What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-03 compared with 2021-11-03 · 213 added, 396 removed, 274 unchanged (69% of the section changed)

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Funeral Home Operations, which currently account for approximately 70% of our revenue, and Cemetery Operations, which currently account for approximately 30% of our revenue.

At September 30, 2021, we operated 171 funeral homes in 26 states and 32 cemeteries in 12 states.

At March 31, 2022, we operated 168 funeral homes in 26 states and 31 cemeteries in 11 states.

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

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Recent Developments

During the nine months ended September 30, 2021, we sold three funeral homes for $3.5 million and real property for $0.7 million, for a total net loss of $0.2 million.

Share Repurchase Program

On February 23, 2022, our Board of Directors (our “Board”) authorized an increase in our share repurchase program to permit us to purchase up to an additional $75.0 million under our share repurchase program, in addition to amounts previously authorized.

At March 31, 2022, our share repurchase program had $57.1 million authorized for repurchases.

During the three months ended March 31, 2022, we sold two funeral homes for an aggregate of $0.9 million for a loss of $0.7 million.

Business Impact under the Macroeconomic Environment of COVID-19

On March 11, 2020, COVID-19 was deemed a global pandemic and since then, the Company has continued to proactively monitor and assess the pandemic’s current and potential impact to the Company’s operations.

Beginning in early March 2020, the Company’s senior leadership team took certain steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic.

Our businesses remain open and ready to provide service to their communities in this time of need.

Throughout the pandemic, the Company’s senior leadership team has taken steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic.

Our businesses are open and ready to provide service to the families and communities they serve.

While our businesses provide an essential public function, along with a critical responsibility to the communities and families they serve, the health and safety of our employees and the families we serve remain our top priority.

The Company has taken additional steps during this time to continually review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our businesses have appropriate personal protective equipment to provide these essential services.

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.

We continue to review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our businesses have appropriate personal protective equipment to provide these essential services.

The Company 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 the pandemic 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.

During the third quarter of 2021, changes in the macroeconomic environment as a result of the pandemic have, to this point, led to an increase in funeral volumes and the services we provide.

Our businesses have remained focused on being innovative and resourceful, providing families immediate service as part of the grieving process.

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 ultimate impact of COVID-19 remains uncertain, including the potential impacts of new variants of COVID-19, such as the Delta variant, and any resulting government responses to such variants.

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

Our relationships with our vendors and

suppliers have remained consistent and we continue to receive reliable service.

During the first quarter of 2022, we continued to see the number of funeral contracts normalize to pre-COVID-19 levels.

Regardless of these recent trends, our businesses have remained focused on being innovative and resourceful, providing families immediate service as part of the grieving process.

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 ultimate impact of COVID-19 remains uncertain, including the potential impacts of new variants of COVID-19, such as the Delta and Omicron variants, and any resulting government responses to such variants.

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

Our relationships with our vendors and suppliers have remained consistent and we continue to receive reliable service.

To date, we have not experienced any material supply chain impacts or disruptions from our vendors.

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

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While the expected duration of the pandemic is unknown, we have not currently experienced any material negative 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 also applied certain measures of the CARES Act, which provided a cash benefit in the form of tax payment refunds, tax credits related to employee retention, cash deferral for the employer portion of the Social Security tax and minimal cash taxes for 2020.

While we have taken 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.

During the third quarter of 2021, we experienced a high growth rate in funeral home revenue due to elevated funeral volumes from broad market share gains and higher COVID-19 related deaths combined with incremental growth in the average revenue per funeral contract.

We will continue to assess these impacts, including the potential impacts of new variants of COVID-19, such as the Delta variant, and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related gathering restrictions, if any, evolves.

See Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, Liquidity and Capital Resources for additional information related to our liquidity position.

During the first quarter of 2022, we continued to see a decrease in COVID-19-related deaths and the normalization of funeral contracts to pre-COVID-19 levels at broadly higher funeral contract revenue averages.

During this same time, we have not seen an adverse impact to our overall financial performance.

Although we expect these trends to continue, we will continue to assess these impacts, including the potential impacts of new variants of COVID-19, such as the Delta and Omicron variants, and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related regulatory mandates and restrictions, if any, evolves.

Funeral Home Operations

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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 operating framework linked with incentive compensation programs that attract top quality industry talent to our organization.

We also believe that Carriage provides a unique consolidation and operating framework that offers a highly attractive succession planning solution for independent owners who want their legacy family business to remain operationally prosperous in their local communities.

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.

We also believe that Carriage provides a unique consolidation and operating framework that offers a highly attractive succession planning solution for independent funeral home owners who want their legacy family business to remain operationally prosperous in their local communities.

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:

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• Belief in the power of people through individual initiative and teamwork;

• Outstanding service and profitability to hand-in-hand;

• Outstanding service and profitability go hand-in-hand;

• Growth of the Company is driven by decentralization and partnership.

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and the ability to Execute and produce results.

To achieve a high level within our Standards in a business year after year, we require local Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams.

To achieve a high level within our Standards in a business year after year, we require our local Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams.

Strategic Acquisition Model

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LIQUIDITY AND CAPITAL RESOURCES

Our primary sources of liquidity and capital resources are internally generated cash flows from operating activities and availability under our New Credit Facility.

Our primary sources of liquidity and capital resources are internally generated cash flows from operating activities and availability under our Credit Facility (defined below).

We generate cash in our operations primarily from atneed sales and delivery of preneed sales.

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Based on our recent operating results, current cash position and anticipated future cash flows, we do not anticipate any significant liquidity constraints in the foreseeable future.

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

However, if our capital expenditures or acquisition plans change, we may need to access the capital markets to obtain additional funding.

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

However, if our capital expenditures or acquisition plans change, we may need to access the capital markets to obtain additional funding and we may not be able to obtain such funding on terms and conditions that are acceptable to us.

Further, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected.

For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020 and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

Our plan is to remain focused on integrating our newly acquired businesses and to use cash on hand and borrowings under our New Credit Facility primarily for general corporate purposes, payment of dividends and debt obligations, strategic acquisitions, internal growth capital expenditures, share repurchases, dividend increases and further debt repayments.

We also expect continued divestiture activity for the next six months, which could yield approximately $3-4 million of cash from the proceeds of the sale.

From time to time we may also use available cash resources (including borrowings under our New Credit Facility) to repurchase shares of our common stock, subject to satisfying certain financial covenants in our New Credit Facility and in the Indenture governing our New Senior Notes.

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 2021 with $0.9 million in cash and ended the third quarter with $1.1 million in cash.

At September 30, 2021, we had borrowings of $86.9 million outstanding on our Credit Facility compared to $47.2 million at December 31, 2020.

Our plan is to use cash on hand and borrowings under our Credit Facility primarily for general corporate purposes, payment of dividends and debt obligations, strategic acquisitions, internal growth capital expenditures, share repurchases, dividend increases and further debt repayments.

We also expect continued divestiture activity for the next three to six months, which could yield an aggregate of approximately $3-4 million of cash from the proceeds of the sales.

From time to time we may also use available cash resources (including borrowings under our Credit Facility) to repurchase shares of our common stock, subject to satisfying certain financial covenants in our Credit Facility and in the Indenture (defined below) governing our Senior Notes (defined below).

We began 2022 with $1.1 million in cash and ended the first quarter with $0.9 million in cash.

At March 31, 2022, we had borrowings of $174.2 million outstanding on our Credit Facility compared to $155.4 million at December 31, 2021.

The following table sets forth the elements of cash flow (in thousands):

Nine months ended September 30,

Cash at beginning of year $ 716 $ 889

Three months ended March 31,

Cash at beginning of the year $ 889 $ 1,148

Net cash provided by operating activities 26,811 15,801

Acquisitions of businesses and real estate (28,011) (3,285)

Acquisitions of real estate (350) (2,575)

Proceeds from divestitures and sale of other assets 2,800 1,026

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Net borrowings on our Credit Facility, acquisition debt and finance lease obligations (19,133) 18,700

Payment of call premium related to the Original Senior Notes — (19,876)

Payment of debt issuance and transaction costs (78) (6,554)

Conversions and maturity of the Convertibles Notes (3,980) —

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Operating Activities

For the nine months ended September 30, 2021, cash provided by operating activities was $69.7 million compared to $67.8 million for the nine months ended September 30, 2020.

The increase of $1.9 million is primarily due to the increase in

operating income (excluding the non-cash impact of the divestitures, disposals and impairment charges) of $15.3 million, which was offset by unfavorable working capital changes in accounts receivable, income tax receivables and accounts payable.

For the three months ended March 31, 2022, cash provided by operating activities was $15.8 million compared to $26.8 million for the three months ended March 31, 2021.

The decrease of $11.0 million is primarily due to unfavorable working capital changes in accrued liabilities and income tax receivables.

Investing Activities

Our investing activities, resulted in a net cash outflow of $11.2 million for the nine months ended September 30, 2021 compared to $30.5 million for the nine months ended September 30, 2020, a decrease of $19.3 million.

Our investing activities, resulted in a net cash outflow of $7.8 million for the three months ended March 31, 2022 compared to $1.9 million for the three months ended March 31, 2021, a decrease of $5.9 million.

Acquisition and Divestiture Activity

During the nine months ended September 30, 2021, we sold three funeral homes for $3.5 million, sold real property for $0.7 million and purchased real property for $3.3 million.

We also received proceeds of $2.8 million from our property insurance policy for the reimbursement of renovation costs for our funeral and cemetery businesses that were damaged by Hurricane Ida.

During the nine months ended September 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 in 2020.

We also sold six funeral homes for $7.3 million and we sold real property for $0.1 million.

During the three months ended March 31, 2022, we sold two funeral homes for an aggregate of $0.9 million and purchased real property for $2.6 million.

During the three months ended March 31, 2021, we sold one funeral home for $1.5 million and real property for $1.3 million and we purchased real property for $0.4 million.

Capital Expenditures

For the nine months ended September 30, 2021, capital expenditures (comprising of growth and maintenance spend) totaled $15.3 million compared to $10.0 million for the nine months ended September 30, 2020, an increase of $5.3 million.

For the three months ended March 31, 2022, capital expenditures (comprising of growth and maintenance spend) totaled $6.9 million compared to $4.3 million for the three months ended March 31, 2021, an increase of $2.6 million.

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

Nine months ended September 30,

Three months ended March 31,

Cemetery development $ 1,486 $ 2,264

Renovations at certain businesses (1)

Live streaming equipment 560 142

Other 11 (148)

Total Growth $ 2,207 $ 3,271

Nine months ended September 30,

(1) During the three months ended March 31, 2022, we spent $0.4 million for renovations on two businesses that were affected by Hurricane Ida, all of which was reimbursed by our property insurance.

Three months ended March 31,

Facility repairs and improvements $ 253 $ 1,067

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Financing Activities

Our financing activities resulted in a net cash outflow of $58.3 million for the nine months ended September 30, 2021 compared to a net cash outflow of $37.3 million for the nine months ended September 30, 2020, an increase of $21.0 million.

During the nine months ended September 30, 2021, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $39.0 million, offset by the following payments:

i) $19.9 million for the call premium to redeem our Original Senior Notes;

ii) $61.7 million for the purchase of treasury stock;

iii) $6.6 million for debt issuance and transactions costs related to our New Senior Notes and New Credit Facility;

iv) $4.0 million for the conversions and maturity of our Convertible Notes;

and v) $5.4 million in dividends.

During the nine months ended September 30, 2020, we had net payments on our Credit Facility, acquisition debt and finance leases of $28.9 million, paid $4.3 million in dividends and paid $4.6 million for the repurchases of our Convertible Notes.

Our financing activities resulted in a net cash outflow of $8.3 million for the three months ended March 31, 2022 compared to $25.4 million for the three months ended March 31, 2021, a decrease of $17.1 million.

During the three months ended March 31, 2022, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $18.7 million, offset by $25.7 million for the purchase of treasury stock and $1.7 million in dividends.

During the three months ended March 31, 2021, we had net payments on our Credit Facility, acquisition debt and finance

leases of $19.1 million, we paid $1.8 million in dividends and $4.0 million for the conversions and maturity of our Convertible

Share Repurchase

On May 18, 2021 and July 26, 2021, our Board authorized increases of up to an additional $25.0 million, respectively, in our share repurchase program to permit us to purchase up to a total of $50.0 million under our share repurchase program, in addition to amounts previously authorized and outstanding, in accordance with the Exchange Act.

On February 23, 2022, our Board authorized an increase in our share repurchase program to permit us to purchase up to an additional $75.0 million under our share repurchase program, in addition to amounts previously authorized and outstanding in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended (“the Exchange Act”).

Prior to the Board's approval of the increase, we had $8.1 million remaining available for repurchase under our authorized program.

Share repurchase activity is as follows (dollar value in thousands):

Three months ended September 30, 2021 Nine months ended September 30, 2021

Three months ended March 31,

Number of Shares Repurchased (1)

1,203,493 1,528,197

Average Price Paid Per Share $ — $ 53.08

Dollar Value of Shares Repurchased (1)

$ 53,239 $ 65,540

(1) During the three and nine months ended September 30, 2021, 84,000 shares settled in October 2021, which had a cost of $3.8 million.

(1) During the three months ended March 31, 2022, 52,242 shares settled in April 2022, which had a cost of $2.8 million.

Our shares were purchased in the open market at times and in amounts as management determined appropriate based on factors such as market conditions, legal requirements and other business considerations.

Shares purchased pursuant to the repurchase program are currently held as treasury shares.

At September 30, 2021, we had approximately $10.1 million available for repurchase under our share repurchase program.

At March 31, 2022, our share repurchase program had $57.1 million authorized for repurchases.

Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):

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$ 0.1125 $ 1,725

$ 0.1000 $ 1,808

September 1 st

$ 0.1000 $ 1,783

2021 Per Share Dollar Value

$ 0.1000 $ 1,799

$ 0.0750 $ 1,343

September 1 st

$ 0.0875 $ 1,569

Credit Facility, Lease Obligations and Acquisition Debt

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at September 30, 2021 is as follows (in thousands):

September 30, 2021

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at March 31, 2022 is as follows (in thousands):

March 31, 2022

Credit Facility $ 174,200

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Credit Facility

On May 13, 2021, in connection with the issuance of the New Senior Notes, we entered into the New Credit Facility with the New Credit Facility Subsidiary Guarantors (as defined below), the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

We incurred $0.8 million in transactions costs related to the New Credit Facility, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.

On May 13, 2021, we used approximately $21.4 million of the availability under the New Credit Facility to repay the then outstanding balances under our Former Credit Facility and all commitments thereunder were terminated.

In connection with the repayment in full of all amounts due thereunder, the Former Credit Facility was retired and $2.1 million of letters of credit previously issued under the Former Credit Facility were deemed issued under (and remain outstanding under) the New Credit Facility.

In connection with the termination of the Former Credit Facility, for the nine months ended September 30, 2021, we recognized a loss on the write-off of $0.1 million in unamortized debt issuance costs, which was recorded in Loss on extinguishment of debt .

Our obligations under the New Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the New Senior Notes and certain of our Subsidiary Guarantors.

The New Credit Facility allows

for future increases in the facility size in the form of increased revolving commitments or new incremental term loans by an additional amount of up to $75.0 million in the aggregate.

The final maturity of the New Credit Facility will occur on May 13, 2026.

The New Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Subsidiary Guarantors.

In addition, the New Credit Facility includes provisions which require the Company and the Subsidiary Guarantors, upon the occurrence of an event of default or 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 under the New Credit Facility, to grant additional liens on real property assets accounting for no less than 50% of the Company’s and the Subsidiary Guarantors’ funeral operations if requested by the administrative agent.

The New 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 New 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 the Subsidiary Guarantors to incur indebtedness, grant liens, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial maintenance covenants.

At September 30, 2021, we were subject to the following financial covenants under our New Credit Facility:

(A) a Total Leverage Ratio not to exceed 5.00 to 1.00 and (B) a Fixed Charge Coverage Ratio (as defined in the New Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters.

At March 31, 2022, our senior secured revolving credit facility (the “Credit Facility”) was comprised of:

(i) a $200.0 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 13, 2026.

Our obligations under the Credit Facility are unconditionally guaranteed on a joint and several basis by the same subsidiaries which guarantee the Senior Notes (defined below) and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Subsidiary Guarantors”).

The Credit Facility allows for future increases in the facility size in the form of increased revolving commitments or new incremental term loans by an additional amount of up to $75.0 million in the aggregate.

The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Subsidiary Guarantors.

In addition, the Credit Facility includes provisions which require the Company and the Subsidiary Guarantors, upon the occurrence of an event of default or 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 under the Credit Facility, to grant additional liens on real property assets accounting for no less than 50% of the Company’s and the Subsidiary Guarantors’ funeral operations if requested by the administrative agent.

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 the Subsidiary Guarantors to incur indebtedness, grant

liens, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial maintenance covenants.

At March 31, 2022, we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed 5.00 to 1.00 and (B) 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.

We were in compliance with all of the covenants contained in our New Credit Facility as of September 30, 2021.

At September 30, 2021, we had outstanding borrowings under the New Credit Facility of $86.9 million.

We also had one letter of credit for $2.1 million under the New Credit Facility, which was increased to $2.3 million on September 1, 2021.

We were in compliance with all of the covenants contained in our Credit Facility as of March 31, 2022.

At March 31, 2022, we had outstanding borrowings under the Credit Facility of $174.2 million.

We also had one letter of credit for $2.3 million under the Credit Facility.

The letter of credit will expire on November 25, 2022 and is expected to automatically renew annually and secures our obligations under our various self-insured policies.

At September 30, 2021, we had $60.8 million of availability under the New Credit Facility.

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

At September 30, 2021, the prime rate margin was equivalent to 0.75% and the LIBOR rate margin was 1.75%.

The weighted average interest rate on our New Credit Facility was 2.0% and 2.5% for the three and nine months ended September 30, 2021, respectively.

The weighted average interest rate on our Former Credit Facility was 3.9% and 4.0% for the three and nine months ended September 30, 2020, respectively.

At March 31, 2022, we had $23.5 million of availability under the Credit Facility.

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.

At March 31, 2022, the prime rate margin was equivalent to 0.875% and the LIBOR rate margin was 1.875%.

The weighted average interest rate on our Credit Facility was 3.3% and 2.1% for the three months ended March 31, 2021 and 2022, respectively.

The interest payments on our remaining borrowings under the Credit Facility will be determined based on the average outstanding balance of our borrowings and the prevailing interest rate during that time.

The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Credit Facility interest expense $ 445 $ 847

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Our lease obligations consist of operating and finance leases.

We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years.

Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years.

We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to twenty years.

Many leases include one or more options to renew, some of which include options to extend the leases for up to forty years.

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

At March 31, 2022, operating and finance lease obligations were $37.4 million, with $4.4 million payable within 12 months.

The lease cost related to our operating leases and short-term leases and depreciation expense and interest expense related to our finance leases are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Operating lease cost $ 960 $ 848

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Interest on lease liabilities 120 113

Total finance lease cost 228 221

Total lease cost $ 1,278 $ 1,178

Acquisition Debt

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A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%.

Original maturities range from five to twenty years.

Original maturities range from nine to twenty years.

At March 31, 2022, acquisition debt obligations were $7.3 million, with $0.8 million payable within 12 months.

The imputed interest expense related to our acquisition debt is as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Acquisition debt imputed interest expense $ 97 $ 80

Convertible Subordinated Notes due 2021

During the nine months ended September 30, 2021, we converted approximately $2.4 million in aggregate principal amount of our Convertible Notes held by certain holders for approximately $3.8 million in cash.

The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes then outstanding, approximately $0.2 million in aggregate principal amount, were paid in full in cash at par value.

No Convertible Notes remain outstanding at September 30, 2021.

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Convertible Notes interest expense $ 43 $ 18 $ 130 $ 18

Convertible Notes accretion of debt discount 69 20 200 20

Convertible Notes amortization of debt issuance costs 9 1 21 1

The effective interest rate on the unamortized debt discount for both the three months ended September 30, 2020 and 2021 was 11.4%.

The effective interest rate on the debt issuance costs for the three months ended September 30, 2020 and 2021 was 3.2% and 3.1%, respectively.

On May 13, 2021, we completed the issuance of the New Senior Notes and related guarantees by the Subsidiary Guarantors in a private offering under Rule 144A and Regulation S of the Securities Act.

We used the proceeds of $395.5 million from the offering of the New Senior Notes, which are net of a 1.125% debt discount of $4.5 million, together with cash on hand and borrowings under the New Credit Facility, to redeem all of the then outstanding Original Senior Notes.

We paid a premium of $19.9 million to redeem the Original Senior Notes on June 1, 2021 at a redemption price of 104.97% of the principal amount thereof, plus accrued and unpaid interest of $13.25 million.

During the nine months ended September 30, 2021, we incurred $1.3 million in transaction costs related to the New Senior Notes.

For the nine months ended September 30, 2021, we recognized a net loss of $23.7 million related to the redemption of the Original Senior Notes, which was recorded in Loss on extinguishment of debt .

The loss is composed of the $19.9 million call premium, the write-off of $3.4 million in unamortized debt discount, the write-off of $1.8 million in unamortized debt issuance costs, offset by the write-off of $1.4 million in unamortized debt premium.

The New Senior Notes were issued under the Indenture, dated as of May 13, 2021, among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.

The New Senior Notes bear interest at 4.25% per year.

Interest on the New Senior Notes is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021.

The New Senior Notes mature on May 15, 2029, unless earlier redeemed or purchased.

The New Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by each of the Subsidiary Guarantors.

We may redeem the New Senior Notes, in whole or in part, at the redemption price of 102.13% on or after May 15, 2024, 101.06% on or after May 15, 2025 and 100% on or after May 15, 2026, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time before May 15, 2024, we may also redeem all or part of the New Senior Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption.

In addition, before May 15, 2024, we may redeem up to 40% of the aggregate principal amount of the New Senior Notes outstanding using an amount of cash equal to the net proceeds of certain equity offerings, at a price of 104.25% of the principal amount of the New Senior Notes, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption;

provided that (1) at least 50% of the aggregate principal amount of the New Senior Notes (including any additional New Senior Notes) outstanding under the Indenture remain outstanding immediately after the occurrence of such redemption (unless all

New Senior Notes are redeemed concurrently), and (2) each such redemption must occur within 180 days of the date of the consummation of any such equity offering.

If a “change of control” occurs, holders of the New Senior Notes will have the option to require us to purchase for cash all or a portion of their New Senior Notes at a price equal to 101% of the principal amount of the New Senior Notes, plus accrued and unpaid interest.

In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the New Senior Notes at a price equal to 100% of the principal amount of the New Senior Notes, plus accrued and unpaid interest.

At March 31, 2022, the principal amount of our 4.25% senior notes due in May 2029 (the “Senior Notes”) was $400.0 million.

The Senior Notes were issued under an indenture, dated as of May 13, 2021 (the “Indenture”), among the Company, the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.

The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally by each of the Subsidiary Guarantors.

The Senior Notes mature on May 15, 2029, unless earlier redeemed or purchased and bear interest at 4.25% per year, which is payable semi-annually in arrears on May 15 and November 15 of each year, beginning on November 15, 2021.

We may redeem the Senior Notes, in whole or in part, at the redemption price of 102.13% on or after May 15, 2024, 101.06% on or after May 15, 2025 and 100% on or after May 15, 2026, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.

At any time before May 15, 2024, we may also redeem all or part of the Senior Notes at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption.

In addition, before May 15, 2024, we may redeem up to 40% of the aggregate principal amount of the Senior Notes outstanding using an amount of cash equal to the net proceeds of certain equity offerings, at a price of 104.25% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to (but excluding) the date of redemption;

provided that (1) at least 50% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) outstanding under the Indenture remain outstanding immediately after the occurrence of such redemption (unless all Senior Notes are redeemed concurrently), and (2) each such redemption must occur within 180 days of the date of the consummation of any such equity offering.

If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates.

The Indenture also contains customary events of default.

The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 92 months of the New Senior Notes.

The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the New Senior Notes for both three and nine months ended September 30, 2021 was 4.42% and 4.30%, respectively.

The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 86 months of the Senior Notes.

For the three months ended March 31, 2022, the effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes was 4.42% and 4.30%, respectively.

For the three months ended March 31, 2021, the effective interest rate on the unamortized debt discount and unamortized debt issuance costs for our $400 million in aggregate principal amount of 6.625% senior notes due 2026 (the “Original Senior Notes”) was 6.69%.

For the three months ended March 31, 2021, the effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the additional Original Senior Notes, issued in December 2019 was 6.88%.

All of our Original Senior Notes were redeemed on June 1, 2021.

At March 31, 2022, the fair value of the Senior Notes, which are Level 2 measurements, was $373.4 million.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Senior Notes interest expense $ 6,625 $ 4,250

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Senior Notes amortization of debt issuance costs 74 34

At September 30, 2021, the fair value of the New Senior Notes, which are Level 2 measurements, was $403.2 million.

The effective interest rate on the unamortized debt discount and unamortized debt issuance costs for the Original Senior Notes, issued in May 2018, for both the three and nine months ended September 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 Original Senior Notes, issued in December 2019, for both the three and nine months ended September 30, 2020 was 6.20% and 6.90%, respectively.

At March 31, 2022, our future interest payments on our outstanding balance were $125.3 million, with $17.0 million payable within 12 months.

FINANCIAL HIGHLIGHTS

Below are our financial highlights (in thousands except for volumes and averages):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Revenue $ 96,637 $ 98,161

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Net income $ 12,933 $ 16,402

Revenue for the three months ended September 30, 2021 increased $10.6 million compared to the three months ended September 30, 2020, as we experienced a 7.0% increase in the number of preneed interment rights (property) sold, as well as a 30.1% increase in the average price per interment right sold, primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in the third quarter of 2020 due to COVID-19;

(2) the full integration of the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020;

and (3) the execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

We also experienced a 9.2% increase in total funeral contracts and a 3.2% increase in the average revenue per funeral contract for the three months ended September 30, 2021 compared to the same period in 2020.

Approximately 60% of the increase in funeral volumes is attributable to deaths from the Delta COVID-19 variant.

The additional volume increase is primarily a consequence of our ability to adapt to the continued changing environment with our new and innovative ways to serve families.

The increase in the average revenue per contract is a further reflection of our ability to creatively serve our families, as the number of contracts for which we provide memorial services are returning to pre-COVID-19 levels.

Gross profit for the three months ended September 30, 2021 increased $5.3 million compared to the three months ended September 30, 2020, primarily due to the increase in revenue from both our funeral home and cemetery segments, as well as decreases in funeral home operating expenses as a percent of operating revenue primarily in salaries and benefits expense as we increased revenue without adding extra personnel.

Net income for the three months ended September 30, 2021 increased $7.5 million compared to the three months ended September 30, 2020, primarily due to a $5.3 million increase in gross profit, a $2.9 million decrease in interest expense, and a $4.1 million decrease in net loss on divestitures, disposals and impairments charges, offset by a $2.6 million increase in general, administrative and other expenses, primarily due to increased incentive compensation, as well as a $2.3 million increase in tax expense.

Revenue for the nine months ended September 30, 2021 increased $40.6 million compared to the nine months ended September 30, 2020, as we experienced a 27.9% increase in the number of preneed interment rights (property) sold, as well as a 21.8% increase in the average price per interment right sold, primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in 2020 due to COVID-19;

(2) the full integration of the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020;

and (3) the execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

We also experienced a 5.6% increase in total funeral contracts and a 4.4% increase in the average revenue per funeral contract for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in volume is not only due to COVID-19 deaths during the first and third quarters of 2021, but is also a consequence of our ability to adapt to the continued changing environment with our new and innovative ways to serve families.

Gross profit for the nine months ended September 30, 2021 increased $20.9 million compared to the nine months ended September 30, 2020, primarily due to the increase in revenue from both our funeral home and cemetery segments, as well as decreases in funeral home and cemetery operating expenses as a percent of operating revenue primarily in salaries and benefits expense as we increased revenue without adding extra personnel.

Net income for the nine months ended September 30, 2021 increased $12.1 million compared to the nine months ended September 30, 2020, primarily due to the increase in gross profit of $20.9 million, an $18.2 million decrease in net loss on divestitures, disposals and impairments charges, and a $4.6 million decrease in interest expense, offset by a $23.8 million loss on extinguishment of debt, a $5.9 million increase in general, administrative and other expenses, primarily due to increased incentive compensation, as well as a $2.4 million increase in tax expense.

Revenue for the three months ended March 31, 2022 increased $1.5 million compared to the three months ended March 31, 2021, as we experienced a 1.6% increase in funeral contract volume, as well as a 2.3% increase in average revenue per funeral contract primarily due to market share gains and higher normalized death rates, offset by a 10.5% decrease in the number of preneed interment rights (property) sold, as well as a 1.3% decrease in the average price per interment right sold.

Gross profit for the three months ended March 31, 2022 decreased $0.6 million compared to the three months ended March 31, 2021, primarily due to the decrease in revenue from our cemetery segment.

Net income for the three months ended March 31, 2022 increased $3.5 million compared to the three months ended March 31, 2021, primarily due to a $2.0 million decrease in interest expense, a $1.9 million gain on insurance reimbursements and a $0.6 million decrease in income tax expense, offset by a $1.1 million increase in net loss on divestitures, disposals and impairments charges.

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

Further discussion of General, administrative and other expenses, Home office depreciation and amortization expense, Interest expense, Income taxes and other components of income and expenses are presented herein under “– Other Financial Statement Items.”

Further discussion of General, administrative and other expenses, Interest expense, Income taxes and other components of income and expenses are presented herein under “– Other Financial Statement Items.”

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 three months ended September 30, 2021 issued on October 27, 2021 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 months ended March 31, 2022 issued on April 27, 2022 and discussed in the corresponding earnings conference call.

The 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.

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Below is a reconciliation of Net income, a GAAP measure, to Adjusted net income, a non-GAAP measure, (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Net income $ 12,933 $ 16,402

Special items (1)

Acquisition expenses — — 159 —

Severance and separation costs (2)

— — 563 1,575

Performance awards cancellation and exchange 108 — 180 —

Accretion of discount on Convertible Notes (1)

Loss on extinguishment of debt (3)

Net loss on divestitures and other costs (1)

Net impact of impairment of goodwill and other — 500 14,769 500

Litigation reserve (4)

Net gain on insurance reimbursements (3)

Disaster recovery and pandemic costs (4)

Other special items (5)

(60) 1,020 410 2,354

Change in uncertain tax reserves and other (1)

Sum of special items $ 2,181 $ (1,561)

Tax effect on special items (1)

1,755 738 7,243 8,619

Adjusted net income (5)

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(1) 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.

In 2020, Special items are taxed at the federal statutory rate of 21.0%, except the Net loss on divestitures and other costs and the Net impact of impairment of goodwill and other, which are taxed at the operating tax rate in the period.

In 2021, Special items are taxed at the operating tax rate in the period and include adjustments to reflect prior quarter Special items at the operating tax rate on a year-to-date basis.

The Accretion of discount on Convertible Notes is not tax effected.

(2) The increase during the nine months ended September 30, 2021 is due to separation costs related to the resignation of two members of senior leadership in the first quarter of 2021.

(3) Loss on the redemption of our Original Senior Notes during the second quarter of 2021.

(4) Relates to legal costs associated with a former corporate employee lawsuit.

(5) During the nine months ended September 30, 2020, the Special item relates to the costs associated with a state audit assessment.

During the nine months ended September 30, 2021, the Special item relates to (1) the write-off of certain fixed assets;

(2) a one-time $1.0 million payment in September 2021 for residual insurance claims;

and (3) interest paid on our Original Senior Notes for the two-week period during which our New Senior Notes were issued prior to the redemption of our Original Senior Notes.

In 2021, Special items were taxed at the federal statutory rate of 21.0%, except for the Accretion of the discount on Convertible Notes, as this is a non-tax deductible item.

The Net loss on divestitures and other costs were taxed at the operating tax rate for the period.

In 2022, Special items were taxed at the operating tax rate for the period, except for the Change in uncertain tax reserves and other, as this item is a tax benefit.

(2) Costs related to the termination or resignation of certain key members of leadership in the first quarter of 2021.

(3) Net gain recognized on insurance reimbursements for property damaged caused by Hurricane Ida that occurred during the third quarter of 2021.

(4) Relates to health and safety expenses, including personal protective equipment (“PPE”) due to COVID-19.

We purchased more PPE during the first quarter of 2021 compared to the same period in 2022.

(5) 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) (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Gross profit $ 35,061 $ 34,478

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Below is a breakdown of Operating profit (a non-GAAP measure) by Segment (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Three months ended March 31,

Funeral Home $ 32,906 $ 33,735

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Operating profit margin (1)

44.2% 47.0% 42.0% 46.6%

(1) Operating profit margin is defined as Operating profit as a percentage of Revenue.

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RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three and nine months ended September 30, 2021 and 2020.

The following is a discussion of our results of operations for the three months ended March 31, 2022 and 2021.

The term “same store” refers to funeral homes and cemeteries acquired prior to January 1, 2018 and owned and operated for the entirety of each period being presented, excluding certain funeral home and cemetery businesses that we intend to divest in the near future.

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This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The term “divested” when discussed in the Funeral Home Segment, refers to six funeral homes and three funeral homes we sold in the nine months ended September 30, 2020 and 2021, respectively.

“Planned divested” refers to the funeral home and cemetery businesses that we intend to divest.

The term “divested” when discussed in the Funeral Home Segment, refers to one funeral home we sold and one funeral home we merged with another business in an existing market in the three months ended March 31, 2021 and two funeral homes we sold in the three months ended March 31, 2022 .

The term “divested” when discussed in the Cemetery Segment, refers to one cemetery we sold during 2021.

“Planned divested” refers to the funeral home businesses that we intend to divest.

“Ancillary” in the Funeral Home Segment represents our flower shop, pet cremation business and online cremation business.

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The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations (in thousands):

Three months ended September 30,

Same store operating revenue $ 47,865 $ 55,502

Acquired operating revenue 8,205 9,354

Divested/planned divested revenue 1,796 694

Ancillary revenue 1,196 1,096

Preneed funeral insurance commissions 369 375

Preneed funeral trust and insurance 2,003 1,876

Total $ 61,434 $ 68,897

Operating profit:

Same store operating profit $ 19,903 $ 24,960

Acquired operating profit 2,942 3,974

Divested/planned divested operating profit 369 187

Ancillary operating profit 292 274

Preneed funeral insurance commissions 159 121

Preneed funeral trust and insurance 1,971 1,839

Total $ 25,636 $ 31,355

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

Three months ended September 30,

Contract volume 9,442 10,664

Average revenue per contract, excluding preneed funeral trust earnings $ 5,069 $ 5,205

Average revenue per contract, including preneed funeral trust earnings $ 5,260 $ 5,361

Burial rate 35.8% 33.7%

Cremation rate 57.1% 57.5%

Contract volume 1,619 1,739

Average revenue per contract, excluding preneed funeral trust earnings $ 5,068 $ 5,379

Average revenue per contract, including preneed funeral trust earnings $ 5,142 $ 5,440

Burial rate 39.5% 38.4%

Cremation rate 55.7% 54.1%

Funeral home same store operating revenue for the three months ended September 30, 2021 increased $7.6 million compared to the same period in 2020.

The increase in operating revenue is primarily due to a 12.9% increase in same store contract volume, as well as a 2.7% increase in the average revenue per contract excluding preneed interest.

Approximately 60% of the increase in funeral volumes is attributable to deaths from the Delta COVID-19 variant.

The additional volume increase is primarily a consequence of our ability to adapt to the continued changing environment with our new and innovative ways to serve families.

Funeral home same store operating profit for the three months ended September 30, 2021 increased $5.1 million when compared to the same period in 2020.

The comparable operating profit margin increased 340 basis points to 45.0%.

The increase in operating profit is primarily due to the increase in same store operating revenue along with disciplined expense and cost management by leaders at each business.

Overall same store operating expenses as a percent of operating revenue

decreased 3.4% with the largest decrease in salaries and benefits expense of 2.1% as a percent of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.

Funeral home acquired operating revenue for the three months ended September 30, 2021 increased $1.1 million compared to the same period in 2020.

The increase in operating revenue is primarily due to a 7.4% increase in acquired contract volume, as well as a 6.1% increase in the average revenue per contract excluding preneed interest.

The average revenue per contract in the third quarter of 2021 reflects an increase in cremation contracts with services in the third quarter of 2021 compared to the third quarter of 2020, primarily due to our continued determination and focus to welcome and educate families on the many products and service options that are available with cremation.

Funeral home acquired operating profit for the three months ended September 30, 2021 increased $1.0 million when compared to the same period in 2020.

The comparable operating profit margin increased 660 basis points to 42.5%.

The increase in operating profit is primarily due to the increase in acquired operating revenue along with disciplined expense and costs management by leader at each business.

Overall acquired operating expenses as a percent of operating revenue decreased 6.6% with the largest decrease in salaries and benefits expense of 5.9% as a percentage of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.

Ancillary revenue, which is recorded in Other revenue , represents revenue from our flower shop, pet cremation and online cremation businesses, decreased $0.1 million, while Ancillary operating profit remained flat for the three months ended September 30, 2021 compared to the same period in 2020.

Preneed funeral insurance commissions and preneed funeral trust and insurance revenue (recorded in Other revenue) on a combined basis, decreased $0.1 million for the three months ended September 30, 2021 compared to the same period in 2020.

The decrease is primarily related to a 6.2% decrease in preneed contracts maturing to atneed which triggers the recognition of trust earnings on matured contracts.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, decreased $0.2 million for the same comparative period, primarily due to the decrease in preneed funeral trust and insurance revenue.

The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations (in thousands):

Nine months ended September 30,

Three months ended March 31,

Same store operating revenue $ 58,983 $ 61,632

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

Nine months ended September 30,

Three months ended March 31,

Contract volume 11,303 11,675

8 unchanged sentences

Cremation rate 56.4% 57.5%

Funeral home same store operating revenue for the nine months ended September 30, 2021 increased $20.6 million compared to the same period in 2020.

The increase in operating revenue is primarily driven by an 11.6% increase in same store contract volume, as well as a 2.9% increase in the average revenue per contract excluding preneed interest.

Funeral home same store operating profit for the nine months ended September 30, 2021 increased $12.8 million when compared to the same period in 2020.

The comparable operating profit margin increased 280 basis points to 43.5%.

The increase in operating profit is primarily due to the increase in same store operating revenue along with disciplined expense and cost management by leaders at each business.

Overall same store operating expenses as a percent of operating revenue decreased 2.7% with the largest decrease in salaries and benefits expense of 1.6% as a percent of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.

Funeral home acquired operating revenue for the nine months ended September 30, 2021 increased $1.9 million compared to the same period in 2020.

The increase in operating revenue is primarily driven by a 6.0% increase in the average revenue per contract excluding preneed interest, as well as a 1.4% increase in acquired contract volume.

Acquired operating profit for the nine months ended September 30, 2021 increased $1.8 million when compared to the same period in 2020.

The comparable operating profit margin increased 360 basis points to 41.7%.

The increase in operating profit is primarily due to the increase in acquired operating revenue along with disciplined expense and cost management by leaders at each business.

Overall acquired operating expenses as a percent of operating revenue decreased 3.6% with the largest decrease in salaries and benefits expense of 3.9% as a percent of operating revenue, as we focused on optimizing the inherent operating leverage in each business by increasing revenue without adding extra personnel.

Ancillary revenue, which is recorded in Other revenue , represents revenue from our flower shop, pet cremation and online cremation businesses and Ancillary operating profit both decreased $0.1 million for the nine months ended September 30, 2021 compared to the same period in 2020.

Preneed funeral insurance commissions and preneed funeral trust and insurance (recorded in Other revenue) on a combined basis, increased $0.1 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase is primarily from trust and insurance earnings on preneed contracts.

Recognition of trust earnings is triggered at the time a preneed contract matures to at need.

For the nine months ended September 30, 2021, the average trust earnings per matured preened contract increased slightly compared to the prior period.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, remained relatively flat for the same comparative period.

Funeral home same store operating revenue increased $2.6 million for the three months ended March 31, 2022 compared to the same period in 2021.

The increase in operating revenue is primarily related to a 3.3% increase in same store contract volume, as well as a 1.2% increase in the average revenue per contract excluding preneed interest.

The same store contract volume increased in spite of a 38.7% decrease in COVID-19 related contracts for the first quarter of 2022 compared to the first quarter of 2021.

This additional volume increase is primarily due to market share gains and higher normalized death rates.

The increase in average revenue per contract in the first quarter of 2022 reflects an increase in both burial and cremation contracts with services compared to the first quarter of 2021.

The percentage of cremation contracts had the largest increase with a 3.4% increase in cremation contracts with memorial service.

This increase is primarily due to our continued focus to welcome and educate families on the many products and service options that are available with cremation.

Funeral home same store operating profit for the three months ended March 31, 2022 increased $0.9 million when compared to the same period in 2021.

The comparable operating profit margin decreased 60 basis points to 44.6%.

The increase in operating profit is primarily related to the increase in same store operating revenue, offset by a slight increase in bad debt expenses as a percent of revenue, which is due to the aging of higher accounts receivable related to high sales volume in the third quarter of 2021 due to the COVID-19 spike.

Funeral home acquired operating revenue for the three months ended March 31, 2022 increased $0.6 million compared to the same period in 2021.

The increase in operating revenue is primarily due to a 10.5% increase in the average revenue per contract excluding preneed interest, offset by a 2.4% decrease in acquired contract volume.

The average revenue per contract in the first quarter of 2022 reflects an increase in both burial and cremation contracts with services compared to the first quarter of 2021.

The percentage of cremation contracts had the largest increase with a 4.1% increase in cremation contracts with memorial services.

This increase is primarily due to our continued focus to welcome and educate families on the many products and service options that are available with cremation.

The acquired contract volume decrease is primarily related to the 57.1% decrease in COVID-19 related contracts for the first quarter of 2022 compared to the first quarter of 2021.

Funeral home acquired operating profit for the three months ended March 31, 2022 increased $0.1 million when compared to the same period in 2021.

The comparable operating profit margin decreased 200 basis points to 43.6%.

The increase in operating profit is primarily related to the increase in acquired operating revenue, offset by an increase in operating expenses as a percent of operating revenue.

Overall acquired operating expenses increased 2.1% as a percent of operating revenue with the largest increases in bad debt expense of 1.0% and salaries and benefits expense of 0.4%.

The increase in bad debt expense is due to the aging of higher accounts receivable related to a high volume of sales due to the COVID-19 spike during the third quarter of 2021.

The increase in salaries and benefits relates to filling vacant managing partner positions at three of our acquired businesses.

Ancillary revenue, which is recorded in Other revenue , represents revenue from our flower shop, pet cremation and online cremation businesses, decreased $0.1 million, while Ancillary operating profit remained flat for the three months ended March 31, 2022 compared to the same period in 2021.

Preneed funeral insurance commissions and preneed funeral trust and insurance revenue (recorded in Other revenue ) on a combined basis, decreased $0.1 million for the three months ended March 31, 2022 compared to the same period in 2021.

The decrease is primarily related to the decrease in funeral insurance commissions, as preneed insurance sales decreased over the prior year due to the uncertainty of COVID-19.

Operating profit for preneed funeral insurance commissions and preneed trust

and insurance, on a combined basis, decreased $0.1 million for the same comparative period, primarily due to the decrease in preneed funeral insurance commission revenue.

Cemetery Segment

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations (in thousands):

Three months ended September 30,

Three months ended March 31,

Same store operating revenue $ 14,635 $ 14,251

Acquired operating revenue 6,980 6,297

Divested/planned divested revenue 89 52

Divested revenue 80 —

Preneed cemetery trust revenue 2,903 3,014

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Acquired operating profit 4,102 3,299

Divested/planned divested operating profit 25 19

Divested operating profit 31 —

Preneed cemetery trust operating profit 2,779 2,876

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

Three months ended September 30,

Three months ended March 31,

Preneed revenue as a percentage of operating revenue 58% 57%

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Average price per interment right sold $ 5,800 $ 5,969

Cemetery same store preneed revenue increased $1.1 million for the three months ended September 30, 2021 compared to the same period in 2020, as we experienced a 17.2% increase in the number of interments rights sold, as well as a 17.2% increase in the average price per interment right sold.

The increase is primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in the third quarter of 2020 due to COVID-19;

and (2) the continuous execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

Cemetery same store atneed revenue, which represents 39% of our same store operating revenue, increased $0.8 million as we experienced a 9.1% increase in same store atneed contracts and a 5.0% increase in the average sale per contract for the three months ended September 30, 2021 compared to the same period in 2020.

These increases are primarily due to the increased number of deaths in 2021 related to COVID-19.

Cemetery same store operating profit for the three months ended September 30, 2021 increased $0.3 million from the same period in 2020, primarily due to the increase in operating revenue.

Cemetery same store preneed revenue decreased $0.4 million for the three months ended March 31, 2022 compared to the same period in 2021, as we experienced a 6.2% decrease in the number of interment rights sold, as well as a 2.0% decrease in the average price per interment right sold.

Cemetery same store atneed revenue, which represents 43% of our same store operating revenue, remained flat for the three months ended March 31, 2022 compared to the same period in 2021.

Cemetery same store operating profit for the three months ended March 31, 2022 decreased $0.4 million from the same period in 2021, primarily due to the decrease in operating revenue.

The comparable operating profit margin decreased 180 basis points to 37.2%.

Operating expenses as a percent of operating revenue increased 3.0% with the largest increases in the following areas:

(1) promotional expenses increased 2.5% due to our recent deployment of a performance-based compensation

plan with escalating commissions for higher sales target achievement;

and (2) allowance for credit losses increased 1.1% primarily due to one business who experienced unusually low credit loss expense in the prior year.

There are three businesses in our acquired cemetery portfolio, two of which were acquired in the fourth quarter of 2019 and one acquired in the first quarter of 2020.

In the first quarter of 2020, we hired new sales leadership at two of the newly acquired cemeteries and continue to build their respective sales teams as we execute our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

As a result, our acquired cemetery portfolio experienced a $0.6 million increase in preneed revenue and a $0.6 million increase in atneed revenue for the three months ended September 30, 2021 compared to the same period in 2020.

Cemetery acquired operating profit increased $1.2 million for the three months ended September 30, 2021 from the same period in 2020.

The comparable operating profit margin increased 1,110 basis points to 55.8% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business.

Operating expenses as a percent of operating revenue decreased 11.0% with the largest decreases in the following areas:

(1) promotional expenses and salaries and benefits both decreased 3.8% as a percent of operating revenue as we benefited from an increase in revenue without incurring additional expenses;

and (2) merchandise and services costs decreased 2.1%.

Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenu e) on a combined basis increased $0.1 million for the three months ended September 30, 2021 compared to the same period in 2020.

The increase in trust revenue is due to a decrease in realized losses on delivered merchandise and services contracts and an increase in finance charge revenue.

Operating profit for the two categories of Other revenue , on a combined basis, increased $0.1 million for the three months ended September 30, 2021 compared to the same period in 2020 primarily due to the increase in revenue.

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations (in thousands):

Nine months ended September 30,

Same store operating revenue $ 36,952 $ 47,883

Acquired operating revenue 12,075 21,517

Divested/planned divested revenue 182 202

Preneed cemetery trust revenue 7,158 9,079

Preneed cemetery finance charges 696 771

Total $ 57,063 $ 79,452

Operating profit:

Same store operating profit $ 13,002 $ 20,076

Acquired operating profit 4,597 12,386

Divested/planned divested operating profit 23 66

Preneed cemetery trust operating profit 6,844 8,708

Preneed cemetery finance charges 696 771

Total $ 25,162 $ 42,007

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

Nine months ended September 30,

Preneed revenue as a percentage of operating revenue 60% 61%

Preneed revenue (in thousands) $ 22,144 $ 29,046

Atneed revenue (in thousands) $ 14,810 $ 18,840

Number of preneed interment rights sold 5,233 6,375

Average price per interment right sold $ 3,686 $ 4,106

Preneed revenue as a percentage of operating revenue 65% 68%

Preneed revenue (in thousands) $ 7,899 $ 14,692

Atneed revenue (in thousands) $ 4,175 $ 6,825

Number of preneed interment rights sold 1,600 2,369

Average price per interment right sold $ 4,248 $ 6,107

Cemetery same store preneed revenue increased $6.9 million for the nine months ended September 30, 2021 compared to the same period in 2020, as we experienced a 21.8% increase in the number of interments rights sold, as well as an 11.4% increase in the average price per interment right sold.

The increase is primarily due to (1) our sales personnel being less impacted by social distancing restrictions that were in place in 2020 due to COVID-19;

and (2) the continuous execution of our innovative cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

Cemetery same store atneed revenue, which represents 39% of our same store operating revenue, increased $4.0 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase was a result of a 16.2% increase in same store atneed contracts and a 9.4% increase in the average sale per contract, primarily due to the increased deaths in 2021 related to COVID-19.

Cemetery same store operating profit increased $7.1 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The comparable operating profit margin increased 670 basis points to 41.9% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business.

Operating expenses as a percent of operating revenue decreased 6.7% with the largest decreases in the following areas:

(1) salaries and benefits expense decreased 2.9%, as we increased revenue without adding extra personnel;

(2) facilities and grounds expenses decreased 1.3%;

and (3) allowance for credit losses decreased 0.6%.

There are three businesses in our acquired cemetery portfolio, two of which were acquired in the fourth quarter of 2019 and one acquired in the first quarter of 2020.

As a result, our acquired cemetery portfolio experienced a $6.8 million increase in preneed revenue and a $2.7 million increase in atneed revenue for the nine months ended September 30, 2021 compared to the same period in 2020.

Cemetery acquired operating profit increased $7.8 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The comparable operating profit margin increased 1,950 basis points to 57.6% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business.

Operating expenses as a percent of operating revenue decreased 19.5% with the largest decreases in the following areas:

(1) salaries and benefits expense decreased 9.3%, as we increased revenue without adding extra personnel;

(2) promotional expenses decreased 4.3%;

(3) merchandise and services costs decreased 2.5%;

and (4) facilities and grounds expenses decreased 1.5%.

Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenue ) on a combined basis increased $2.0 million for the nine months ended September 30, 2021 compared to the same period in 2020.

The increase in our trust fund income is primarily due to our execution of a major repositioning strategy beginning at the height of the COVID-19 market crisis in March 2020, substantially increasing our preneed cemetery trust revenue and operating profit.

We experienced a $1.4 million increase in income and a $0.3 million increase in realized capital gains within our perpetual care trusts for the nine months ended September 30, 2021 compared to the same period of 2020.

Additionally, income from delivered merchandise and service contracts increased $0.2 million.

Operating profit for the two categories of Other revenue , on a combined basis, increased $1.9 million for the nine months ended September 30, 2021 compared to the same period in 2020 primarily due to the increase in revenue.

Operating expenses as a percent of operating revenue increased 1.8% with the largest increases in general and administrative expenses of 1.1% and salaries and benefits expenses of 0.4%, primarily due to the lower comparative costs in the prior period due to COVID-19 restrictions.

Cemetery acquired businesses experienced a $0.5 million decrease in preneed revenue and a $0.2 million decrease in atneed revenue for the three months ended March 31, 2022 compared to the same period in 2021.

In the first quarter of 2022, we experienced a 20.4% decrease in the number of interment rights sold, which was slightly offset by a 2.9% increase in the average price per interment right sold.

The decrease in interment rights sold is primarily due to atypical group and larger sales at our Virginia business in the first quarter of 2021.

Group or larger sales impact the interment counts, as multiple interments are listed on a single contract, which creates a high comparable on interments sold in the prior period compared to the current period.

Cemetery acquired operating profit decreased $0.8 million for the three months ended March 31, 2022 from the same period in 2021.

The comparable operating profit margin decreased 640 basis points to 52.4% primarily as a result of the decrease in operating revenue and a 6.4% increase in operating expenses as a percent of operating revenue.

The areas with the largest increases are as follows:

(1) salaries, benefits and atneed commissions increased 2.2%, (2) facilities and grounds increased 1.5%, (3) general and administrative expenses increased 1.0% and (4) promotional expenses increased 0.9%.

Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenue ) on a combined basis increased $0.1 million for the three months ended March 31, 2022 compared to the same period in 2021.

The increase in trust revenue is due to an increase in realized gains on delivered merchandise and services contracts and an increase in income in our perpetual care trust fund.

Operating profit for the two categories of Other Revenue , on a combined basis, increased $0.1 million for the three months ended March 31, 2022 compared to the same period in 2021 primarily due to the increase in revenue.

Cemetery property amortization .

Cemetery property amortization totaled $1.5 million and $5.2 million for the three and nine months ended September 30, 2021, respectively, increases of $0.1 million and $1.8 million, respectively, compared to the same periods in prior year primarily due to the increase in property sold across our cemetery portfolio.

Cemetery property amortization totaled $1.3 million for the three months ended March 31, 2022, a decrease of $0.2 million compared to the same period in 2021, primarily due to the decrease in property sold across our cemetery portfolio.

Field depreciation.

Depreciation expense for our field businesses totaled $3.2 million and $9.4 million for the three and nine months ended September 30, 2021, respectively, decreases of $0.1 million and $0.3 million, respectively, compared to the same periods in prior year primarily due to building structures and older vehicles becoming fully depreciated without any newly acquired building structures and vehicles to offset the decreases.

Depreciation expense for our field businesses totaled $3.3 million for the three months ended March 31, 2022, an increase of $0.2 million compared to the same period in 2021, primarily due to depreciation from computer equipment assets added in the latter half of 2021.

Regional and unallocated funeral and cemetery costs.

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 totaled $6.8 million for the three months ended September 30, 2021, an increase of $2.1 million compared to the same period in the prior year primarily due to the following:

(1) a $0.9 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation;

Regional and unallocated funeral and cemetery costs totaled $6.3 million for the three months ended March 31, 2022, an increase of $0.3 million compared to the same period in 2021, primarily due to the following:

(1) a $0.3 million increase in other general administrative costs, which includes higher travel costs;

(3) a $0.4 million increase in natural disaster costs due to Hurricane Ida impacting several Louisiana businesses;

(2) a $0.3 million increase in salary and benefits expenses, which includes additional cemetery sales employees;

and (5) a $0.1 million increase in separation expenses.

Regional and unallocated funeral and cemetery costs totaled $18.7 million for the nine months ended September 30, 2021, an increase of $7.5 million compared to the same period in the prior year primarily due to the following:

(1) a $5.1 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation;

(2) $1.0 million increase in salary and benefits expenses, which includes our Chief Operating Officer hired in June 2020 and six additional cemetery sales employees;

(3) a $0.7 million increase in other general administrative costs, which includes higher travel and advertising costs;

(4) a $0.5 million increase in health and safety expenses related to the COVID-19 pandemic;

and (5) a $0.5 million increase in natural disaster costs due to Hurricane Ida impacting several Louisiana businesses;

offset by (6) a $0.3 million decrease in state audit assessments.

and (3) a $0.3 million increase in incentive award trips and annual managing partner meetings, which were postponed in the prior year due to COVID-19, offset by (4) a $0.6 million decrease in health and safety expenses related to COVID-19.

Other Financial Statement Items

General, administrative and other.

General, administrative and other expenses totaled $8.8 million for the three months ended September 30, 2021, an increase of $2.6 million compared to the same period in the prior year primarily due to the following:

(1) a $1.2 million increase in insurance claims expense, which includes a one-time $1.0 million payment for residual insurance claims;

(2) a $0.7 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation;

(3) a $0.4 million increase in other general administrative costs, which includes higher online marketing and advertising costs and software license fees for new technology;

and (4) a $0.3 million increase in salary and benefits expenses.

General, administrative and other expenses totaled $24.5 million for the nine months ended September 30, 2021, an increase of $5.9 million compared to the same period in the prior year primarily due to the following:

(1) a $2.5 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation;

(2) a $1.2 million increase in separation expenses related to the resignation of two members of senior leadership;

(3) a $1.2 million increase in insurance claims expense, which includes a one-time $1.0 million payment for residual insurance claims;

General, administrative and other expenses totaled $8.6 million for the three months ended March 31, 2022, a decrease of $0.6 million compared to the same period in 2021, primarily due to the following:

(1) a $1.6 million decrease in separation expense related to the resignation of two members of senior leadership in the first quarter of 2021;

and (2) a $0.1 million decrease in divestiture expenses, offset by (3) a $0.5 million increase in cash incentives and equity compensation;

(4) a $0.3 million increase in other general administrative costs, which includes higher online marketing and advertising costs and software license fees for new technology;

and (5) a $0.3 million increase in salary and benefits expenses;

offset by (6) a $0.3 million decrease in litigation reserve.

Home office depreciation and amortization.

Home office depreciation and amortization expense totaled $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, decreases of $0.1 million and $0.3 million, respectively, compared to the same periods in prior year primarily due to equipment and software at the home office becoming fully depreciated in the latter half of the prior year without any newly acquired assets to offset the decreases.

Net loss on divestitures, disposals and impairments charges.

The components of Net loss on divestitures, disposals and impairment charges are as follows (in thousands):

Three months ended September 30, Nine months ended September 30,

2020 2021 2020 2021

Goodwill impairment $ — $ — $ 13,632 $ —

Tradename impairment — — 1,061 —

Assets held for sale impairment — 500 — 500

Net loss on divestitures and real property 4,917 282 4,917 179

and (5) a $0.3 million increase in salary and benefits expenses, which includes five new employees in our recently developed marketing department.

Net (gain) loss on divestitures, disposals and impairments charges.

The components of Net (gain) loss on divestitures, disposals and impairment charges are as follows (in thousands):

Three months ended March 31,

Net (gain) loss on divestitures and real property $ (308) $ 703

Net loss on disposals of fixed assets — 64

Total $ (308) $ 767

During the nine months ended September 30, 2021, we divested three funeral homes and sold real property for a total net loss of $0.2 million and disposed of fixed assets for a net loss of $0.7 million.

In addition, we recognized an impairment loss of $0.5 million for property, plant and equipment assets held for sale at September 30, 2021.

During the nine months ended September 30, 2020, we recorded an impairment for goodwill of $13.6 million as the carrying amount of our funeral homes in the Eastern Region Reporting Unit exceeded the fair value and we recorded an impairment for certain of our tradenames of $1.1 million as the carrying amount of these tradenames exceeded the fair value.

We also recognized a net loss of $4.9 million on the sale of six funeral homes.

We divested two funeral homes for an aggregate net loss of $0.7 million and we divested one funeral home and real property for a net gain of $0.3 million, during the three months ended March 31, 2022 and 2021, respectively.

Interest expense .

Interest expense totaled $5.1 million and $20.1 million for the three and nine months ended September 30, 2021, respectively, decreases of $2.9 million and $4.6 million, respectively, compared to the same periods in prior year, primarily due to decreased borrowings and lower interest rates on our Credit Facility, as well as lower interest on our New Senior Notes.

Interest expense related to our various debt arrangement is as follows (in thousands):

Three months ended March 31,

Senior Notes $ 6,779 $ 4,406

Credit Facility 563 935

Finance leases 120 113

Acquisition debt 97 80

Convertible Notes 19 —

Total $ 7,584 $ 5,542

Gain on insurance reimbursements.

During the three months ended March 31, 2022, we recorded a gain on the reimbursements received from insurance for property damaged by Hurricane Ida that occurred during third quarter of 2021.

Income taxes.

Income tax expense totaled $5.1 million and $6.6 million for the three and nine months ended September 30, 2021 respectively, increases of $2.3 million and $2.4 million, respectively.

Our operating tax rate before discrete items was 28.2% and 34.0% for the three months ended September 30, 2021 and 2020, respectively and 28.3% and 33.8% for the nine months ended September 30, 2021 and 2020, respectively.

We filed carryback refund claims for the 2018 and 2019 tax years as allowed by the legislative changes included in the CARES Act.

As a result of requesting a tax refund in excess of $5 million, we must receive Joint Committee approval and undergo an audit for the tax year ending December 31, 2018.

This audit is currently in progress.

In 2020, the 2018 tax return was amended to take full advantage of the CARES Act legislative benefits resulting in additional losses that increase the amount of our carryback refund claim.

Income tax expense totaled $5.1 million and $5.6 million for the three months ended March 31, 2022 and 2021.

Our operating tax rate before discrete items was 26.5% and 31.0% for the three months ended March 31, 2022 and 2021, respectively.

On June 30, 2020, we filed carryback refund claims for the 2018 and 2019 tax years.

The majority of the net operating losses generated in 2018 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales.

As of September 30, 2021, we received an adverse ruling related to the change to our method of recognition of revenue from our constructed cemetery property, however, we are currently in further discussions with the IRS regarding this ruling.

Due to the uncertainty that exists, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses generated.

At September 30, 2021, the reserve for uncertain tax positions was $3.7 million.

On October 11, 2021, we received an adverse ruling from the IRS related to our accounting method change for cemetery property revenue recognition filed in 2018 and subsequently filed an automatic accounting method change to adopt the IRS’ preferred method of revenue recognition for cemetery property effective for the year ending December 31, 2021.

On March 2, 2022, we received approval from the IRS regarding our method change filed related to the revenue recognition of cemetery merchandise and services sales.

As a result, we recorded a $0.5 million reduction to the reserve for uncertain tax positions during the three months ended March 31, 2022.

At December 31, 2021 and March 31, 2022, the reserve for uncertain tax positions was $3.8 million and $3.2 million, respectively, related to carrying back the NOLs generated in the tax year ended December 31, 2018, filed under the CARES Act on June 30, 2020.

OVERVIEW OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes.

We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances.

The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities.

The preparation of our Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses.

Understanding our accounting policies and the extent to which our management uses judgment, assumptions and estimates in applying these policies is integral to understanding our Consolidated Financial Statements.

Our critical accounting policies are more fully described in Part I, Item 1, Financial Statements, Note 1.

We have identified Business Combinations and Goodwill as those accounting policies that require significant judgments, assumptions and estimates and that have a significant impact on our financial condition and results of operations.

These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations.

Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change.

Historical performance should not be viewed as indicative of future performance because there can be no assurance that our margins, operating income and net income, as a percentage of revenue, will be consistent from year to year.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is based upon our Consolidated Financial Statements presented herewith, which have been prepared in accordance with GAAP.

Our critical accounting policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, 2020.

Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period.

We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions.

Our business can be affected by seasonal fluctuations in the death rate.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis