good infrastructure and can continue to grow in those markets.

Are there proportionally more sizable assets there than they are left in the U.S. since you've done a pretty good job mopping up some of the opportunities in U.S.?

We've done a pretty good job there too. So, I don't see that's any different.

So, again, we look at those opportunities through the same lens and let's say they look about the same. We've seen a decent amount of activity and discussion in Canada and we are excited about it.

Okay. I'd have to remind you that just [Indiscernible] results are from Canada.

So, kind of pre-enthusiasm. All right, thank you.

And you know what, he's not boring.

We want to thank everybody for participating in the call today. We look forward to seeing you again for our third quarter release, which I believe Eric will be in.

End of October.

Thanks again. I appreciate it.