SERVICE CORP INTERNATIONAL (SCI)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company

We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries unequaled in geographic scale and reach. At June 30, 2026, we operated 1,495 funeral service locations and 505 cemeteries (including 316 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Our Dignity Memorial® brand serves approximately 700,000 combined preneed and atneed families each year with professionalism, compassion, and attention to detail.

Our financial position is enhanced by our $17.6 billion backlog of future revenue from both trust and insurance-funded preneed sales at June 30, 2026. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for revenue recognition to the extent that the property is developed and available for use.

We believe we have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.

Factors affecting our operating results include: demographic trends in terms of population growth and average age, which impact death rates; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage. The average revenue per funeral contract is influenced by the mix of traditional versus cremation services as our average revenue for cremations is lower than that for traditional burials. To further enhance revenue opportunities, we continue to focus on our cremation customers' preferences, and remaining relevant by developing additional cemetery property, memorialization merchandise and services that specifically appeal to cremation customers. We believe the presentation of these additional offerings through our customer-facing technology improves our customers' experience by allowing them to visualize the enhanced product and service offerings. In addition, we believe this will help drive increases in the average revenue for a cremation or incremental cemetery property sales in future periods. While general economic conditions, inflation, and consumer confidence may affect the timing or mix of customer purchases, demand is generally deferred rather than lost. Accordingly, demand for these products and services has historically been less sensitive to economic cycles than other discretionary consumer purchases.

For further discussion of our key operating metrics, see our "Cash Flow" and “Results of Operations” sections below.

Financial Condition, Liquidity, and Capital Resources

We have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.

Capital Allocation Considerations

We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $572.4 million in the first six months of 2026. As of June 30, 2026, we had $1,383.7 million in remaining borrowing capacity under our Bank Credit Facility.

Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at June 30, 2026. We target a leverage ratio of 3.5x to 4.0x.

Our financial covenant requirement and actual ratio as of June 30, 2026 were as follows:

We have the financial strength and flexibility to reward shareholders with dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.

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PART I

Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities give us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.

We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital investment strategy is prioritized as follows:

Investing in Acquisitions and Building New Funeral Service and Cemetery Locations. We manage our footprint by focusing on strategic acquisitions and building new funeral service and cemetery locations where the expected returns are attractive and exceed our weighted average cost of capital. We target businesses with favorable customer dynamics and/or where we can achieve the benefits of economies of scale. We continue to pursue strategic acquisitions and build new funeral service and cemetery locations in areas that provide us with the potential for additional scale.

Returning Excess Cash to Shareholders. In addition to any strategic acquisitions or new build opportunities, we continue to return cash to shareholders through regular quarterly dividends and our share repurchase program. Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.36 per common share in the second quarter of 2026. We target a dividend payout ratio of 30% to 40% of after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants, and final determination by our Board of Directors each quarter upon review of our financial performance. We also expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. On June 11, 2026, we announced that our Board of Directors increased the authorized level of repurchases of our common stock by approximately $472 million. There can be no assurance that we will buy our common stock under our repurchase program in the future. During the six months ended June 30, 2026, we repurchased 3,350,873 shares of our common stock at an aggregate cost of $264.9 million, which is an average cost per share of $79.04.

Managing Debt. We continue to focus on maintaining optimal levels of liquidity and financial flexibility. We generate a relatively consistent annual cash flow stream that is generally resistant to down economic cycles. This cash flow stream and our significant liquidity allow us to substantially reduce our long-term debt maturities should we choose to do so.

Cash Flow

Our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.

Operating Activities

Net cash provided by operating activities was $572.4 million and $477.6 million for the six months ended June 30, 2026 and 2025, respectively. The $94.8 million increase in operating cash flows from 2025 comprises:

•a $72.2 million increase in cash receipts from customers, General Agency (GA) commission and other receipts,

•a $64.8 million decrease in cash tax payments,

•a $16.8 million increase in net trust withdrawals,

•a $5.3 million decrease in restructuring payments, and

•a $0.4 million decrease in payments for certain legal matters, partially offset by

•a $59.9 million increase in employee compensation payments primarily related to the timing of payroll,

•a $2.4 million increase in vendor and other payments, and

•a $2.4 million increase in cash interest payments.

Investing Activities

Net cash flows used in investing activities was $319.8 million and $191.2 million for the six months ended June 30, 2026 and 2025, respectively. The $128.6 million increased outflow in 2026 over 2025 is primarily due to the following:

•a $40.7 million increase in tax credit equity investments,

•a $29.6 million increase in capital expenditures related to construction of our new corporate headquarters which is substantially financed through a separate construction loan facility,

•a $21.5 million decrease in cash receipts from divestitures and asset sales,

•a $14.4 million increase in total capital expenditures, which comprises:

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PART I

•a $3.5 million increase in expenditures for growth capital expenditures/construction of new funeral service locations, and

•a $10.9 million net increase in maintenance capital expenditures, which includes:

•a $9.4 million increase in expenditures for cemetery property development, and

•a $1.7 million increase in expenditures for digital investments and corporate, partially offset by

•a $0.2 million decrease in expenditures for capital improvements at existing field locations,

•an $11.2 million increase in cash spent on business acquisitions,

•a $7.4 million increase in cash spent on real estate acquisitions, and

•a $3.8 million decrease in net proceeds from Company-owned life insurance policies.

Financing Activities

Net cash used in financing activities was $232.5 million and $243.0 million for the six months ended June 30, 2026 and 2025, respectively. The $10.5 million decreased outflow in 2026 over 2025 is primarily due to the following:

•a $57.6 million decrease in purchase of Company common stock,

•a $34.7 million increase in borrowings from our corporate headquarters debt facility,

•a $2.6 million decrease in bank overdrafts and other, and

•a $2.6 million increase in proceeds from exercises of stock options, partially offset by

•an $81.8 million decrease in debt proceeds, net of repayments, and

•a $5.2 million increase in payments of dividends.

Financial Assurances

In support of our operations, we have entered into arrangements with certain surety companies whereby such companies agree to issue surety bonds on our behalf as financial assurance and/or as required by existing state and local regulations. The surety bonds are used for various business purposes; however, the majority of the surety bonds issued and outstanding have been used to support our preneed sales activities. The obligations underlying these surety bonds are recorded on our unaudited Condensed Consolidated Balance Sheet as Deferred revenue, net. The breakdown of surety bonds between funeral and cemetery preneed arrangements, as well as surety bonds for other activities, is described below.

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Company

We are North America’s largest provider of deathcare products and services, with a network of funeral service locations and cemeteries unequaled in geographic scale and reach. At December 31, 2025, we operated 1,485 funeral service locations and 500 cemeteries (including 312 funeral service/cemetery combination locations), which are geographically diversified across 44 states, eight Canadian provinces, the District of Columbia, and Puerto Rico. Our funeral and cemetery operations consist of funeral service locations, cemeteries, funeral service/cemetery combination locations, crematoria, and other related businesses, which enable us to serve a wide array of customer needs. We sell cemetery property and funeral and cemetery merchandise and services at the time of need and on a preneed basis. We strive to offer families exceptional service in planning life celebrations and personalized remembrances. Our Dignity Memorial® brand serves approximately 700,000 families each year with professionalism, compassion, and attention to detail.

Our financial position is enhanced by our $17.0 billion backlog of future revenue from both trust and insurance-funded preneed sales at December 31, 2025. Preneed selling provides us with a strategic opportunity to gain future market share. We also believe it adds to the stability and predictability of our revenue and cash flows. While revenue on the majority of preneed merchandise and service sales is deferred until the time of need, sales of preneed cemetery property provide opportunities for full current revenue recognition to the extent that the property is developed and available for use.

We have adequate liquidity and a favorable debt maturity profile, which allow us to reinvest and grow our business as well as return capital to shareholders through share repurchases and dividends.

Factors affecting our operating results include: demographic trends in terms of population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage related to our atneed revenue. The average revenue per funeral contract is influenced by the mix of traditional and cremation services as our average revenue for cremations is lower than that for traditional burials. To further enhance revenue opportunities, we continue to focus on our cremation customers' preferences and remaining relevant by developing additional memorialization merchandise and services that specifically appeal to cremation customers. We believe the presentation of these additional merchandise and services through our customer-facing technology improves our customers' experience by reducing administrative burdens and allowing them to visualize the enhanced product and service offerings, which we believe will help drive increases in the average revenue for a cremation in future periods. While economic conditions, inflation, and consumer confidence may affect the timing or mix of customer purchases, demand is generally deferred rather than lost. Accordingly, demand for these products and services has historically been less sensitive to economic cycles than other discretionary consumer purchases.

For further discussion of our key operating metrics, see our "Cash Flow" and “Results of Operations” sections below. For a discussion of our results of operations and liquidity and capital resources for the fiscal year ended December 31, 2024, see

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PART II

Management’s Discussion and Analysis of Financial Condition, Liquidity and Capital Resources and Results of Operations in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year December 31, 2024, filed with the Securities and Exchange Commission on February 13, 2025.

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PART II

Financial Condition, Liquidity, and Capital Resources

Capital Allocation Considerations

We rely on cash flow from operations as a significant source of liquidity. Our cash flow from operating activities provided $942.8 million in 2025. In addition, as of December 31, 2025, we have $1,448.0 million in borrowing capacity under our revolving credit facility. As of December 31, 2025, we had $56.8 million in current maturities of long-term debt, which primarily consist of the current amounts due on our term loan, mortgage notes and other debt, and finance leases.

Our Bank Credit Facility requires us to maintain a certain leverage ratio with which we were in compliance at December 31, 2025. We target a leverage ratio of 3.5x to 4.0x.

Our financial covenant requirements and actual ratio as of December 31, 2025 are as follows:

We have the financial strength and flexibility to reward shareholders with dividends while maintaining a prudent capital structure and pursuing new opportunities for profitable growth.

Our unencumbered cash on hand, future operating cash flows, and the available capacity under our Bank Credit Facilities gives us adequate liquidity to meet our short-term needs as well as our long-term financial obligations. Due to cash balances residing in Canada and minimum operating cash requirements, a portion of our cash on hand is encumbered.

We consistently evaluate the best uses of our cash flow that will yield the highest value and return on capital. Our capital investment strategy is prioritized as follows:

Investing in Acquisitions and Building New Funeral Service and Cemetery Locations. We manage our footprint by focusing on strategic acquisitions and building new funeral service locations where the expected returns are attractive and exceed our weighted average cost of capital. We target businesses with favorable customer dynamics and/or where we can achieve the benefits of economies of scale. We continue to pursue strategic acquisitions and build new funeral service locations in areas that provide us with the potential for additional scale. In 2025, we invested $101.3 million in acquiring 22 funeral service locations and 2 cemeteries, which included 2 combination locations.

Return Excess Cash to Shareholders. In addition to any strategic acquisitions or new build opportunities, we continue to return cash to shareholders through dividends and our share repurchase program. Our quarterly dividend rate has steadily grown from $0.025 per common share in 2005 to $0.34 per common share at the end of 2025. We target a dividend payout ratio of 30% to 40% of after tax earnings excluding special items and intend to grow our cash dividend commensurate with the growth in our business. While we intend to pay regular quarterly cash dividends for the foreseeable future, all future dividends are subject to limitations in our debt covenants and final determination by our Board of Directors each quarter upon review of our financial performance. We also expect to continue to repurchase shares of our common stock in the open market or through privately negotiated transactions, subject to market conditions, debt covenants, and normal trading restrictions. There can be no assurance that we will buy our common stock under our repurchase program in the future. In 2025, we repurchased 5,864,563 shares of our common stock at an aggregate cost of $464.2 million, which is an average cost per share of $79.15. In 2024, we repurchased 3,439,551 shares of our common stock at an aggregate cost of $249.8 million, which is an average cost per share of $72.63. Subsequent to December 31, 2025, we repurchased 552,313 shares for $44.4 million at an average cost per share of $80.48.

Managing Debt. We continue to focus on maintaining optimal levels of liquidity and financial flexibility. Our recent $325.0 million increase in availability under our bank credit facility bolsters our flexible capital strategy and allows us to further manage our debt maturity profile by making open market debt repurchases when it is opportunistic to do so. We generate a relatively consistent annual cash flow stream that is generally resistant to down economic cycles. This cash flow stream and our significant liquidity allow us to substantially reduce our long-term debt maturities should we choose to do so. In November 2025, we entered into a new bank credit agreement due November 2030 consisting of a $750.0 million term loan, which is funded debt, and a revolving credit facility providing for borrowings of up to $1.75 billion. Proceeds from this new bank credit agreement were used to settle our existing Term Loan and Bank Credit Facility, which were both due January 2028. In addition to more favorable pricing, the new bank credit agreement provides us flexibility with incremental liquidity for capital investment, working capital, and other general corporate purposes.

Cash Flow

Our ability to generate strong operating cash flow is one of our fundamental financial strengths and provides us with substantial flexibility in meeting operating and investing needs.

Operating Activities

Net cash provided by operating activities was $942.8 million and $944.9 million for the years ended December 31, 2025, and 2024, respectively.

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PART II

The $2.1 million decrease in operating cash flow during 2025 comprises:

•a $119.2 million increase in cash tax payments,

•a $20.2 million increase in employee compensation payments,

•a $19.3 million increase in restructuring payments,

•a $12.2 million increase in net trust deposits,

•a $11.2 million increase in cash interest payments, and

•a $3.9 million increase in vendor and other payments, partially offset by

•a $116.9 million increase in cash receipts from customers,

•a $38.6 million increase in General Agency (GA) commission and other receipts, and

•a $28.4 million decrease in payments for certain legal matters.

Investing Activities

Cash flows from investing activities used $548.3 million and $620.9 million, in 2025, and 2024, respectively. The $72.6 million decreased outflow from 2025 over 2024 is primarily due to the following:

•a $79.9 million decrease in cash spent on business acquisitions,

•a $43.6 million decrease in cash spent on real estate acquisitions,

•a $10.3 million increase in net proceeds for Company-owned life insurance policies,

•a $6.0 million increase in cash receipts from divestitures and asset sales, and

•a $2.2 million decrease in other investing activities primarily for investments in renewable energy tax credits, partially offset by

•a $54.5 million increase in capital expenditures related to construction of our new corporate headquarters which is financed through a separate construction loan facility,

•a $14.9 million increase in total capital expenditures, which includes:

•an $18.8 million increase for growth capital expenditures/construction of new funeral service locations, partially offset by

• a $3.9 million decrease in maintenance capital expenditures, consisting of:

•an $8.6 million decrease in expenditures for digital investments and corporate, partially offset by

•a $3.1 million increase in expenditures for cemetery property development, and

•a $1.6 million increase in expenditures for capital improvements at existing field locations.

Financing Activities

Financing activities used $374.7 million in 2025 compared to $319.6 million in 2024. The $55.1 million increased outflow from 2025 over 2024 is primarily due to the following:

•a $207.3 million increase in purchase of Company common stock,

•a $27.3 million decrease in proceeds from exercises of stock options, and

•a $9.3 million increase in paym

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