Service Corporation International

NYSE:SCI

Good morning. This is Trey Bocage, AVP of Treasury and Investor Relations. Welcome to our third quarter earnings call. We will have some prepared remarks about the quarter from Tom and Eric in just a minute. But before that, I will quickly go over our 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 discuss certain non-GAAP financial measures. 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 the call over to Tom Ryan, Chairman and CEO.

Thanks, Trey. Good morning, and thank you for joining us, everyone. I'll 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 earnings expectations for the rest of 2026.

For the third quarter, we generated adjusted earnings per share of $0.97, which was more than an 11% increase as compared to $0.87 in the prior year. Higher revenues and profits from both the funeral and cemetery segments were further bolstered by lower general and administrative costs, resulting in an $0.08 earnings per share increase in operating income.

Below the line, the favorable impact of a lower share count was partially offset by a higher effective tax rate, resulting in a $0.02 increase in earnings per share for the quarter. Comparable preneed cemetery sales production grew by 5% and comparable preneed funeral sales production grew by 6% for the quarter, while adjusted cash provided by operating activities increased by $29 million to $297 million, helping fund our business capital needs and growth capital investments while affording us the flexibility to be opportunistic returning capital through share buybacks and through consistent dividend increases.

While year-over-year comparisons delivered impressive quarterly earnings per share growth, revenues and earnings were below our internal expectations as lower-than-anticipated funeral volumes, lower general agency commission rates, higher fixed costs, a higher selling compensation rate and larger deferrals of cemetery sales production put downward pressure on revenues and earnings versus our expectations.

Now let's take a deeper look into the funeral results for the quarter. Total comparable funeral revenue increased by $19 million or just over 3% compared to the prior year quarter. Comparable core funeral revenues increased by $11 million or about 2.3%, primarily due to a healthy 2.8% growth in the core average revenue per service. This core average revenue growth was achieved despite a modest increase of 60 basis points in the core cremation rate.

Comparable core funeral volume declined by 0.5%, which was below our internal expectations. Year-to-date, our comparable core funeral volumes declined 3.1%, predominantly due to a difficult first quarter comparison. Based on our nationwide internal analysis, we believe we have maintained our market share throughout 2026.

Non-funeral home revenue increased by almost $3 million, primarily due to an 8% increase in the average revenue per service. We expect this impressive growth in the average revenue per service to continue as the older preneed contracts that are maturing out of the backlog have higher cumulative trust earnings and the more recent preneed contracts written will mature with an average revenue per service that is higher.

Non-funeral home preneed sales revenue decreased by $2 million. Half of this decline was due to an operational shift to defer the delivery of urns on preneed contracts to the time of need, and $1 million of the decline was due to lower general agency revenues generated from preneed sales production. While we saw healthy growth in our non-funeral home preneed insurance sales production of over 9%, our general agency rate declined as we saw a shift in product mix away from multi-pay to single-pay contracts, accompanied with a higher cancellation reserve effect as we build it for our new stream of insurance-funded contracts.

Comparable funeral gross profit increased by approximately $4 million on our $19 million revenue increase, with the gross profit percentage flat at about 18%. Fixed costs grew at 3% or by $10 million, which was in line with our expectations. In addition, gross profit was negatively impacted by higher selling compensation and promotion costs associated with supporting strong insurance-funded preneed sales production in both the core and SCI Direct channels.

Our transition to a sales compensation plan with increased guaranteed hourly wages added 40 basis points to our selling compensation rate, negatively impacting expected gross profit by about $1 million. Preneed funeral sales production increased by $19 million or about 6% over the third quarter of 2025, driven by healthy growth from both core and SCI Direct.

Now shifting to cemetery. Comparable cemetery revenue increased by $19 million or about 4%, primarily due to higher core revenue complemented by an increase in other revenue. Core revenues increased by $12 million, primarily due to a $14 million increase in total recognized preneed revenue, of which $3 million resulted from higher property revenue and $11 million from higher merchandise and service revenue.

Merchandise and service revenue also reflects the positive impacts from increased merchandise and service trust fund income. Other revenue was higher by $7 million compared to the prior year quarter, primarily from an increase in endowment care trust fund income based on market performance and higher total return distributions.

Comparable preneed cemetery sales production grew an impressive $17 million or 5% in the quarter. Core sales contributed $13 million, supported by continued strong underlying sales velocity growth of about 3%. Large sales accounted for the remaining $4 million increase.

