Earnings call transcript: Security National Financial sees Q1 2025 earnings drop

Security National Financial Corporation (SNFC), with a market capitalization of $248.36 million, reported a significant decline in its Q1 2025 earnings, with after-tax earnings falling by 42% compared to the previous year. The company’s stock reacted with a slight decrease, reflecting investor concerns over the reduced profitability. According to InvestingPro analysis, the company maintains a strong financial health score of 3.0 (rated as "GOOD"), suggesting resilience despite current challenges.

Key Takeaways

• After-tax earnings decreased by 42%, from $7.5 million to $4.3 million.
• Mortgage segment volume increased by 11%, outperforming the national average.
• Strategic investments in talent and capabilities are expected to yield long-term returns.

Company Performance

Security National Financial experienced a challenging first quarter of 2025, with significant declines in both after-tax and pretax earnings. The company attributed these decreases primarily to a reduction in investment income and increased expenses, including a higher bad debt reserve and rising personnel costs. Despite these challenges, the company reported growth in its mortgage and insurance segments, highlighting its strategic focus on long-term investments and operational efficiency. InvestingPro data reveals the company maintains impressive liquidity with a current ratio of 11.59, while achieving a 5.03% revenue growth over the last twelve months. For deeper insights into SNFC’s financial health and growth prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Financial Highlights

• Revenue: Not specified
• After-tax earnings: $4.3 million, down from $7.5 million year-over-year
• Pretax earnings: $5.6 million, a 41% decrease
• Mortgage segment volume increased by 11%
• Insurance segment premium margin improved by 14%

Market Reaction

Security National Financial’s stock experienced a minor decline of 0.66%, with shares closing at $10.61. The stock remains within its 52-week range, having reached a high of $13.59 and a low of $6.95. Based on InvestingPro’s Fair Value analysis, the stock appears slightly overvalued at current levels. However, the company’s attractive P/E ratio of 9.34 and impressive one-year return of 42.64% suggest potential value opportunities. The market’s reaction reflects a cautious sentiment as investors weigh the company’s current challenges against its future growth potential.

Outlook & Guidance

The company remains optimistic about its future, with strategic investments in talent and operational capabilities expected to drive long-term growth. Security National Financial is preparing for significant changes in life insurance reserve reporting, which may impact future financial results. The company has set EPS forecasts for 2025 and 2026 at $1.03 and $1.05, respectively, with revenue projections of $346.23 million and $353.16 million.

Executive Commentary

• "Growth is expensive, but is nevertheless our constant goal," stated Scott Quist, CEO, emphasizing the company’s commitment to long-term investments.
• Adam Quist, Insurance President, noted, "We view these costs as investments that will pay dividends over time," highlighting the strategic focus on future returns.
• Responding to concerns about return on equity, Scott Quist remarked, "Beauty is in the eye of the beholder," defending the company’s performance and investment strategy.

Risks and Challenges

• Reduction in investment income, which significantly impacted earnings.
• Rising personnel costs, reflecting increased strategic hiring and operational expenses.
• Potential impacts from new accounting standards in life insurance reserve reporting.
• Market conditions in the housing and mortgage sectors, which can affect future growth.
• Macroeconomic pressures that may influence investment returns and operational costs.

Security National Financial’s Q1 2025 performance highlights the company’s current challenges and strategic focus on long-term growth. While immediate earnings have declined, the company remains committed to its investment strategy, aiming to enhance operational efficiency and capability development in the face of evolving market conditions. For comprehensive analysis and additional insights, including 7 key ProTips and detailed financial metrics, visit InvestingPro, where subscribers can access the full Pro Research Report covering SNFC’s performance, valuation, and growth prospects.

Full transcript - Security National Financial (SNFCA) Q1 2025:

Moderator/Operator, Security National Financial Corporation: Alright. Good morning, everybody, and welcome to Security National Financial Corporation’s first quarter twenty twenty five earnings call. We thank you for joining us today to review our financial and operational results for the period ended 03/31/2025. Before we begin, I’d like to remind everyone that our remarks today will include forward looking statements. These statements are based on current expectations and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially from those projected.

