What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2020-08-04 compared with 2020-05-27 · 288 added, 137 removed, 281 unchanged (60% of the section changed)

5 unchanged sentences

Funeral Home Operations, which currently account for approximately 80% of our revenue, and Cemetery Operations, which currently account for approximately 20% of our revenue.

At March 31, 2020 , we operated 186 funeral homes in 29 states and 32 cemeteries in 11 states.

At June 30, 2020 , we operated 186 funeral homes in 29 states and 32 cemeteries in 11 states.

We compete with other publicly held and independent operators of funeral and cemetery companies.

4 unchanged sentences

Recent Developments

Credit Facility

On May 18, 2020, we received a waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020.

In connection with the waiver, the Credit Facility was also amended to increase the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio.

We are in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of June 30, 2020.

Dividend Increase

On May 19, 2020, the Board of Directors (the “Board”) approved an increase of $0.05 to our annual dividend beginning with the next dividend declaration in the third quarter.

The annual dividend is now $0.35 per share.

Performance Awards

On May 19, 2020, we cancelled all the Performance Awards previously awarded to all individuals in 2019 and 2020 and the Compensation Committee of the Board approved a new Performance Award Agreement (the “New Agreement”) for certain eligible employees.

Pursuant to the New Agreement, the target share awards for each of the eligible employees will vest on December 31, 2024 if the Company’s common stock reaches one of five pre-determined growth targets for a sustained period beginning on the grant date of May 19, 2020 and ending on December 31, 2024.

Executive Leadership Changes

On June 25, 2020, William W.

Goetz resigned as President and Chief Operating Officer effective June 26, 2020.

Goetz further agreed to resign from his position as a director on the Board, also effective as of June 26, 2020.

The resignation was not the result of any disagreement Mr.

Goetz had with the Company on any matter relating to the Company’s operations, policies, and practices.

On June 25, 2020, Carlos Quezada joined the Company as Vice President of Cemetery Sales and Marketing.

His primary responsibilities include building High Performance sales teams and standardized sales systems across our portfolio of cemetery businesses.

Prior to joining Carriage, Mr.

Quezada was a Managing Director for another publicly traded deathcare company.

He also has held prior leadership roles in sales and operations in the deathcare and hospitality industries.

Executive Management reduction in base salaries

On April 19, 2020, the Company initiated measures to address potential future challenges from the COVID-19 pandemic.

These measures included cost reduction efforts, including, among other things, a temporary reduction in the base salaries for the Company’s executive officers.

The Compensation Committee of the Board approved the temporary reductions in compensation.

On June 26, 2020, the Compensation Committee of the Board voted to reinstate the 2020 annual base salaries for the executive officers back to 100% due to the Company’s performance.

The reinstatement of 2020 annual base salaries is effective as of June 28, 2020.

The annual base salary reductions for the Company’s executive officers from April 19, 2020 through June 27, 2020 have been treated as a temporary pay cut, and the lost wages from that time period will not be paid.

Board of Directors reduction in retainer fees

On April 23, 2020, the Board approved a temporary reduction of the quarterly retainer for our non-employee directors from $35,000 per quarter to $29,750 per quarter (or 15%) effective April 19, 2020.

On June 26, 2020, the Board voted to reinstate the compensation fees back to 100%, effective as of June 28, 2020.

Business Impact under the Macroeconomic Environment of COVID-19

6 unchanged sentences

The Company has also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities they serve.

The overall impact of the macroeconomic environment to the deathcare industry from COVID-19 may provide varying results as compared to other industries, because death occurs on a relatively consistent basis.

The overall impact of the macroeconomic environment to the deathcare industry from COVID-19 may provide varying results as compared to other industries.

Our industry’s revenues are impacted by various factors, including the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts.

3 unchanged sentences

We have also offered various incentives to our customers and sales counselors to continue to foster sales in our cemeteries.

Within our financial reporting environment, we have considered various areas that could affect the results of our operations, though the scope, severity and duration of these impacts remain uncertain at this time because the COVID-19 pandemic is continually evolving and the ultimate impact of COVID-19 remains highly uncertain.

Certain estimates inherently involve assumptions about future events and annual results, making reliable estimates for those matters challenging in periods of extreme economic instability.

Certain estimates inherently involve assumptions about future events and annual results, making reliable estimates for those matters challenging in periods of economic instability.

We do not believe we are vulnerable to certain concentrations, whether by geographic area, revenue for specific products or our relationships with our vendors.

1 unchanged sentence

Remote working arrangements have not adversely affected our ability to maintain and support operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures.

Our employees at the Houston Support Office, which account for approximately 5% of our total employee population, were the primary group affected by stay-at-home state and local orders.

We believe our access to capital, the cost of our capital, or the sources and uses of our cash should be relatively consistent in the near term.

However, we believe given the unprecedented nature of COVID-19, it is prudent for us to take a broad-based approach to ensuring we maintain financial flexibility throughout the expected duration of the pandemic.

We believe our access to capital, the cost of our capital, or the sources and uses of our cash should be relatively consistent in the near term, but given the unprecedented nature of COVID-19, we also believe, it is prudent for us to take a broad-based approach to ensuring we maintain financial flexibility throughout the expected duration of the pandemic.

We have, as part of a larger plan, taken steps to reduce overall expenses throughout the rest of 2020.

For example, discretionary spending, such as growth capital expenditures (primarily cemetery inventory development) will be tightly managed and minimized during this time.

Moreover, our executive officers and non-employee directors voluntarily agreed to temporary reductions in salary compensation effective as of April 19, 2020.

Moreover, our executive officers and non-employee directors voluntarily agreed to temporary reductions in salary compensation from April 19, 2020 through June 28, 2020 (see above herein).

While the expected duration of the pandemic is unknown, we have not currently experienced any material impacts to our liquidity position, access to capital, or cash flows as a result of COVID-19.

See Liquidity within Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information related to our liquidity position.

We have also applied certain measures of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”), which was enacted on March 27, 2020, which we anticipate should provide a cash benefit in the form of a tax payment refund, tax credits related to employee retention, cash deferral for the employer portion of the Social Security tax and anticipated minimal cash taxes for 2020.

Although we expect to take advantage of certain tax relief provisions of the CARES Act, we do not believe it will have a significant impact on our short-term or long-term liquidity position.

See Item 1, Financial Statements and Supplementary Data, Note 1 for additional information related to the CARES Act.

The COVID-19 pandemic, and related gathering restrictions issued by state and local officials, did impact aspects of our financial results in the first quarter, including revenue, preneed cemetery sales, and average revenue per contract.

While it is difficult to gauge the exact extent of that impact over the last few weeks of the first quarter, the Company will continue to implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related gathering restrictions evolves.

The COVID-19 pandemic, and related gathering restrictions issued by state and local officials, did impact, while not material, aspects of our financial results in the second quarter and year to date, including revenue, volume, preneed cemetery sales, and average revenue per contract.

We will continue to assess these impacts and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related gathering restrictions evolves.

Funeral Home Operations

15 unchanged sentences

Our business strategy is based on strong, local leadership with entrepreneurial principles that is focused on sustainable long-term market share, revenue, and profitability growth in each local business.

We believe Carriage has the most innovative operating model in the funeral and cemetery industry, which we are able to achieve through a decentralized, high-performance culture and operating framework linked with incentive compensation programs that attract top-quality industry talent to our organization.

Our Mission Statement states that “we are committed to being the most professional, ethical and highest quality funeral and cemetery service organization in our industry” and our Guiding Principles state our core values, which are comprised of:

9 unchanged sentences

Strategic Acquisition Model

Our belief in our Mission Statement and Guiding Principles that define us and proper execution of the following three models that define our strategy, have given us the competitive advantage in any market in which we compete.

We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead.

This gives us a competitive advantage that is evidenced by the sustained earning power of our portfolio as defined by our EBITDA margin.

Standards Operating Model

1 unchanged sentence

Standards Achievement is the measure by which we judge the success of each business and incentivize our local managers and their teams.

Our Standards Operating Model is not designed to produce maximum short-term earnings because we believe such performance is unsustainable and will ultimately stress the business, which very often leads to declining market share, revenue and earnings.

Our Standards Operating Model is not designed to produce maximum short-term

earnings because we believe such performance is unsustainable and will ultimately stress the business, which very often leads to declining market share, revenue and earnings.

4E Leadership Model

14 unchanged sentences

Our financial valuation of the acquisition candidate is then determined through the application of an appropriate after-tax cash return on investment that exceeds our cost of capital.

Our belief in our Mission Statement and Guiding Principles that define us and proper execution of the three models that define our strategy have given us the competitive advantage in any market in which we compete.

We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead.

This gives us a competitive advantage that is evidenced by the sustained earning power of our portfolio as defined by our EBITDA margin.

LIQUIDITY AND CAPITAL RESOURCES

7 unchanged sentences

Our plan is to remain focused on integrating our newly acquired businesses and to use cash on hand and borrowings under our Credit Facility primarily for general corporate purposes and for payment of dividends and our debt obligations.

Discretionary spending, such as internal growth projects and expenditures (primarily cemetery inventory development, along with funeral home

expansion projects) will be tightly managed and minimized during the remainder of 2020.

Discretionary spending, such as internal growth projects and expenditures (primarily cemetery inventory development, along with funeral home expansion projects) will be tightly managed and minimized during the remainder of 2020.

We also expect increased divestiture activity for the next 12-18 months which we anticipate will yield approximately $15 million of additional cash from the proceeds of the sale.

From time to time we may also use available cash resources (including borrowings under our Credit Facility) to, subject to satisfying certain financial covenants in our Credit Facility, repurchase shares of our common stock and our remaining 2.75% convertible subordinated notes due 2021 (“Convertible Notes”) in open market or privately negotiated transactions.

We have the ability to draw on our Credit Facility, subject to its customary terms and conditions.

As of March 31, 2020, we have net unrealized losses of $45.1 million in our trusts.

At March 31, 2020, these net unrealized losses represented 18% of our original cost basis of $245.2 million .

The decline in fair value is largely due to changes in interest rates and other market conditions.

As of June 30, 2020 , we have net unrealized losses of $10.8 million in our trusts.

At June 30, 2020 , these net unrealized losses represented 4% of our original cost basis of $242.1 million .

The decline in fair value is largely due to changes in interest rates and other market conditions as a result of COVID-19.

Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk.

In addition, we do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income (loss) and offset by the Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus interests in those unrealized gains and/or losses.

Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income and offset by the Deferred preneed funeral and cemetery receipts held in

trust and Care trusts’ corpus interests in those unrealized gains and/or losses.

There is no impact on earnings until such time that the loss is realized in the trusts, allocated to the preneed contracts and the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations.

2 unchanged sentences

In light of recent developments relating to COVID-19, we believe that our existing and anticipated cash resources will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments and dividends for the next 12 months.

We began 2020 with $0.7 million in cash and other liquid investments and ended the first quarter with $11.9 million .

As of March 31, 2020 , we had borrowings of $114.0 million outstanding on our Credit Facility compared to $83.8 million as of December 31, 2019 .

The following table sets forth the elements of cash flow for the three months ended March 31, 2019 and 2020 (in thousands):

Three months ended March 31,

We began 2020 with $0.7 million in cash and other liquid investments and ended the second quarter with $0.7 million .

As of June 30, 2020 , we had borrowings of $89.7 million outstanding on our Credit Facility compared to $83.8 million as of December 31, 2019 .

The following table sets forth the elements of cash flow for the six months ended June 30, 2019 and 2020 (in thousands):

Six months ended June 30,

Cash at beginning of year

4 unchanged sentences

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations

Redemption of the Convertibles Notes

Payment of debt issuance costs related to the Senior Notes

1 unchanged sentence

Dividends paid on common stock

Purchase of treasury stock

Other financing costs

2 unchanged sentences

Operating Activities

For the three months ended March 31, 2020 , cash provided by operating activities was $13.5 million compared to $11.0 million for the three months ended March 31, 2019 .

The increase of $2.5 million was due primarily to favorable working capital changes during the period.

For the six months ended June 30, 2020 , cash provided by operating activities was $31.0 million compared to $21.9 million for the six months ended June 30, 2019 .

The increase of $9.1 million is a reflection of the resilient cash generating ability of our portfolio of high-quality funeral home and cemetery operations.

Our operating income (excluding the non-cash $14.7 million impairment charge of goodwill and tradenames recorded in the first quarter) increased $6.3 million in addition to other favorable working capital changes.

Investing Activities

Our investing activities, resulted in a net cash outflow of $30.7 million for the three months ended March 31, 2020 compared to $3.4 million for the three months ended March 31, 2019 , an increase of $27.3 million .

During the three months ended March 31, 2020 , we acquired a funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid in 2020.

For the three months ended March 31, 2020 , capital expenditures totaled $2.7 million compared to $3.5 million for the three months ended March 31, 2019 , a decrease of $0.8 million .

Our investing activities, resulted in a net cash outflow of $33.7 million for the six months ended June 30, 2020 compared to $8.6 million for the six months ended June 30, 2019 , an increase of $25.1 million .

During the six months ended June 30, 2020 , we acquired a funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020.