For the 9-month period ended in September 2026, preneed cemetery sales production is higher by 7.5% versus the prior year. This performance reflects the strength and effectiveness of our sales strategy and execution, generating mid to high single-digit percentage sales growth in both preneed funeral and cemetery by focusing on our 4 pillars: sales counselors headcount growth, driving lead effectiveness, seminars and large sales.

Cemetery gross profit in the quarter grew by $1 million on our $19 million growth in revenue, with margins declining by 110 basis points to approximately 33%. Fixed costs grew by 4% or about $7 million, slightly higher than our 3% expectation. This was primarily due to increased health care costs and media spend and training around our cemetery cremation memorialization project.

Gross profit was impacted by higher selling compensation, reflecting the strong preneed sales production growth of 5%. In addition, our transition to a higher fixed cost guaranteed hourly wage sales compensation plan focused on counselor retention added 100 basis points to our selling compensation rate, negatively impacting expected gross profit by almost $5 million.

Finally, our preneed property sales production grew by 4% versus revenue recognition of 1% for the quarter, which has deferred an additional $6 million of revenue into our backlog with little or no incremental selling costs associated with it. While this had a dampening effect on the quarter, it will benefit future quarters when it converts to revenue and profit.

Now let's shift to a discussion about what we've experienced year-to-date and our outlook for the fourth quarter of 2026. We have provided an earnings per share guidance range of $1.10 to $1.20 for the fourth quarter. This reduction in our full year earnings per share guidance is a reflection of unfavorable expense trends we experienced more acutely than anticipated during the quarter, lower funeral volumes than anticipated during the third quarter, and an expectation of lower funeral volumes based on our October experience versus our original assumption for volume growth during the fourth quarter.

As we look at our full year 2026 results, we now expect normalized earnings per share at the midpoint of our guidance range to be approximately $3.99, compared with our original midpoint of $4.20 when we provided guidance in February. There are several factors that explain this change.

First, funeral volumes were weaker than we originally anticipated back in February, with full year volumes now projected to be approximately 200 basis points below our initial expectations. This represents an estimated $0.18 to $0.20 in earnings per share headwind. On the positive side, growth in cemetery trust fund income beyond our expectations delivered $0.12 per share, offsetting a meaningful portion of the financial impact from lower funeral volumes, providing an important source of earnings resilience.

Second, our preneed cemetery sales production is expected to grow 6% to 7% for the year, surpassing our 4% to 5% original expectation, which we estimate will contribute roughly $0.08 to $0.10 per share of earnings growth. However, this benefit has been predominantly offset by an approximate 100 basis point decline in our cemetery revenue recognition rate. A larger portion of our sales growth has come from merchandise, services and undeveloped property for which revenue is deferred until the associated performance obligations are satisfied.

At the same time, a greater portion of our related selling compensation is fixed and recognized immediately, creating an unfavorable timing mismatch between the recognition of selling costs and the associated revenue. Keep in mind, this is an issue of timing. This increase in cemetery sales production will be recognized in future periods.

Finally, we have experienced approximately 100 basis points of additional fixed cost percentage growth impacted by higher-than-anticipated health care, sales promotion and fuel costs, in total, negatively impacting earnings per share for the year by about $0.10. Higher selling compensation rates from the new plans had an additional $0.05 per share drag on our earnings as compared to our original February expectations.

While we are disappointed that our 2026 earnings performance has fallen short of our original expectations, we remain encouraged by positive underlying trends in our business. We continue to see healthy operating cash flow growth for 2026, which we anticipate continuing into next year. Additionally, we are experiencing mid to high single-digit sales production growth in both our funeral and cemetery preneed businesses, continuing to grow our massive $18 billion backlog, which will benefit future periods when recognized, delivering even higher margins with less selling costs being recognized due to our sales compensation plan changes.

As we look ahead to 2027, we expect continued strength in preneed sales production and expect our comparable funeral volumes to be flat to slightly higher. We will remain focused on enhancing our general agency commission rates, increasing the mix of cemetery products that are recognized as revenue at the time of sale, and improving our related selling costs. We will also focus on appropriate pricing of our products and services in a higher inflationary environment while managing the rate of increase in our fixed cost structure.

In closing, we remain firmly focused on building long-term value for our shareholders, growing revenue, leveraging the strength of our scale and allocating capital with discipline to the highest and best use. As we move through a period of meaningful demographic tailwinds, we're exceptionally well positioned to expand our reach, serve more families and deliver sustained growth over time.

In closing, I'd like to recognize and thank our entire SCI team for their ongoing commitment to our customers, our communities and each other. Your dedication continues to be the foundation of our success.

With that, I'll turn the call over to Eric.

Thank you, Tom. Good morning, everybody. Today, as I usually do, I'll begin by reviewing our cash flow results and capital investments all related to the third quarter. And then I'll shift gears and briefly cover corporate G&A expense during the quarter. And then I'll close with some comments on our cash flow guidance and overall financial position as we finish 2026.

So starting with the third quarter, we generated an impressive adjusted operating cash flow of $297 million, an increase of $29 million or double-digit 11% over the prior year. The primary drivers of the quarter-over-quarter improvement included higher operating income, which contributed $15 million after excluding the $11 million of gains on asset divestitures, a $30 million net source of working capital in the quarter, primarily due to 1 fewer payroll run that I mentioned as a timing difference in last quarter's call, to be a tailwind this quarter. These benefits were offset by higher cash taxes of just over $15 million.

So capital investments during the quarter, we invested $137 million of capital in our existing funeral home and cemetery locations, business acquisitions and real estate, and construction of new funeral homes and cemeteries. So let's break that down a little bit.

We invested $80 million of maintenance capital back into our existing locations, which was generally in line with our expectations. Of that amount, we invested $42 million in new high-yielding cemetery development projects, $31 million in improvements to our existing funeral home and cemetery locations to enhance the overall customer experience, and $6 million in our digital strategy and other corporate investments.

We also invested about $24 million of growth capital in real estate in the quarter. This went primarily toward the construction of new funeral homes as well as the purchase of real estate for future new build and expansion opportunities.

Speaking of acquisitions, we deployed $34 million in the quarter, adding funeral and cemetery locations in Michigan, Illinois, Florida and Indiana. We're very excited about these high-quality funeral homes and cemeteries joining our company, and we're happy to welcome all of these new associates to our SCI and Dignity Memorial family. These acquisitions bring our investments for the first 9 months to about $73 million, and we believe we are very well positioned to achieve our full year target of $75 million to $125 million of capital investment as it relates to acquisitions. And remember, acquisitions and our new build capital investments generally yield low to mid-teen after-tax internal rates of returns.

So now turning to capital distributions to shareholders. We returned just over $100 million of capital in the quarter through $53 million of share repurchases and $49 million of dividends. We repurchased just under 700,000 shares during the quarter at an average price of just under $80, bringing shares outstanding to 136 million at the end of the quarter. Now year-to-date, we've returned over $460 million in capital to our shareholders, which includes the repurchase of about 4 million shares at an average price of about $79, that totals about $320 million, and total dividends of about $145 million. As of today, we currently have about $480 million of remaining share repurchase authorization under our current share repurchase program.

So I mentioned earlier, I'd now like to comment on corporate G&A expense, which was about $31 million for the quarter, which decreased $7 million to $8 million quarter-over-quarter and was somewhat below our expectations. This $8 million decrease was primarily due to lower long-term incentive compensation accruals, which are tied to our long-term total shareholder return plans, coupled with a favorable legal settlement, with other G&A costs generally managed in line with our expectations.

So now let's shift to the rest of the year, rest of 2026 in terms of the cash flow outlook. As reported in the press release, we are confirming our 2026 adjusted operating cash flow annual guidance range of $1.055 billion to $1.115 billion. To make it simple, let's call it a midpoint of $1.085 billion.

We continue to expect maintenance CapEx of about $335 million, consisting of about $170 million for cemetery development, $140 million for maintenance capital with funeral homes and cemeteries, and $25 million for digital and corporate spend. When you deduct this $335 million of maintenance CapEx from the adjusted operating cash flow guidance midpoint I just mentioned, we calculate adjusted free cash flow of $750 million for 2026. This is an impressive 18% over last year growth, over last year's $637 million, of adjusted free cash flow.

As we move forward for the rest of the year, there's still no change to our cash tax guidance, which stands at approximately $120 million for the year. And as I mentioned last quarter, just to remind you, cash taxes this year benefited from the utilization of about $40 million of solar tax credits generated through tax equity investments. Without these credits, our cash taxes would be closer to $160 million and adjusted free cash flow would have increased still double digits to just over 11% over prior year. From an effective tax rate perspective, there is also no change to our full year 2026 rate guidance of 25% to 26%.

So now I'd like to provide a few updates on our liquidity and financial position. We continue to benefit from a favorable and disciplined debt maturity profile, complemented by continued robust liquidity. We ended the quarter with total liquidity of about $1.7 billion, consisting of approximately $173 million of cash on hand and approximately $1.5 billion available under our long-term bank credit facility.

We ended the quarter with a leverage ratio of net debt-to-EBITDA of about 3.7x, which is less than it was sequentially last quarter, which was 3.8, and well within our long-term leverage target range of 3.5 to 4x, as we've mentioned consistently over the years.

So in conclusion, the strong balance sheet that I just mentioned to you, this robust liquidity, our consistent predictable cash flow stream continue to support our capital deployment program and give us significant flexibility to invest capital opportunistically for the long-term benefit of SCI, our associates and our shareholders.

So before I turn the call back over, I'd like to just take a moment, as Tom did, to sincerely thank our 25,000 associates here at SCI. Your selfless service to our client families certainly does not go unnoticed, and we are extremely proud of the positive impact you continue to have in representing our company and the communities that we are privileged to serve.

So operator, this now concludes our prepared remarks. With that, I'd like to turn it back over to you, and we'll turn the call open to questions.

Sure, Parker. You hit the nail on the head. I mean health care costs are health care costs, and I think every company is experiencing some of that. We're probably seeing it a little more acutely of recent. So that's something that, again, we'll try to manage as best we can, but we have less control over.

As you think about selling costs, again, we're going to react to all these things, I think you'll see a reduction in those selling costs going forward. Some of it is timing. If you recall, we're rolling out the cemetery memorialization project across the country in waves. And so sometimes you hit costs in a quarter, which we think will normalize as we progress throughout the rollout. We do think we're getting great benefit from some of these things.

Last one that we called out was fuel costs. And on the fuel cost side, again, I think it's a topic that everyone is very aware of and what's happening and what will cause it. Now what we, again, we'll do is try to find ways to use less fuel. Do we have too many cars in the fleet? We're going to go over everything with a fine-tooth comb and do as much as we can.

But those are trends that we saw in the third quarter that it's hard to do a lot about when you think about the fourth quarter. But as we approach 2027, those are things that are on the table and other costs that we're going to take account of.

I think it's 2 things, one is more cemetery related and one is more funeral. I mentioned the cemetery memorialization project. And you'll recall, Parker, that's where we are putting one where we have advertising in the market. So think of both digital and media spend that are out there promoting certain markets and also just some of the other items that are on location.

So when you walk into a location, you've got a TV up and running that shows you what the cremation gardens look like and really promotional materials associated with it. And we're seeing a lift as you think about cremation memorialization sales in these markets even beyond where we are. So we're glad they're there. I think we can manage the rollout of the cost a little bit better.

As you look at the funeral side of the equation, we talked about getting more leads from seminars. So we're spending a little more money doing a lot more seminars year after year, which are generating leads, which we're following up on and selling.

So again, I call a lot of this growing pains that I think we can manage the costs a little better. But we knew they're coming. We wanted to do it. It's resulting in positive things as it relates to our sales force. So we're going to, again, try to get our arms around managing that a little better and then look at every portion of our costs.

And really, there's 2 things. Some of these are inflationary costs that we're probably going to have to pass some of those along to the consumer. So as you think about reactions in 2027, it's going to be pricing. It's going to be managing these fixed costs a little more acutely to the extent we can. So what I commit to you is we're going to do something about this. We don't like it either. At the same time, I think these are things we're aware of, and we're growing our sales like we intended to do.

Sure, Parker. Remember, a lot of this as year-over-year has to do with -- or I should say, seasonally, is going to be different, right? So the fourth quarter, you should see a higher recognition rate overall. It's a quarter that historically is going to deliver that.

As you think about years and recognition rates in between there, I think it's going to get marginally better. But remember, we're selling a lot of merchandise and services that are going into a backlog that get deferred, but you're also seeing the benefit right now. If you think about what's going really good for us in the quarter and for the year, merchandise and service trust fund income, eternal care fund income are up dramatically because these big pools of capital are generating cumulative earnings.

So it's -- that will probably continue. What we can do is try to sell more ready-to-deliver cemetery property. We're seeing some trends where people are selling into projects that aren't yet developed. And so when those flip, it recognizes. But we can encourage our sales counselors again to sell a higher mix of deliverable property, which should result in some higher recognition rates. So again, I think those are things we'll focus on, as I said in my comments, for 2027, to do a better job of selling those recognizable properties.

Sure, Joanna. I think again, we're not prepared to give guidance for next year, but I can tell you how I feel in looking at the trends and the things that I believe. And I believe that we will definitely be in that guidance range. I don't see any reason why we shouldn't return. There are some slight negative trends, but I think there's some very positive trends as well.

So I feel pretty strongly that we'll be able to do that next year. And again, that's before I talk about what's our reaction to some of these additional costs. We're going to pass along some of these costs and we're going to reduce some of these costs, and that should result in growth next year that's exciting.

Sure. Yes. Let me give you a little of that cadence. I mean I talked to the year, but I think as you go through the cadence of the quarters. When we sat at the end of the second quarter, we were still within -- our models were showing within the range of guidance that we gave you guys. What we knew is that funeral volumes were not good in the first half of the year, but the trust fund income was very strong and negating a lot of that impact.

So as we got into the third quarter, the things that kind of surprised us were, number one, we expected our funeral volumes to come back in the second half of the year. And like I mentioned on the call, the third quarter volumes were short. October, we're looking at volumes, and they're down slightly versus being up, which is where we had them forecasted. So volume in the second half of the year has a pronounced effect on changing our guidance.

The other thing is we saw strong preneed cemetery sales and we experienced them, but we gave back a little bit in the recognition rate. So again, we're selling items that aren't getting recognized today. And we don't necessarily see a big change in the fourth quarter that's going to fix that.

And the last thing is just the cost. I mean to give you an idea, in the second quarter, our fixed costs grew at 2.7%. And in the third quarter, they grew at 4.1%. So a lot of the sneak up in the cost, if you will, occurred in the third quarter. And as I mentioned a little bit earlier in Parker's question, these are things like health care, these are things like fuel costs. These are things that, to a certain extent, are selling costs that are committed. So those trends we anticipate to continue in the fourth quarter.

And that's what really led us to say, hey, look, the fourth quarter is not going to make the guidance now because of these cumulative effect of these things. And again, we feel like given some time, these are things that we can manage in 2027 and get back to the growth that you guys expect us to deliver.

I'm sorry, Joanna, I didn't hear that. Selling costs?

Promotional cost, yes. I think the selling costs were about, call it, a little over $0.01 above our expectations, call it about $2 million for the quarter. I'd expect that to probably be about the same in the fourth quarter. And then I think as we calendar this as you get into 2027, particularly in the back half, that those things should begin to trend down.

And again, we may get our arms around, are we spending too much money? Can we do it for less? These are things that we're going to check under the hood and try to do more efficiently, more effectively. What we don't want to do is lose any momentum as it relates to addressing this cremation consumer, particularly in our cemeteries. And the same on the funeral side, we think these seminars are working fabulously as you think about the productivity of the sales that come out of them.

Yes, Tomo. Based on our analysis of the market, like I mentioned on our prepared remarks, we think we're holding market share very well. That's what the statistics tell us. So we're just basically seeing it in death rate. And as you'll recall, Tomo, we had the down 6% or so in the first quarter, which, again, we used historical trends to say that ought to halve or so in the second quarter. Well, it was a little better in the second quarter than we thought, but still down.

And third quarter, we expect it to be slightly up, and the fourth quarter maybe a little better up. And as you saw in our third quarter, we're slightly down versus that slightly up expectation. And that hurt us probably about $0.03 or so. And we're projecting in the fourth quarter probably another $0.04 or $0.05 of negative versus our expectation.

So those are the types of things that are impacting the back half of the year, which, again, combine those with the trends in cost, and that's what led us to changing our guidance.

Yes, Tomo, it's a big driver for us and it's a big strategy for us, and we put capital behind it. You could see the CapEx that I mentioned in my remarks where I call out that it's digital and corporate. But there's a tremendous amount of that, that has to do with digital in terms of how we're generating leads, how we're generating more intelligent leads and getting them to the right people quickly through the sales funnel using the CRM systems and all the processes that Jay and Jerry and their team are working through diligently, and Jamie as well, as we move forward.

I think we're -- it's -- as you know, as you stated, it's an extremely fast-evolving strategy. What used to be organic SEO is now figuring out where you land within the AI engines and where you land in LSAs and paid search as well. So the answer to your question is yes, we're on it. Yes, we're diligently working on it. Yes, we'll continue to deploy capital. But I don't see a huge increase in capital at all. I want to level-set that as it relates to it. We're already investing in those opportunities.

Sure. Yes, we had some really nice acquisitions this year so far and 4 particularly in the quarter that I mentioned in my remarks that we're very excited about in Michigan, Illinois, Florida and Indiana. And we'll continue that. We continue to have the robust pipeline. But we're going to look for the right opportunity at the right time that really fits with our marketplaces, our scale, where we are and where we can really compete well.

And so for that situation, just to state the obvious, we're not -- there's plenty of acquisition pipeline deals that we've chosen to pass on and utilize our capital to the higher and best use with some other opportunity, whether that's construction, whether that's share repurchases or something along those lines. So we have a long-term approach, a patient approach.

When it fits our model and fits helping our company with the scale in our existing markets, that's when we really get excited about those opportunities like the 4 that we had this quarter. And that win-win situation between us and the really excellent high-quality independent that we end up merging with, ends up with a win-win situation that generates that, let's call it, 12% to 15% after-tax return, which is really good use of our capital in our opinion.

Throughout the quarter? Yes. I mean I think we really anticipated by month that we'd see growth -- slight growth month-over-month. Again, we're not into November yet, so I don't want to be predictor of doom. It's just October is starting out a little lower already. We had the third quarter softness. So again, I don't know where it's going to land, but we're projecting that the fourth quarter should be down slightly as compared to the prior year. And we don't really have an opinion yet about November, December and how that falls out.

What we typically do is we price in kind of waves throughout the year versus kind of annualized pricing. So we'll go into markets, evaluate all the components. I think what this is going to cause us to do is what you're talking about, is let's talk about the ones that we think makes sense now and get those in place, and then continue with our annualized reviews like we do throughout the year where we will come in a wave.

So that's going to be our plan preliminarily, is to look at items that we believe are inflationary and need to be adjusted more immediately and put those in the markets that we can. And at the same time, begin to try to manage some of those costs so we don't have to pass them to the consumer as best we can. So we're going to be doing both very diligently over the coming months and first part of 2027, and then continue with those kind of rolling annual pricing reviews that we do throughout the markets.

Yes, it was -- the amount was about $3 million. And the reason why we don't break that out is we kind of have an internal rule that says something over $5 million is material enough to exclude to the positive or the negative. And in this case, it wasn't the $5 million, so we left it in.

I'd point out also, A.J., if you look at our gain and loss on assets, we sold some excess land for a tidy profit, and you'll see that's not included in recurring operations. That's a gain or loss on sale. So we just -- again, if we have these material items, we try to break them out for you. And again, you can judge how you want them. But it's about $3 million that I think was a favorable result of a legal settlement.

The pipeline is really pretty robust, and I know I've kind of been a broken record and have said that. But it takes time in developing these relationships with these really high-quality, larger independents that really fit our strategy. So I see more deals closing in the fourth quarter, A.J. I see us getting us solidly in that range. I don't necessarily see us exceeding that range this year.

But again, I also wanted to be very clear in my comments that we have $480 million of capacity right now, share repurchases, and $1.7 billion of liquidity. And I want to make that point very clearly, as we move into the fourth quarter.

You hit on a lot of them, A.J. But I think, yes, there's the trend that we always talk about that says the really down first quarter comes back. And to a certain extent, we've done that, right? We're down 6%. We'll probably finish somewhere around down 2%, which isn't a bad comeback. I do believe there's still some lingering COVID pull-forward effect. I don't think it's super material. But I do think that's a piece of what we're seeing.

As I think about next year, yes, the comp, particularly in the first quarter, should be pretty good. Remember, part of the reason was -- we had a strong flu season in first quarter of '24 -- I'm sorry, '25 and a weak one in '26. We'll see how this goes. But at the same time, you'd expect a pretty good comparable just from that.

And then to your point, our models, again, that we run, baby boomers were born in '46 and continue on to '64, and they're 80 years old now. And I think our models are showing that should begin to trickle into effect, maybe not so many baby boomers yet. But as you look at the age trends, we should begin to see some favorable impact.

So I think there's a little bit of comp, a little bit of favorable impact from demographics. And again, we're going to manage the cost structure very well. And so to the extent we get that, then I feel really good about what we can do in 2027.

Sure, Scott. I think that we feel confident because of, we talked about before, the volumes. But the things that we're going to focus on is that we can control, like I said before. We're going to have inflationary pricing that's going to cover some of these costs. We're going to manage down those costs. And when I think about the positive trends, remember, we made the sales compensation switches that are negatively affecting from a timing perspective year-over-year. So as we anniversary those sales compensation changes, you're not going to have that negative movement in your face.

The other thing, as you think about general agency rates, we kind of missed the boat a little bit on expectations what we thought we could generate from a product mix perspective. We probably underestimated the cancellation reserves we were going to have to set up. And so as I think about the positives, we'd expect that we can move the general agency commission rates in both core and SCI Direct north. I think our compensation plans are going to anniversary themselves and we can manage them better. We can manage these fixed costs, again, get our arms around it and focus on reducing those and get this inflationary pricing.

And you combine that with what we're seeing on the consumer side, we're not seeing a slowdown in that consumer bucket yet. I know everybody is anticipating it. I know that the credit card companies still don't see it either. So I'm not saying it can't happen, but we see no evidence of that at this point in time. But those are the things, is continued success on the preneed front, managing costs better, getting more inflationary price increases in place. And then, again, around these comp plans and general agency rates that we've got -- had some negative trends, those should begin to reverse themselves and result in better comparable year-over-year results.

I think we really can, Scott. I mean we had some really good momentum and some solid cash flows that are coming, I have to give our sales force, especially on the cemetery side, some really good kudos in terms of high-quality project -- high-quality contracts, excuse me, that continue from an installment perspective to be solid and to be better in terms of cash flows coming in than what we expected.

But even more on top of that, the level of down payments that we're getting is better than what we've seen before and better than what we anticipated. So I think we're very focused on free cash flow, as you know, at this company, in addition to the 8% to 12% earnings per share basis. The $750 million of cash flow is about $5.50. We're very proud of that. We want to continue to grow it like we have. But it's a team effort. But a lot of this stuff that's holding it up nicely, Scott, relates to the cash coming in the door from the installments and the down payments of current preneed cemetery sales associated from the sales force.

Yes. I think, Tobey, as we think about it, historically, we've always correlated the high end, call it the mid-high-end, more with what's happening in the housing market, what's happening in the stock markets because, again, people feel confident they feel good. They're willing to spend larger pools of money on these types of things. The thing that can make that change is shifts in the market. And again, these are typically temporary, but those are the things that are going to drive. So we're continuing to see activity at the high end of the market. Again, that can change.

As you think about the other customers, we're still seeing people buying our products and services. On an at-need basis, you wouldn't expect that to change much anyway even with economic cycles. On the preneed, you would. And we're still seeing a customer that's willing to buy on the preneed side, and that's a good thing. I think that continues to show high consumer confidence. It probably correlates well with what's happening with the job rate. We're pretty much a full employed economy right now. So unemployment rates could impact the confidence of that as we go forward. But right now, we just continue to see all of those consumers willing to purchase.

And like Eric said, surprisingly, we're seeing higher down payments and less people financing, if you will, over these things. If you look at -- and we talked about general agency rates on SCI Direct, we're seeing more consumers buying single-pay insurance versus multi-pay. And that kind of says that the consumer is okay, right? They'll cut the whole check versus financing it. And now that dampens our commission that we get, but the consumer seems to be pretty healthy.

I mean we -- our employees are so important to us, Tobey. So we try to do as much as we can for them. Health care costs are across the board. They will, obviously, they will share in some of these costs for their out-of-pocket. But to the extent we can, this is really important. We're a very people-centric business. So there's only so much we can do. What we're trying to do is get people more healthy, right, with screenings and going to the doctor from a preventive maintenance perspective.

So we continue to push those types of things to our employees. But again, I'd just caution that this is something that's near and dear to our heart. They too will have -- see increases in their contribution, but that's just the way the world is right now.

Thank you, everyone, so much for being on the call with us. Hope you have a great rest of the day, and we'll talk to you again for our fourth quarter earnings call next year. Thanks so much.