Such risks include, but are not limited to, changes in economic conditions, interest rates, regulatory developments, competitive pressures, and other factors detailed in our findings with the Securities and Exchange Commission. We caution you not to place undue reliance on these forward looking statements, which speak only as of today’s date. We undertake no obligation to publicly update or revise these statements to reflect future events or circumstances, except as required by law. With that, I’d like to turn the call over to our chairman, president, and chief executive officer, Scott Quist. Scott?

Scott Quist, Chairman, President, and Chief Executive Officer, Security National Financial Corporation: Good afternoon, and welcome to this earnings call. My name is Scott Quist. I am, as noted, the chairman and chief executive officer of Security National Financial Corporation, and thank you for taking the time to join this investors call. As you can see from our 10 q filings this morning, for the three months ended 03/31/2025, SNFC’s after tax earnings decreased approximately 42 percent or 3,100,000.0 from 7,475,000,000.000 in 2024 to 4,338,000.000 in 2025. Pretax earnings decreased approximately 41% or 4,050,000.00 to 5,571,000.000.

Most of my following comments will be using the pretax numbers as I go through some of the details. A decrease in quarterly income is never our goal and falls below our self set standards. Despite the decrease in net income, I thought as a company, we performed well operationally in the first quarter. Our insurance segment had its second best first quarter out of the last five years, and our death care segment had its third best second quarter out of the last five years. Which time period is it important to note includes the pandemic?

Speaking now of the decrease in pretax net income, of the approximate $4,050,000 decrease in pretax quarterly income, about 75% or roughly 3,000,000 is attributable to decreases in both our realized and unrealized investment income. Our investment income can be and is lumpy between quarters and years primarily due to its close relationship, real estate activities, and markets, meaning home closings or lot sales, and secondly, to public equity markets. Speaking to the now to the $3,000,000 decline in investment income and referring now to that portion more directly related to real estate activities, roughly 56% or 1,700,000.0 is of the decline is due to decreased construction profits decreased gains on the sale of residential lots from our builder relationships. We simply participated in fewer home closings in ’20 in q one twenty twenty five than in q one twenty twenty four. I think it fair to say that builders to which we have profit sharing relationships had more homes in the process of being built in q one twenty twenty five, but fewer closings.

Margins appear to be consistent with twenty twenty four’s experience, but margins are always an issue until a home closes. Lastly, as a general real estate market comment, housing inventories and days on market appear to have increased, but not to a degree that causes alarm. Roughly 42% or $1,250,000 of our $3,000,000 investment income decline is due to stock market declines in q one. Generally speaking, we have chosen not to liquidate our positions, so the aforementioned loss is simply a recognized but unrealized stock market loss as of 03/31/2025. Roughly 900,000 or 22 percent of the entire $4,050,000 decrease in pretax income is related to an increase in our bad debt reserve expense, excuse me, as prescribed by the adoption of the CECL accounting standard.

CECL is the current expected credit losses, the acronym, in q one twenty twenty four. Arguments can be credibly made that this accounting rule is simply another element of our investment income. If that view were accepted, then, basically, our entire decrease in pretax net income is investment income related. In my view, CECL is a very formulaic and forward looking calculation that places a heavier weight on outside factors at the time an asset is acquired and less weight on the company’s experience over the course of time. Time will tell if the company’s allowances are appropriate.

But in my view, CECL did change and does have the potential to further change in the future the company’s bad debt allowances based on factors that are outside its control. After accounting for the investment income and related decreases, the remaining elements causing increases or decreases to net income are smaller in net impact and are much more numerous and nuanced. One element that probably merits comment is personnel costs. Personnel costs rose roughly 11.7% or roughly $2,200,000 over 2024. Roughly speaking, five percentage points of that increase relates to general and to general annual compensation increases for both staff and management.

We find it important to remain marketplace competitive in our compensation or our experienced staff are recruited away from us. The remaining increase relates to increased staffing pretty much across all levels. We are constantly reviewing our operational costs to ensure we remain efficient. But the majority of this increase represents very deliberate strategic hirings of high quality, high performing individuals to augment our sales and fulfillment staffs where we determined we needed greater capability to reach our growth goals. Growth is expensive, but is nevertheless our constant goal.

We believe these increased personnel costs to be necessary investments, which will yield returns in the years to come. Despite the decrease the decrease in income, many accomplishments were made in the first quarter. In our death care segment, we increased families served by 4% in what we believe to be a flat to declining mortality climate. In our insurance segment, we’ve improved our premium margin by several percentage points, reflecting the increased premium rates we’ve been implementing over the last several years. The full effect of those margin increases will not be apparent for several years hence.

In our mortgage segment, we increased volume 11% q one twenty twenty five over q one twenty twenty four with an improved mix of products. Importantly, our mortgage segment was both profitable and cash flow positive in March. This concludes my prepared remarks, and I will now turn the time over to mister Garrett our chief financial officer.

Garrett Sill, Chief Financial Officer, Security National Financial Corporation: Thank you, Scott. Good afternoon. As Scott mentioned, my name is Garrett Sill, and I am the chief financial officer of Security National Financial Corporation. I want to start by pointing out that the investment related items that Scott highlighted in his comments are really found in three line items on the company’s income statement. In the revenue section, construction profits are a component of net investment income.

The gains on sale of residential lots and the changes in unrealized gains or losses on common stock are a component of gains on investment and other assets. And finally, our allowances that are related to our adoption of CECL are a component of the other line item in the benefits and expense section. Reviewing our balance sheet, total investments increased 3% with the largest increase in our investments in mortgage loans, followed by an increase in bond holdings and then real estate as we continue to expand and develop single family real real estate. In my view, our investments are good credit quality and well balanced. Looking at our liabilities, insurance reserves increased less than 1% simply due to the aging of our block of business.

Bank loans increased about 15% as we saw increased utilization of our outside warehouse lines due to increased mortgage originations. Finally, our statement of comprehensive income doesn’t get a lot of time in the spotlight, but I thought it worthwhile to point out that we had a $5,000,000 improvement in our unrealized losses on our bond portfolio. The fair value of our bond portfolio compared to its amortized cost has not been this close since 2020. Now I’d like to revisit our adoption of ASU twenty twenty three dash o seven or improvements to reportable segment disclosures. The purpose of this accounting change was to bring parity into the way that reportable business segments were disclosed by public companies.

Prior

Scott Quist, Chairman, President, and Chief Executive Officer, Security National Financial Corporation: to

Garrett Sill, Chief Financial Officer, Security National Financial Corporation: the change, the company had always reported its segment’s earnings before taxes. Beginning this year, ending 12/31/2024, the company began to disclose its reportable segment earnings after taxes as this was the SEC’s preferred format. To aid our shareholders in multiyear and quarterly comparisons, the company will continue to provide before tax segment earnings in its quarterly and annual press releases. Now let’s look forward to another significant change to our financial reporting. In December, we will adopt ASU 20 eighteen-twelve, better known as targeted improvements to the accounting for long duration contracts or LDTI.

Basically, the way that the company will calculate and report its life insurance reserves will change drastically. This has required a significant investment in time and other resources as we’ve worked on the implementation of these changes over the last two years. The company is still evaluating the total impact of these accounting changes, but should be able to report a range of its financial impact with our third quarter quarter earnings. The final impact and required disclosures will then be reported in Form 10 k, which will be filed in March of twenty twenty six. In closing, we are financially healthy as our balance sheet remains strong with well balanced investments and minimal debt.

We have some significant changes to the way life insurance reserves are calculated and reported in our financial statements for the year ended 12/31/2025, but are confident in our ability to meet the reporting time. All things considered, this was a good first quarter for the company. Thank you. I’ll turn the time over to Andrew, our president of Security National Mortgage.

Andrew Quist, President of Security National Mortgage Company, Security National Financial Corporation: Thank you, and good afternoon. I’m Andrew Quist, president of Security National Mortgage Company, and I’ll be covering the mortgage company’s results in the first quarter of twenty twenty five. After my remarks, Adam Quist will be covering the life insurance company results, and Steve Kiel will be covering the funeral home and cemetery results following that, portion. I’d like to apologize in advance for my raspy voice, though some of you may prefer it to my regular voice. Hopefully, it will last for the balance of my comments.

In quarter one of twenty twenty five, Security National Mortgage Company lost $1,994,000 compared to a loss of $1,964,000 in q one of twenty twenty four. This was an increase to our loss of $30,000 quarter over quarter or essentially flat. Seasonally, q one is a difficult quarter in the mortgage industry, but I do not believe our flat year over year results highlight the improvement in our mortgage operations in 2025 from 2024. The reason for that belief is q one twenty twenty four included a contra expense for deferred compensation of $700,000 and CECL credits of $360,000 more than q one twenty twenty five. These items reduced twenty twenty four twenty twenty four’s q ’1 expenses by more than $1,000,000.

Q 1 20 20 5 did not have these accounting tailwinds, making year over year comparisons difficult. Security National Mortgage’s origination volumes in q one twenty twenty five were strong. We originated 518,000,000 in loan volume in Q1 twenty twenty five compared to $467,000,000 in Q1 twenty twenty four for a $50,500,000 increase in production or up 11%. We believe this is a significant outperformance to the market. The most recent data available from the Mortgage Bankers Association indicates origination volumes nationwide were up just 2% from q one twenty twenty four.

Thus, our origination volumes would indicate a five x outperformance over the nationwide originations. On a on a sequential quarter basis, Security National Mortgage’s origination volume from q four twenty twenty four was down 10%. Again, using the most recent data from the NBA, nationwide, the decrease in origination volume from q four twenty twenty four to q one twenty twenty five is reported to be down 22%. We believe this strong origination performance is a direct result of our recruiting strategies in 2023 and 2024. In summary of the quarter, our strong origination volumes compared to the overall market did not result in earnings improvement because of a large contra expense items booked in Q1 twenty twenty four.

But I believe that our cumulative recruiting has us well positioned for strong origination volumes and performance in the future. Thank you. Thank you, Andrew, and good afternoon to everyone who has joined us. I want to thank each of you for joining us today. My name is Adam Quist, and I am president of Security National Life Insurance Company.

And today, I will report results for our core insurance operations

Scott Quist, Chairman, President, and Chief Executive Officer, Security National Financial Corporation: for the

Andrew Quist, President of Security National Mortgage Company, Security National Financial Corporation: first quarter ended 03/31/2025. On a GAAP basis, we earned $4,600,000 compared to $7,100,000 in the same period last year, which was a decrease of $2,500,000 or about 35 percent. While a year over year decline is never our aim, we view this past quarter as building the foundation for future growth as we made strategic investments and fortified our underlying strength. Let me begin with our premium collections, which remained relatively flat compared to Q1 twenty twenty four. However, what’s important to understand in this context is that we believe, on average, we’ve improved our premium margin by approximately 14% compared to the same period last year.

Obviously, that means we’re generating more margin on every new dollar of premium sold, which is a direct result of our efforts for disciplined pricing and our ongoing product refinement, which has created some disruption to our sales force. As Scott noted in his comments, margin improvements across the organization are intentional and reflect long term efforts to improve profitability. For us in the life insurance segment, this margin expansion is a very deliberate and encouraging trend. But it should be noted that as is the nature of a multi pay insurance company, it will take some time for these improved margin to be fully reflected in our GAAP results. Now let’s walk through the major components behind our earnings change, focusing on the key drivers that put downward pressure on our earnings.

First, our personnel costs increased by about $1,000,000 or 17% year over year. This includes deliberate and strategic hiring of key talent that gives us new capabilities in areas such as lead generation, agent training, value creation to our funeral home partners, enhanced cross selling of our products, and more robust origination of commercial loans. We’ve also increased staffing in IT, HR, and other areas of operations, areas we’ve identified as vital for supporting future growth. As Scott said, growth is expensive but essential, and we view these costs as investments that will pay dividends over time. Second, our unrealized gains on common stocks were about $900,000 lower than in q one twenty twenty four.

As with the broader corporation, this largely reflects market related fluctuations as by and large, we have not liquidated our positions. Third, we also saw approximately a $900,000 decline in the deferral of commission expense following a Q3 twenty twenty four update to our actuarial assumptions. These assumptions are reviewed quarterly. Lastly, bad debt expense increased by roughly 700,000 largely due to CECL reserve requirements. As Scott highlighted, CECL is a formulaic forward looking accounting rule that is heavily influenced by assumptions about perceived market conditions.

These perceptions and associated assumptions required by CECL may not always be reflective of the long term credit performance of our investments. Despite these headwinds, which I note the majority of which are either market driven or accounting based and are not necessarily reflective of our operational health, we believe we saw positive operational trends in the quarter. We’re identifying and addressing efficiency gaps, particularly in our new business and claims departments, and we’re realigning staffing where needed. As Scott noticed or noted, our focus on margin expansion, capability development, and disciplined growth remains strong. In summary, while our GAAP earnings were down, I believe our underlying fundamentals are strengthening.

In my view, our improved premium margin and deliberate talent investments are critical steps to our sustainable long term success. Thank you for your time and continued support, and I look forward to sharing our progress with you in the quarters ahead. I will now turn the time over to Steve Kill. Thank you, Adam. Good afternoon, and I as well would like to thank each of you for joining us today.

My name is Steve Kiel, and I am the chief operating officer of Security National Funeral Homes and Cemeteries. I want to begin by recognizing the dedication and professionalism of our funeral home and cemetery teams. Their unwavering commitment to service excellence and operational consistency continues to be a cornerstone of our stability and long term growth even as we navigate a more challenging macroeconomic environment. In the first quarter of twenty twenty five, Security National Funeral Homes and Cemeteries reported net earnings before tax of 2,210,000.00, a 27% decline from 3,070,000.00 in the first quarter of twenty twenty four. This decline was primarily driven by an 828,000 reduction in investment income gains, coupled with modestly softer performance in select mortuary and cemetery markets.

Despite these headwinds, we’re seeing continued operational momentum and are investing strategically in key areas where we believe it will drive sustainable long term value. Pertaining to our funeral home operations. In the first quarter of twenty twenty five, our funeral home operations reported pretax net earnings of $613,000, reflecting a 6.9% decrease from the $658,000 in the same period of 2024. Despite the decline in earnings, revenue grew by 3.4% year over year to 3,670,000.00 This increase was driven by a 3% rise in total services performed along with a 0.4% increase in average revenue per contract realized. Our revenue growth this quarter highlights the success of our enhanced service offerings, especially those tailored to cremation families as well as the impact of our funeral directors’ customer focused educational efforts.

We continue to prioritize disciplined cost management across our funeral home operations to ensure we fully capture the benefits of this top line momentum. Regarding our cemetery operations. In the first quarter of twenty twenty five, our cemetery operations delivered pretax net earnings of $815,000 representing a 1.2% increase compared to $805,000 in the same period last year. Revenue held steady at $3,660,000 with a modest year over year decline of 0.2%. And term in volumes rose by 3% over the prior year, largely driven by continued growth in cremation related services, highlighting both evolving consumer preferences and the strong reception to our broadened suite of offerings.

We remain focused on the ongoing development of our cemeteries, ensuring we offer a comprehensive range of burial and cremation options that that reflect the diverse needs of the families that we are honored to serve. Pertaining to our investment income, our investment income totaled 778,000 in the first quarter of twenty twenty five, representing a 51% decrease compared to the same period last year. This decline was primarily due to the absence of $637,000 compared to prior year investment returns associated with our homebuilder relationships as well as $360,000 reduction in unrealized gains on our common stock positions. These were partially offset by contributions from our undeveloped land real estate activities. As Scott previously mentioned, our investment income can be and is lumpy between quarters and years, primarily due to its close relationship to real estate activities and secondly to public equity markets.

Looking ahead to the remainder of 2025, our strategic priorities remain centered on growth, operational discipline, and long term value creation. Key areas of focus include, first, talent development and training, strengthening the capabilities of our funeral and sales staff, especially in articulating value in the cremation space. Second, technology investment, deploying digital tools to enhance service efficiency and elevate our customer experience. Third, expense management, maintaining a disciplined cost control across all operating units to support margin expansion. And fourth, sales culture and accountability, recruiting top performers and reinforcing a results oriented culture across our field operations.

We remain caution cautiously optimistic about the remainder of the year. While market volatility may continue to impact investment related income, we are confident in the resilience of our operating model and the growth potential of our core operating business segments. Our deliberate investments in people, technology and service innovation, combined with strong cost discipline, will continue to enhance our competitive position and drive performance gains in the coming quarters. Thank you for your time and your continued support. We value your partnership and remain committed to delivering long term returns for our shareholders.

Moderator/Operator, Security National Financial Corporation: Before we conclude today’s call, we would like to open the floor for questions. As a reminder, to ask a question, please use the Zoom platform to raise your hand to unmute, or you may submit questions through the Zoom q and a panel. Include your name and organization. We’ll take as many as time permits. It’s like Will Walker.

Waller. I apologize. Will Waller is unmuted.

Will Waller, Analyst/Shareholder: I I’ve got a question. When I look at your, sort of, your tangible equity, which I come up with by looking at your equity and then subtracting out the value of business acquired and goodwill. I look at it and I kinda see about a $330,000,000 average amount of equity that you had during the first quarter with about 4,300,000.0 of net income that annualizes to about 17 or just a little over 17,000,000 of annualized net income, which would be about a a 5.2% return on equity. When I look at that equity number though, I say to myself, it’s pretty undervalued given you’ve got so much real estate that’s on the books, you know, at significantly below market values. And so when I sort of adjust that tangible equity, I come up with more like a $410,000,000 number.

So my question for you is when I adjust that, then I come with around a 4.2% return on tangible equity. So either way that I look at it, the return on tangible equity is quite low. I know your explanation is that you’re investing in people for the future. So my question is once you get to the point where you’ve invested for the future, what do you think your future return on equity can be? Or what do you think is is adequate for a a publicly traded company where the risk free rate in the in the markets today is really very similar to the type of return on equity that you’re generating?

Scott Quist, Chairman, President, and Chief Executive Officer, Security National Financial Corporation: I would well, allow me to, respond. First of all, to your adjustments, Will, I’m glad you are paying attention. I will not comment as to how as to the accuracy of your estimations on real estate, etcetera. We we look at the numbers as they are. Referring to the return on equity, I disagree with the comment that, we were low because of investing in talented people.

Instead, I would say, no. We were low because the investment returns on investments we’ve already made in real estate were not equal to what they were in 2024, and that same comment would hold true for the stock market. I mean, the reality is if you talk in rough numbers, we had a seven comparing 2024, we were at seven point whatever million, seven point seven million, I think. And when that went down to, what was it, three? I’m looking at it now.

Pretax, we were 9,600,000.0, excuse me, last year. This year, pretax, we were 5,500,000.0. That $4,000,000 delta, 3,000,000 of that, I could point to home closings, lot sales, and a million of that, I could point to CECL. So one could argue that the increased personnel have already paid for themselves, keeping the company on a level operating basis. We don’t view it that way.

We think there’s there’s there’s gonna be great returns ahead. Lastly, I would say and when you compare rates of return, I would say beauty is in the eye of the beholder. If you believe you’re better served by buying US treasuries, and I think you should. We believe our earnings will be growing. We believe that operationally, the company is performing well, and we’ve given the reasons why.

But, again, beauty is in the eye of the behold.

Moderator/Operator, Security National Financial Corporation: Thank you again for your questions and participation. We value the engagement and thoughtful input of our shareholders and analysis. Before we officially close, I’d like this I’d like to take this opportunity to remind everyone that our annual shareholder meeting will be held 06/27/2025 at 10AM Mountain Daylight Time at 433 Ascension Way, First Floor, Salt Lake City, Utah. For those unable to attend in person, the meeting will also be available via Zoom. For information about the meeting, our latest financial reports, or any other investment materials, we invite you to visit the Investor Relations section of our website at securitynational.com.

We appreciate your continued support of Security National Financial Corporation. This concludes our first quarter twenty twenty five earnings call. We look forward to speaking with you again soon. Thank you, and have a great day.

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