We also paid an additional $0.2 million for our acquisition of the cemetery business in Fairfax, Virginia to reimburse the sellers for certain incremental taxes resulting from the 338(h)(10) election under the Internal Revenue Code, which was offset by the receipt of $0.2 million in cash related to the sellers closing all operating bank accounts in place prior to the acquisition.

For the six months ended June 30, 2020 , capital expenditures totaled $5.8 million compared to $8.7 million for the six months ended June 30, 2019 , a decrease of $2.9 million .

The following tables present our growth and maintenance capital expenditures (in thousands):

Three months ended March 31,

Six months ended June 30,

Cemetery development

Renovations at certain businesses

Live streaming equipment

Total growth expenditures

5 unchanged sentences

Financing Activities

Our financing activities resulted in a net cash inflow of $28.3 million for the three months ended March 31, 2020 compared to a net cash outflow of $7.5 million for the three months ended March 31, 2019 , an increase of $35.8 million .

During the three months ended March 31, 2020 , we had net borrowings on our Credit Facility of $30.2 million and payments on our acquisition debt and finance leases of $0.5 million and paid $1.3 million in dividends.

During the three months ended March 31, 2019 , we had net payments on our Credit Facility of $6.1 million and payments on our acquisition debt and finance leases of $0.5 million and paid $1.4 million in dividends.

During the three months ended March 31, 2019 and 2020 , our Board of Directors declared the following dividends payable on the dates below (in thousands, except per share amounts):

Our financing activities resulted in a net cash inflow of $2.7 million for the six months ended June 30, 2020 compared to a net cash outflow of $13.3 million for the six months ended June 30, 2019 , an increase of $16.0 million .

During the six months ended June 30, 2020 , we had net borrowings on our Credit Facility of $5.9 million and payments on our acquisition debt and finance leases of $0.7 million and paid $2.7 million in dividends.

During the six months ended June 30, 2019 , we had net payments on our Credit Facility of $2.5 million , payments on our acquisition debt and finance leases of $0.9 million , we paid $2.7 million in dividends and repurchased treasury stock for $7.8 million .

During the six months ended June 30, 2019 and 2020 , our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

On May 19, 2020, the Board approved an increase of $0.05 to our annual dividend beginning with the next dividend declaration in the third quarter.

Share Repurchases

During the three months ended March 31, 2020 , we did not repurchase any shares of common stock pursuant to our share repurchase program.

At March 31, 2020 , we had approximately $25.6 million available for repurchases under our share repurchase program.

During the six months ended June 30, 2020 , we did not repurchase any shares of common stock pursuant to our share repurchase program.

At June 30, 2020 , we had approximately $25.6 million available for repurchases under our share repurchase program.

Credit Facility, Lease Obligations and Acquisition Debt

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at March 31, 2020 is as follows (in thousands):

March 31, 2020

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at June 30, 2020 is as follows (in thousands):

June 30, 2020

Credit Facility

3 unchanged sentences

Credit Facility

At March 31, 2020 , our Credit Facility was comprised of:

(i) a $190.0 million revolving credit facility, which includes a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans.

At June 30, 2020 , our Credit Facility was comprised of:

(i) a $190.0 million revolving credit facility, including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans.

The final maturity of the Credit Facility will occur on May 31, 2023 .

1 unchanged sentence

In the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level, at the discretion of the Administrative Agent, the Administrative Agent may unilaterally compel the Company and the Credit Facility Guarantors to grant and perfect first-priority mortgage liens on fee-owned real property assets which account for no less than 50% of funeral operations EBITDA.

The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.

In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries and party thereto as guarantors (the “Credit Facility Guarantors”) to incur additional indebtedness, grant liens on assets, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial covenants.

As of March 31, 2020 , we were subject to the following financial covenant under our Credit Facility:

As of June 30, 2020 , we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed, (i) 5.75 to 1.00 for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and (ii) 5.50 to 1.00 for the quarter ended December 31, 2020 and each quarter ended thereafter, (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters.

These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.

As more fully described below, we were not in compliance with the Total Leverage Ratio covenant for the quarter ended March 31, 2020 .

As of March 31, 2020 , the Company was not in compliance with the Total Leverage Ratio covenant requirement as noted above.

On May 18, 2020, we received a waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020.

Immediately following the effectiveness of the limited waiver and fourth amendment, $74.0 million remained available for borrowing under the Credit Facility.

We are in compliance with the fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of March 31, 2020 .

We expect to be in compliance with all of our covenant requirements for the next twelve months.

We had one letter of credit issued on November 30, 2019 and outstanding under the Credit Facility for approximately $2.0 million , which bears interest at 2.125% and will expire on November 25, 2020 .

We were in compliance with the total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of June 30, 2020 .

We have one letter of credit outstanding under the Credit Facility issued on November 30, 2019 for approximately $2.0 million , which bears interest at 2.125% and will expire on November 25, 2020 .

The letter of credit automatically renews annually and secures our obligations under our various self-insured policies.

Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio.

As of March 31, 2020 , the prime rate margin was equivalent to 1.50% and the LIBOR rate margin was 2.50% .

The weighted average interest rate on our Credit Facility for the three months ended March 31, 2019 and 2020 was 4.1% and 4.3% , respectively.

The interest expense and amortization of debt issuance costs related to our Credit Facility during the three months ended March 31, 2019 and 2020 is as follows (in thousands):

Three months ended March 31,

As of June 30, 2020 , the prime rate margin was equivalent to 2.00% and the LIBOR rate margin was 3.00% .

The weighted average interest rate on our Credit Facility was 3.6% and 3.9% for the three and six months ended June 30, 2020 , respectively.

The weighted average interest rate on our Credit Facility was 3.9% and 4.0% for the three and six months ended June 30, 2019 , respectively.

The interest expense and amortization of debt issuance costs related to our Credit Facility during the three and six months ended June 30, 2019 and 2020 is as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Credit Facility interest expense

5 unchanged sentences

We lease certain funeral homes under finance leases with original terms ranging from ten to forty years.

The lease cost related to our operating leases and short-term leases and depreciation expense and interest expense related to our finance leases during the three months ended March 31, 2019 and 2020 are as follows (in thousands):

Three months ended March 31,

The lease cost related to our operating leases and short-term leases and depreciation expense and interest expense related to our finance leases during the three and six months ended June 30, 2019 and 2020 are as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Operating lease cost

7 unchanged sentences

Original maturities range from five to twenty years .

The imputed interest expense related to our Credit acquisition debt during the three months ended March 31, 2019 and 2020 is as follows (in thousands):

Three months ended March 31,

The imputed interest expense related to our acquisition debt during the three and six months ended June 30, 2019 and 2020 is as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Acquisition debt imputed interest expense

Convertible Subordinated Notes due 2021

At March 31, 2020 , the principal amount of the liability component of our Convertible Notes was $6.3 million , the net carrying amount was $6.0 million and the carrying amount of the equity component was $0.8 million The fair value of the Convertible Notes, which are Level 2 measurements, was $6.4 million at March 31, 2020 .

At June 30, 2020 , the principal amount of the liability component of our Convertible Notes was $6.3 million , the net carrying amount was $6.1 million and the carrying amount of the equity component was $0.8 million .

The fair value of the Convertible Notes, which are Level 2 measurements, was $6.4 million at June 30, 2020 .

The Convertible Notes are due in March 2021 and bear interest at 2.75% per year, which is payable semi-annually in arrears on March 15 and September 15 of each year.

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes during the three months ended March 31, 2019 and 2020 is as follows (in thousands):

Three months ended March 31,

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes during the three and six months ended June 30, 2019 and 2020 is as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Convertible Notes interest expense

1 unchanged sentence

Convertible Notes amortization of debt issuance costs

The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 11 months of the Convertible Notes.

The effective interest rate on the unamortized debt discount for both the three months ended March 31, 2019 and 2020 was 11.4% .

The effective interest rate on the debt issuance costs for both the three months ended March 31, 2019 and 2020 was 3.2% .

The effective interest rate on the unamortized debt discount for both the three and six months ended June 30, 2019 and 2020 was 11.4% .

The effective interest rate on the debt issuance costs for both three and six months ended June 30, 2019 and 2020 was 3.2% .

Senior Notes due 2026

At March 31, 2020 , the principal amount of our Senior Notes was $400.0 million .

The fair value of the Senior Notes, which are Level 2 measurements, was $432.3 million at March 31, 2020 .

At June 30, 2020 , the principal amount of our Senior Notes was $400.0 million .

The fair value of the Senior Notes, which are Level 2 measurements, was $419.9 million at June 30, 2020 .

The Senior Notes are due on June 1, 2026 and bear interest at 6.625% per year, which is payable semi-annually in arrears on June 1 and December 1 of each year.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes during the three months ended March 31, 2019 and 2020 is as follows (in thousands):

Three months ended March 31,

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes during the three and six months ended June 30, 2019 and 2020 is as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Senior Notes interest expense

3 unchanged sentences

The debt discount, the debt premium and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 71 months of the Senior Notes.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the initial Senior Notes, which were issued in May 2018, for the three months ended March 31, 2020 was 6.87% and 6.69% , respectively.

The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the additional Senior Notes, which were issued in December 2019, for the three months ended March 31, 2020 was 6.20% and 6.88% , respectively.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the initial Senior Notes, which were issued in May 2018, for both the three and six months ended June 30, 2020 was 6.87% and 6.69% , respectively.

The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the additional Senior Notes, which were issued in December 2019, for both the three and six months ended June 30, 2020 was 6.20% and 6.90% , respectively.

FINANCIAL HIGHLIGHTS

Below are our financial highlights for the three months ended March 31, 2019 and 2020 (in thousands except for volumes and averages):

Three Months Ended March 31,

Below are our financial highlights for the three months ended June 30, 2019 and 2020 (in thousands except for volumes and averages):

Three months ended June 30,

Funeral contracts

2 unchanged sentences

Average price per preneed interment right sold

Net income (loss)

Revenue for the three months ended March 31, 2020 increased $8.4 million compared to the three months ended March 31, 2019 , as we experienced a 16.3% increase in total funeral contracts due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, offset by a decrease in the average revenue per funeral contract of 7.1% .

In addition, we experienced an increase of 27.8% in the number of preneed interment rights (property) sold due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, while the average price per interment right sold decreased 0.8% .

Gross profit for the three months ended March 31, 2020 increased $1.6 million compared to the three months ended March 31, 2019 , primarily due to the increase in revenue from both our funeral home and cemetery segments due to the acquisitions made in the fourth quarter of 2019 and first quarter of 2020.

Net income for the three months ended March 31, 2020 decreased $10.7 million compared to the three months ended March 31, 2019 , primarily due to the impairment of goodwill and tradenames and increase in interest expense related to our Senior Notes, offset by the increase in gross profit.

Revenue for the three months ended June 30, 2020 increased $9.7 million compared to the three months ended June 30, 2019 , as we experienced a 25.3% increase in total funeral contracts primarily due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, offset by a decrease in the average revenue per funeral contract of 11.7% .

In addition, we experienced an increase of 13.7% in the number of preneed interment rights (property) sold primarily due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as an increase in the average price per interment right sold of 9.0% .

Gross profit for the three months ended June 30, 2020 increased $5.9 million compared to the three months ended June 30, 2019 , primarily due to the increase in revenue from both our funeral home and cemetery segments due to the acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as measures the Company has taken to control costs during the COVID-19 pandemic.

Net income for the three months ended June 30, 2020 increased $1.5 million compared to the three months ended June 30, 2019 , primarily due to the increase in gross profit, offset by the increase in interest expense related to our Senior Notes and Credit Facility.

Below are our financial highlights for the six months ended June 30, 2019 and 2020 (in thousands except for volumes and averages):

Six months ended June 30,

Funeral contracts

Average revenue per funeral contract

Preneed interment rights (property) sold

Average price per preneed interment right sold

Revenue for the six months ended June 30, 2020 increased $18.1 million compared to the six months ended June 30, 2019 , as we experienced a 20.7% increase in total funeral contracts primarily due to the funeral home acquisitions made in the fourth quarter of 2019 and first quarter of 2020, offset by a decrease in the average revenue per funeral contract of 9.4% .

In addition, we experienced an increase of 19.6% in the number of preneed interment rights (property) sold primarily due to the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as an increase of 4.7% in the average price per interment right sold.

Gross profit for the six months ended June 30, 2020 increased $7.5 million compared to the six months ended June 30, 2019 , primarily due to the increase in revenue from both our funeral home and cemetery segments due to the acquisitions made in the fourth quarter of 2019 and first quarter of 2020, as well as measures the Company has taken to control costs during the COVID-19 pandemic.

Net income for the six months ended June 30, 2020 decreased $9.2 million compared to the six months ended June 30, 2019 , primarily due to the $14.7 million impairment of goodwill and tradenames recorded in the first quarter and $4.2 million increase in interest expense related to our Senior Notes and Credit facility, offset by the $7.5 million increase in gross profit.

Further discussion of Revenue and the components of Gross profit for our funeral home and cemetery segments is presented herein under “– Results of Operations.”

1 unchanged sentence

REPORTING AND NON-GAAP FINANCIAL MEASURES

We also present our financial performance in our “Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the quarter ended March 31, 2020 dated May 19, 2020 and discussed in the corresponding earnings conference call.

We also present our financial performance in our “Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the three and six months ended June 30, 2020 dated July 28, 2020 and discussed in the corresponding earnings conference call.

This Trend Report is used as a supplemental financial statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies.

1 unchanged sentence

The Trend Report is a non-GAAP statement that also provides insight into underlying trends in our business.

Below is a reconciliation of Net income (loss) (a GAAP measure) to Adjusted net income (a non-GAAP measure) for the three months ended March 31, 2019 and 2020 (in thousands):

Three months ended March 31,

Net income (loss)

Special items, net of tax except for items noted by ** (1)

Below is a reconciliation of Net income (a GAAP measure) to Adjusted net income (a non-GAAP measure) for the three and six months ended June 30, 2019 and 2020 (in thousands):

Three months ended June 30,

Six months ended June 30,

Special items, net of tax (1)

Acquisition and divestiture expenses

Severance and retirement costs

Severance and separation costs

Performance awards cancellation and exchange

Accretion of discount on Convertible Notes (1)

1 unchanged sentence

Litigation reserve

Natural disaster costs

Natural disaster and pandemic costs

Other special items

Adjusted net income (3)

Special items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations.

Special Items are taxed at the federal statutory rate of 21 percent for the three months ended March 31, 2019 and 2020, except for the Accretion of the discount on the Convertible Notes, as this is a non-tax deductible item and the Net impact of impairment of goodwill and other intangibles (described below).

Special Items are taxed at the federal statutory rate of 21% for the three and six months ended June 30, 2019 and 2020, except for the Accretion of the discount on the Convertible Notes, as this is a non-tax deductible item and the Net impact of impairment of goodwill and other intangibles (described below).

The Net impact of impairment of goodwill and other intangibles special item is net of the operating tax rate of 33.3%.

Adjusted net income is defined as Net income (loss) plus adjustments for Special items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

Below is a reconciliation of Gross profit (a GAAP measure) to Operating profit (a non-GAAP measure) for the three months ended March 31, 2019 and 2020 (in thousands):

Three months ended March 31,

Adjusted net income is defined as Net income plus adjustments for Special items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

Below is a reconciliation of Gross profit (a GAAP measure) to Operating profit (a non-GAAP measure) for the three and six months ended June 30, 2019 and 2020 (in thousands):

Three months ended June 30,

Six months ended June 30,

Cemetery property amortization

5 unchanged sentences

Funeral Home and Cemetery.

Below is a breakdown of Operating profit (a non-GAAP measure) by Segment for the three months ended March 31, 2019 and 2020 (in thousands):

Three months ended March 31,

Below is a breakdown of Operating profit (a non-GAAP measure) by Segment for the three and six months ended June 30, 2019 and 2020 (in thousands):

Three months ended June 30,

Six months ended June 30,

Operating profit

3 unchanged sentences

RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three months ended March 31, 2020 and 2019 .

The following is a discussion of our results of operations for the three and six months ended June 30, 2020 and 2019 .

The term “same store” refers to funeral homes and cemeteries acquired prior to January 1, 2016 and owned and operated for the entirety of each period being presented, excluding certain funeral home businesses that we intend to divest in the near future.

7 unchanged sentences

Funeral Home Segment

The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 (in thousands):

Three Months Ended March 31,

The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 (in thousands):

Three months ended June 30,

Same store operating revenue

12 unchanged sentences

The following measures reflect the significant metrics over this comparative period:

Three Months Ended March 31,

Three months ended June 30,

Contract volume

6 unchanged sentences

Cremation rate

Funeral home same store operating revenue for the three months ended March 31, 2020 decreased $0.2 million compared to the three months ended March 31, 2019 .

Although same store contract volume increased 5.7% , it was offset by a decrease in contract averages excluding preneed interest of 5.7% .

The decrease in funeral contract averages for the three months ended March 31, 2020 compared to the same period in 2019 is primarily due to a 240 basis point decrease in the burial rate.

In addition, over the last two weeks of March, we saw a decrease in services performed due to the rigorous restrictions placed on gatherings mandated by state, provincial, and local governments as COVID-19 became more prominent and individuals began to practice social distancing and comply with multiple state and provincial shelter in place orders.

For both burial and cremation contracts for which memorial services were performed, we experienced a 230 and 390 basis point decrease in the number of these contracts, respectively, in the three months ended March 31, 2020 .

Funeral same store operating profit for the three months ended March 31, 2020 decreased $0.8 million when compared to the three months ended March 31, 2019 , and the comparable operating profit margin decreased 170 basis points to 38.4% .

The decrease in operating margin is due to the decrease in same store operating revenue, along with a 2.5% increase in operating costs.

Same store salaries and benefits for the three months ending March 31, 2020 had the largest increase of $0.4 million compared to the three months ended March 31, 2019.

The increase in salaries and benefits was primarily due to the increase in contract volume as we experienced an increase in the demand for pickup and embalming services.

The costs for funeral supplies for the three months ending March 31, 2020 increased $0.1 million compared to the same period in 2019 as our funeral homes ramped up their purchases of supplies in preparation for COVID-19.

The provision for credit losses increased $0.1 million compared to the three months ending March 31, 2020 compared to the three months ending March 31, 2019 .

Funeral home acquired operating revenue for the three months ended March 31, 2020 increased $4.8 million , as our funeral home acquired portfolio for the three months ended March 31, 2020 included nine funeral home businesses over four acquisitions acquired in the fourth quarter of 2019 and one business acquired in the first quarter of 2020 not present in the three months ended March 31, 2019 .

Acquired operating profit for the three months ended March 31, 2020 increased $1.5 million when compared to the three months ended March 31, 2019 .

Operating profit margin decreased 320 basis points to 36.2% for the three months ended March 31, 2020 compared to the same period in 2019.

Funeral home same store operating revenue for the three months ended June 30, 2020 increased $1.0 million compared to the three months ended June 30, 2019 .

The increase in operating revenue is primarily due to a 12.0% same store contract volume increase in the three months ended June 30, 2020 compared to the same period in 2019.

The increase was offset by a decrease in contract averages excluding preneed interest of 8.6% .

The decrease in funeral contract averages for the three months ended June 30, 2020 compared to the same period in 2019 is primarily due to a 230 basis point decrease in the burial rate.

In addition, in the three months ended June 30, 2020 , we experienced a decrease in services performed due to the restrictions placed on gatherings mandated by state and local governments due to COVID-19.

For both burial and cremation contracts for which memorial services were performed, we experienced a 940 and 1240 basis point decrease in the number of these contracts, respectively, in the three months ended June 30, 2020 .

Funeral same store operating profit for the three months ended June 30, 2020 increased $2.5 million when compared to the three months ended June 30, 2019 , and the comparable operating profit margin increased 500 basis points to 42.3% .

