Item 1A. Risk Factors
Item 1A. Risk Factors.
Risk Factor Update
We are supplementing the risk factors as previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020 Form 10-K”), with the updated risk factors set out below. The risk factors below should be read in conjunction with the risk factors set out in our 2020 Form 10-K:
RISKS RELATED TO OUR BUSINESS
Key Employees and Compensation
Our “Good To Great” and “Good To Great II” incentive programs could result in significant future payments and the issuance of a significant number of shares of common stock to our Managing Partners and to certain critical employees who are not managing partners.
Our Good To Great incentive program rewards our Managing Partners for achieving an average net revenue compounded annual growth rate equal to at least 1% (the “Minimum Growth Rate”) over a five year performance period (the “Performance Period”) with respect to our funeral homes that they operate, which aligns our incentives with long-term value creation. Each Managing Partner that achieves the Minimum Growth Rate during the applicable Performance Period and remains continuously employed as a Managing Partner of the same business throughout the Performance Period will receive a one-time bonus, payable in a combination of cash and shares of our common stock, determined at our discretion. To date, we have had five Performance Periods ended, with the most recent period ended December 31, 2020, which over the course of those five Performance Periods our highest Good To Great incentive bonus paid to our Managing Partners was for the Performance Period ended December 31, 2016, totaling $2.4 million. Although we have had sufficient levels of cash on hand to make cash bonus payments under the program, there is the potential we could be required to make similar or higher cash bonus payments than our highest historical payment under the program, which could result in less cash available to fund our operations. Because the bonus payments under the program are subject to achieving a Minimum Growth Rate, which is determined by various operational, financial and performance measures, future potential bonus payments cannot be determined with certainty at this time. In addition, our Good To Great II incentive program rewards certain of our employees who are not Managing Partners in alignment with the incentive programs for our Managing Partners. For example, there is a potential risk of dilution to our shareholders if we achieve the highest performance tier under the Good To Great II incentive program, which equals a Common Stock Price Average (as defined by the program) of $77.34 per share. As of March 31, 2021, under such a scenario, a total of 971,820 shares of common stock would be awarded to participants under the program. We believe these incentive programs will result in improved field-level margins, market share and overall financial performance.
Please also refer to the complete set of Risk Factors discussed in Part I, Item 1A “Risk Factors” in our 2020 Form 10-K, which could materially affect our business, financial condition or future results. The risks described in our 2020 Form 10-K are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.
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