The increase in operating margin is primarily due to the increase in same store operating revenue and a 5.0% decrease in operating costs.

store salaries and benefits for the three months ended June 30, 2020 had the largest decrease of $0.4 million or 1.6% compared to the three months ended June 30, 2019 .

The decrease in salaries and benefits was primarily due to the decrease in part-time funeral staff needed to assist with memorial services, offset by an increase in the demand for pickup and embalming services due to increased contracts.

The decrease in other operating costs was a result of disciplined expense and cost management by local leaders at each business during the COVID-19 pandemic.

Funeral home acquired operating revenue for the three months ended June 30, 2020 increased $5.0 million , as our funeral home acquired portfolio for the three months ended June 30, 2020 included nine funeral home businesses added through four acquisitions in the fourth quarter of 2019 and one business acquired in the first quarter of 2020 not present in the three months ended June 30, 2019 .

Acquired operating profit for the three months ended June 30, 2020 increased $2.2 million when compared to the three months ended June 30, 2019 .

Operating profit margin increased 240 basis points to 41.2% for the three months ended June 30, 2020 compared to the same period in 2019.

The increase is primarily due to certain measures taken to control costs during the COVID-19 pandemic, slightly offset by lower margins for our most recent acquisition compared to our other acquired businesses, particularly with regard to higher salaries and benefits expenses.

We expect the operating margins for our recently acquired business to improve as we focus on integrating this business into our high performance framework of the Standards Operating Model.

Ancillary funeral services revenue, which is recorded in Other revenue , represents revenue from our flower shop, pet cremation business and online cremation business in Texas, which were acquired in the fourth quarter of 2019.

Operating profit from our ancillary funeral service businesses was $0.3 million for the three months ended June 30, 2020 , with an operating profit margin of 28.7% .

Preneed funeral insurance commissions and preneed funeral trust and insurance, also recorded in Other revenue , on a combined basis, remained flat for the three months ended June 30, 2020 compared to the same period in 2019.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased $0.1 million or 4.3% for the same comparative period in 2019 primarily due to a reduction in preneed trust and insurance expenses.

The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 (in thousands):

Six months ended June 30,

Same store operating revenue

Acquired operating revenue

Divested/planned divested revenue

Ancillary funeral services revenue

Preneed funeral insurance commissions

Preneed funeral trust and insurance

Operating profit:

Same store operating profit

Acquired operating profit

Divested/planned divested operating profit

Ancillary funeral services operating profit

Preneed funeral insurance commissions

Preneed funeral trust and insurance

The following measures reflect the significant metrics over this comparative period:

Six months ended June 30,

Contract volume

Average revenue per contract, excluding preneed funeral trust earnings

Average revenue per contract, including preneed funeral trust earnings

Cremation rate

Contract volume

Average revenue per contract, excluding preneed funeral trust earnings

Average revenue per contract, including preneed funeral trust earnings

Cremation rate

Funeral home same store operating revenue for the six months ended June 30, 2020 increased $0.7 million compared to the six months ended June 30, 2019 .

The increase in operating revenue is due to an 8.7% same store contract volume increase in the six months ended June 30, 2020 compared to the same period in 2019.

The increase was offset by a decrease in contract averages excluding preneed interest of 7.2% .

The decrease in funeral contract averages for the six months ended June 30, 2020 compared to the same period in 2019 is primarily due to a 250 basis point decrease in the burial rate.

Beginning in the latter half of March 2020, we saw a decrease in services performed due to the restrictions placed on gatherings mandated by state and local governments as the COVID-19 pandemic became more prominent and individuals began to practice social distancing to comply with applicable shelter in place and related orders.

For both burial and cremation contracts for which memorial services were performed, we experienced a 580 and 820 basis point decrease in the number of these contracts, respectively, in the six months ended June 30, 2020 .

Funeral same store operating profit for the six months ended June 30, 2020 increased $1.6 million when compared to the six months ended June 30, 2019 , and the comparable operating profit margin increased 150 basis points to 40.3% .

The increase in operating margin is due to the increase in same store operating revenue and a 1.5% decrease in operating costs.

Same store promotional costs for the six months ended June 30, 2020 had the largest decrease of $0.4 million or 0.5% compared to the six months ended June 30, 2019.

The decrease in promotional costs and other operating costs resulted from cost control measures undertaken during the COVID-19 pandemic.

Funeral home acquired operating revenue for the six months ended June 30, 2020 increased $9.8 million , as our funeral home acquired portfolio for the six months ended June 30, 2020 included nine funeral home businesses added through four acquisitions in the fourth quarter of 2019 and one business acquired in the first quarter of 2020 not present in the six months ended June 30, 2019 .

Acquired operating profit for the six months ended June 30, 2020 increased $3.7 million when compared to the six months ended June 30, 2019.

Operating profit margin decreased 70 basis points to 38.9% for the six months ended June 30, 2020 compared to the same period in 2019.

The decrease is primarily due to the recently acquired businesses (discussed above), as operating profit margins for these businesses were lower compared to our other acquired businesses, particularly with regard to higher salaries and benefits expenses.

We expect the operating margins for our recently acquired businesses to increase as we focus on integrating these businesses into our high performance framework of the Standards Operating Model.

However, the operating margins for our 2019 acquired businesses have increased 440 basis points in the second quarter of 2020 compared to the first quarter of 2020 and we expect continuous improvement as we focus on integrating all of our newly acquired businesses into our high performance framework of the Standards Operating Model.

Operating profit from our ancillary funeral service businesses was $0.3 million for the three months ended March 31, 2020 , with an operating profit margin of 25.6% .

Preneed funeral insurance commissions and preneed funeral trust and insurance, also recorded in Other revenue , on a combined basis, increased $0.1 million or 5.7% for the three months ended March 31, 2020 compared to the same period in 2019.

The increase is primarily due to the increase in preneed trust and insurance, while preneed funeral commissions remained fairly flat.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased 7.1% for the same comparative period in 2019, primarily due to the increase in funeral trust and insurance revenue.

Operating profit from our ancillary funeral service businesses was $0.6 million for the six months ended June 30, 2020 , with an operating profit margin of 27.2% .

Preneed funeral insurance commissions and preneed funeral trust and insurance, also recorded in Other revenue , on a combined basis, increased $0.1 million or 3.1% for the six months ended June 30, 2020 compared to the same period in 2019.

The increase is due to the increase in preneed trust and insurance.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased $0.2 million or 5.3% for the same comparative period in 2019, primarily due to the increase in revenue and reduction of preneed trust and insurance expenses.

Cemetery Segment

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 (in thousands):

Three Months Ended March 31,

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 (in thousands):

Three months ended June 30,

Same store operating revenue

8 unchanged sentences

The following measures reflect the significant metrics over this comparative period:

Three Months Ended March 31,

Three months ended June 30,

Preneed revenue as a percentage of operating revenue

8 unchanged sentences

Average price per interment right sold

Cemetery same store preneed revenue for the three months ended March 31, 2020 decreased $0.3 million due to the decrease in cemetery property revenue as we experienced a 5.4% decrease in the average price of interments, offset by a 7.3% increase in the number of preneed interment rights sold compared to the same period in 2019 .

Cemetery same store atneed revenue, which represents approximately 42% of our same store operating revenue remained flat as we experienced a 0.7% increase in the average sale per contract, offset by a 0.6% decrease in the number of atneed contracts sold.

Cemetery same store operating profit for the three months ended March 31, 2020 decreased $0.5 million from the same period in 2019.

The comparable operating profit margin decreased 360 basis points to 28.8% for the three months ended March 31, 2020 from 32.4% in the same period in 2019 .

The decrease in operating profit margin is a result of the decrease in operating revenue and a 2.2% increase in operating costs, most notably a $0.2 million increase in promotional expenses.

Cemetery same store preneed revenue for the three months ended June 30, 2020 decreased $1.4 million due to the decrease in cemetery property revenue as we experienced a 13.1% decrease in the number of preneed interment rights sold, offset by a 6.6% increase in the average price per interment right sold.

The decrease in the number of preneed interment rights sold is primarily due to the COVID-19 pandemic as individuals began practicing social distancing to comply with applicable shelter in place and related orders, which resulted in our preneed sales personnel being unable to meet with families at our businesses, in certain areas of the country, during this time.

In addition, these restrictions impacted our ability to host annual events at certain cemeteries notably the Ching Ming festival during April and Memorial Day festivities during May.

Cemetery same store atneed revenue, which represents 39.0% of our same store operating revenue decreased $0.2 million , as we experienced a 3.1% decrease in the average sale per contract, while the number of atneed contracts sold remained flat.

Cemetery same store operating profit for the three months ended June 30, 2020 decreased $1.1 million from the same period in 2019.

The comparable operating profit margin decreased 490 basis points to 31.4% for the three months ended June 30, 2020 from 36.3% in the same period in 2019 .

The decrease in operating profit margin is the result of an 11.6% decrease in operating revenue, offset by a 4.8% decrease in operating costs.

Operating expense as a percent of operating revenue increased in two categories for the three months ended June 30, 2020 compared to the same period in 2019 .

Most notably, salaries and benefits increased 1.2% as a percentage of revenue and the allowance for credit losses expense increased 2.4% as a percentage of revenue.

The increase in salaries and benefits is due to additional support staff hired in the latter half of 2019.

The increase in the allowance for credit losses is due to slower payments on financed receivables particularly in the states most affected by COVID-19.

Our acquired cemetery portfolio includes two businesses acquired during the fourth quarter of 2019 and one business acquired during the first quarter of 2020.

These three businesses contributed $2.8 million in revenue and $0.8 million in operating profit for the three months ended March 31, 2020 .

Preneed cemetery trust and insurance and preneed cemetery finance charges, which are recorded in Other revenue , on a combined basis increased $0.4 million for the three months ended March 31, 2020 compared to the same period in 2019 .

These three businesses contributed $4.1 million in operating revenue and $1.4 million in operating profit for the three months ended June 30, 2020 .

Preneed cemetery trust and insurance and preneed cemetery finance charges, which are recorded in Other revenue , on a combined basis increased $0.6 million for the three months ended June 30, 2020 compared to the same period in 2019 .

Earnings in our perpetual care trust fund increased $0.6 million due to our acquisitions.

Operating profit for the two categories of Other revenue , on a combined basis, also increased $0.3 million for the three months ended March 31, 2020 compared to the same period in 2019 .

Operating profit for the two categories of Other revenue , on a combined basis, increased $0.7 million for the three months ended June 30, 2020 compared to the same period in 2019 , primarily due to the increase in perpetual care trust fund revenue.

The increase in our trust fund income is primarily due to our major capital deployment during and after the COVID-19 market crash in March 2020, which we expect will produce sustainable increases in both revenue and operating profit throughout the year.

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 (in thousands):

Six months ended June 30,

Same store operating revenue

Acquired operating revenue

Preneed cemetery trust and insurance

Preneed cemetery finance charges

Operating profit:

Same store operating profit

Acquired operating profit

Preneed cemetery trust and insurance

Preneed cemetery finance charges

The following measures reflect the significant metrics over this comparative period:

Six months ended June 30,

Preneed revenue as a percentage of operating revenue

Preneed revenue (in thousands)

Atneed revenue (in thousands)

Number of preneed interment rights sold

Average price per interment right sold

Preneed revenue as a percentage of operating revenue

Preneed revenue (in thousands)

Atneed revenue (in thousands)

Number of preneed interment rights sold

Average price per interment right sold

Cemetery same store preneed revenue for the six months ended June 30, 2020 decreased $1.7 million due to the decrease in cemetery property revenue as we experienced a 4.7% decrease in the number of preneed interments sold compared to the same period in 2019 , offset slightly by a 1.1% increase in the average price per interment right sold.

Cemetery same store atneed revenue, which represents 41% of our same store operating revenue, decreased $0.2 million as we experienced a 1.3% decrease in the average sale per contract, while the number of atneed contracts sold remained flat.

Cemetery same store operating profit for the six months ended June 30, 2020 decreased $1.6 million from the same period in 2019 .

The comparable operating profit margin decreased 440 basis points to 30.1% for the six months ended June 30, 2020 from 34.5% in the same period in 2019 .

The decrease in operating profit margin is a result of a 7.7% decrease in operating revenue and a 1.5% decrease in operating costs.

Operating expense as a percent of operating revenue increased in three categories in the six months ended June 30, 2020 compared to the same period in 2019 .

Our allowance for credit losses expense increased 1.7%, promotional expense increased 1.2% and salaries and wages increased 1.0% as a percentage of revenue.

The increase in the allowance for credit losses is due to slower payments on financed receivables particularly in the states most affected by COVID-19.

The increase in promotional expenses is due to the addition of marketing personnel and increased counselor bonuses at certain cemeteries.

Salaries and benefits related to the beautification and maintenance of our cemetery grounds were fairly flat but increased as a percentage of revenue.

Our acquired cemetery portfolio includes two businesses acquired during the fourth quarter of 2019 and one business acquired during the first quarter of 2020.

These three businesses contributed $6.9 million in operating revenue and $2.3 million in operating profit for the six months ended June 30, 2020 .

Preneed cemetery trust and insurance and preneed cemetery finance charges, which are recorded in Other revenue , on a combined basis increased $1.0 million for the six months ended June 30, 2020 compared to the same period in 2019 .

Earnings in our perpetual care trust fund increased $1.4 million primarily from acquisitions and an increase in realized gains and was partially offset by $0.3 million decrease in finance charge revenue.

The decrease in finance charge revenue is due to our enhanced preneed cemetery property sales strategy of reducing interest rates on preneed contracts.

Operating profit for the two categories of Other revenue , on a combined basis, also increased $1.0 million for the six months ended June 30, 2020 compared to the same period in 2019 due to the increase in revenue.

Cemetery property amortization .

Cemetery property amortization remained flat at $0.9 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

Cemetery property amortization totaled $1.1 million for the three months ended June 30, 2020 , a decrease of $0.1 million compared to the three months ended June 30, 2019 .

Cemetery property amortization remained flat at $2.0 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

Field depreciation.

Depreciation expense for our field businesses increased $0.2 million for the three months ended March 31, 2020 compared to the three months ended March 31, 2019 .

Depreciation expense for our field businesses increased $0.2 million for the three months ended June 30, 2020 compared to the three months ended June 30, 2019 .

Depreciation expense for our field businesses increased $0.4 million for the six months ended June 30, 2020 compared to the six months ended June 30, 2019 .

The increase was primarily attributable to additional depreciation expense from the assets acquired through our 2019 and first quarter 2020 acquisitions.

1 unchanged sentence

Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure.

Regional and unallocated funeral and cemetery costs remained flat at $2.8 million for the three months ended March 31, 2020, compared to the three months ended March 31, 2019 .

Regional and unallocated funeral and cemetery costs totaled $3.7 million for the three months ended June 30, 2020 , an increase of $0.1 million primarily due to a $0.4 million increase related to a state audit assessment, a $0.3 million increase in expenses related to the COVID-19 pandemic and a $0.1 million increase in other general and administrative costs, offset by a $0.7 million decrease in severance expense.

Regional and unallocated funeral and cemetery costs totaled $6.5 million for the six months ended June 30, 2020 , an increase of $0.1 million primarily due to a $0.4 million increase related to a state audit assessment, a $0.4 million increase in expenses due to the COVID-19 pandemic, offset by a $0.6 million decrease in severance expense and a $0.1 million decrease in other general administrative costs.

Other Financial Statement Items

General, administrative and other.

General, administrative and other expenses totaled $5.9 million for the three months ended March 31, 2020 , an increase of $0.3 million compared to the three months ended March 31, 2019 .

The increase was primarily attributable to a $0.5 million increase in salaries and benefits and severance costs, offset by a $0.2 million decrease in incentive and equity compensation costs.

General, administrative and other expenses totaled $6.5 million for the three months ended June 30, 2020 , an increase of $0.8 million compared to the three months ended June 30, 2019 .

The increase was primarily attributable to a $0.6 million increase in incentive compensation, a $0.3 million increase in public company costs, a $0.2 million increase in litigation reserve, offset by a $0.2 million decrease in other general administrative costs and a $0.1 million decrease in acquisition expenses.

General, administrative and other expenses totaled $12.5 million for the six months ended June 30, 2020 , an increase of $1.2 million compared to the six months ended June 30, 2019 .

The increase was primarily attributable to a $0.5 million increase in salaries, benefits and severance costs, a $0.4 million increase in incentive and equity compensation, a $0.3 million increase in public company costs, a $0.3 million increase in litigation reserve and a $0.1 million increase in acquisition expenses, offset by a $0.4 million decrease in other general administrative costs.

Home office depreciation and amortization.

Home office depreciation and amortization expense remained flat at $0.4 million for the three months ended March 31, 2020 , compared to the three months ended March 31, 2019 .

Home office depreciation and amortization expense remained flat at $0.4 million and $0.7 million for the three and six months ended June 30, 2020 , compared to the three and six months ended June 30, 2019 primarily due to machinery and equipment at the home office becoming fully depreciated in 2019, offset by additional software assets purchased in the latter half of 2019.

Impairment of goodwill and other intangibles .

3 unchanged sentences

Interest expense .

Interest expense totaled $8.4 million for the three months ended March 31, 2020 , an increase of $2.1 million compared to the three months ended March 31, 2019 .

Interest expense totaled $8.4 million for the three months ended June 30, 2020 , an increase of $2.1 million compared to the three months ended June 30, 2019 .

Interest expense totaled $16.8 million for the six months ended June 30, 2020 , an increase of $4.2 million compared to the six months ended June 30, 2019 .

The increase was primarily due to increased borrowings on our Credit Facility and the $75.0 million of additional Senior Notes we issued on December 19, 2019.

Accretion of discount on convertible subordinated notes .

We recognized accretion of the discount on our Convertible Notes of $0.1 million for both the three months ended March 31, 2020 and 2019 .

We recognized accretion of the discount on our Convertible Notes of $0.1 million for both the three months ended June 30, 2020 and 2019 and $0.1 million for both the six months ended June 30, 2020 and 2019 .

Income taxes.

We calculate our quarterly income tax expense (benefit) using a forecasted annual effective tax rate and we adjust for any discrete items arising during the quarter.

Our income tax benefit was $2.2 million for the three months ended March 31, 2020 compared to an income tax expense of $2.7 million for the three months ended March 31, 2019 .

Our operating tax rate before discrete items was 33.6% and 28.0% for the three months ended March 31, 2020 and 2019, respectively.

We recorded $0.7 million of additional tax expense in the three months ended March 31, 2020 related to the impairment of goodwill and other intangibles for businesses that were previously acquired as a stock acquisition, which caused an increase of 3.6% in our operating tax rate.

In connection with the CARES Act, we expect to file a claim for a refund during 2020 to carryback the net operating losses generated in the tax years ending December 31, 2018 and 2019 and have included the impact in our current provision.

We calculate our quarterly income tax expense using a forecasted annual effective tax rate and we adjust for any discrete items arising during the quarter.

Our income tax expense was $3.4 million and $2.1 million for the three months ended June 30, 2020 and 2019 , respectively and $1.3 million and $4.8 million for the six months ended June 30, 2020 and 2019 , respectively.

Our operating tax rate before discrete items was 33.5% and 29.2% for the three months ended June 30, 2020 and 2019 , and 33.3% and 28.5% for the six months ended June 30, 2020 and 2019 , respectively.

The increase in our overall effective tax rate is due to the unfavorable tax impact of impairment of goodwill and other intangibles recorded in the first quarter of 2020 for businesses that were previously acquired through stock acquisitions.

In an effort to maximize the expected benefits afforded by the CARES Act we plan to amend our 2018 tax return to include the additional first year depreciation deduction for qualified improvement property.

12 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis