What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-02 compared with 2022-05-03 · 290 added, 137 removed, 350 unchanged (55% 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 March 31, 2022, we operated 168 funeral homes in 26 states and 31 cemeteries in 11 states.

At June 30, 2022, we operated 167 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

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.

Executive Leadership Changes

On April 1, 2022, Rob Franch joined our executive leadership team as Chief Information Officer.

During the six months ended June 30, 2022, we sold real property for $2.7 million and two funeral homes for $0.9 million for a net gain of $0.6 million.

Credit Facility

On May 27 2022, we entered into a second amendment and commitment increase to the Credit Facility with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

Pursuant to this amendment, the revolving credit commitment was increased from $200.0 million to $250.0 million.

Business Impact under the Macroeconomic Environment of COVID-19

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

the second 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.

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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.

To date, we have not experienced any material supply chain impacts or disruptions from our vendors attributable to COVID-19.

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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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 the second 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.

Inflationary Trends

Beginning in the second quarter of 2022, we began to experience modest cost increases and surcharges from our vendors and suppliers on merchandise and goods due to broader inflationary, raw material cost increases, and global supply chain impacts.

Although we have taken steps to mitigate these cost increases, we expect these impacts to continue through the end of the year.

More broadly, the U.S.

economy has recently experienced an increase in the rate of inflation, which has impacted a wide variety of industries and sectors, with consumers facing rising prices.

Such inflation may negatively impact consumers or discretionary spending, although we have not experienced such impacts to date and our industry has been largely resilient to similar adverse economic and market environments in the past.

Although we expect these trends to continue through the end of the year, we will continue to assess these impacts and take the appropriate steps, if necessary, to mitigate these cost increases, if possible.

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

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.

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As we execute this strategy over time, we expect to acquire larger, higher margin strategic businesses.

We have learned that the long-term growth or decline of a local branded funeral and cemetery business is reflected by several criteria that correlate strongly with five to ten year performance in volumes (market share), revenue and sustainable field-level earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins (a non-GAAP measure).

We use criteria such as cultural alignment, volume and price trends, size of business, size of market, competitive standing, demographics, strength of brand and barriers to entry to evaluate the strategic position of potential acquisition candidates.

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

At June 30, 2022, we had $72.5 million of availability under the Credit Facility.

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.

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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 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, as well as our long-term financial obligations.

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.

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

At June 30, 2022, we had borrowings of $175.2 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):

Three months ended March 31,

Six months ended June 30,

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

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Net borrowings on our Credit Facility, acquisition debt and finance lease obligations 12,848 19,598

Payments to redeem the Original Senior Notes (400,000) —

Payment of call premium for the redemption of the Original Senior Notes (19,876) —

Payment of debt issuance costs for the Credit Facility and Senior Notes (1,930) (339)

Proceeds from the issuance of the Senior Notes 395,500 —

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

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Operating Activities

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.

For the six months ended June 30, 2022, cash provided by operating activities was $30.2 million compared to $41.4 million for the six months ended June 30, 2021.

The decrease of $11.2 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 $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.

Our investing activities, resulted in a net cash outflow of $10.2 million for the six months ended June 30, 2022 compared to $7.9 million for the six months ended June 30, 2021, a decrease of $2.3 million.

Acquisition and Divestiture Activity

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.

During the six months ended June 30, 2022, we sold real property for $2.9 million and two funeral homes for $0.9 million and we purchased real property for $2.6 million.

During the six months ended June 30, 2021, we sold three funeral homes for $3.5 million and we purchased real property for $2.9 million.

Capital Expenditures

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.

For the six months ended June 30, 2022, capital expenditures (comprised of growth and maintenance spend) totaled $13.5 million compared to $8.8 million for the six months ended June 30, 2021, an increase of $4.7 million.

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

Three months ended March 31,

Six months ended June 30,

Cemetery development $ 2,665 $ 3,673

Renovations at certain businesses (1)

Other 11 (148)

Total Growth $ 4,149 $ 7,486

(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,

(1) During the six months ended June 30, 2022, we spent $2.1 million for renovations on two businesses that were affected by Hurricane Ida, all of which was reimbursed by our property insurance.

Six months ended June 30,

Facility repairs and improvements $ 870 $ 1,599

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Paving roads and parking lots 265 485

Other 376 422

Total Maintenance $ 4,602 $ 5,982

Financing Activities

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

Our financing activities resulted in a net cash outflow of $20.1 million for the six months ended June 30, 2022 compared to $32.9 million for the six months ended June 30, 2021, a decrease of $12.8 million.

During the six months ended June 30, 2022, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $19.6 million, offset by $36.7 million for the purchase of treasury stock and $3.5 million in dividends.

During the six months ended June 30, 2021, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $12.8 million, offset by the following payments:

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

ii) $11.6 million for the purchase of treasury stock;

iii) $6.4 million for debt issuance and transactions costs related to our Senior Notes and Credit Facility;

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

and v) $3.6 million in dividends.

Share Repurchase

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 March 31,

Six months ended June 30,

Number of Shares Repurchased (1)

324,700 695,496

Average Price Paid Per Share $ 37.88 $ 49.22

Dollar Value of Shares Repurchased (1)

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

$ 12,301 $ 34,233

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

At June 30, 2022, our share repurchase program had $48.9 million authorized for repurchases.

Cash Dividends

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

$ 0.1125 $ 1,730

2021 Per Share Dollar Value

$ 0.1000 $ 1,799

$ 0.1000 $ 1,808

Credit Facility, Lease Obligations and Acquisition Debt

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

March 31, 2022

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at June 30, 2022 is as follows (in thousands):

June 30, 2022

Credit Facility $ 175,200

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Credit Facility

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

On May 27 2022, we entered into a second amendment and commitment increase (the “Credit Facility Amendment”) to the first amended and restated credit agreement dated May 13, 2021 (as amended, the “Credit Facility”) with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent.

The Credit Facility Amendment provided, among other things, for (i) an increase to the Revolving Credit Commitments (as defined in the Credit Facility) under the Credit Facility from $200.0 million to $250.0 million in the aggregate;

(ii) modifications to the definitions of “Applicable Rate” and “Applicable Fee Rate” to change the applicable rates and pricing levels set forth in each pricing grid;

(iii) the establishment of the BSBY as a benchmark rate and the removal of LIBOR from the Credit Facility;

(iv) an increase in the maximum Total Leverage Ratio (as defined in the Credit Facility) to 5.25 to 1.00;

and (v) modifications to the restricted payments covenant to allow the Company to make additional stock repurchases, subject to the satisfaction of certain conditions therein.

We incurred $0.3 million in transactions costs related to this amendment, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method.

At June 30, 2022, our senior secured revolving Credit Facility was comprised of:

(i) a $250.0 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.

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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.

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:

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 June 30, 2022, we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed 5.25 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 Credit Facility as of March 31, 2022.

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

We were in compliance with all of the covenants contained in our Credit Facility as of June 30, 2022.

At June 30, 2022, we had outstanding borrowings under the Credit Facility of $175.2 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 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.

At June 30, 2022, we had $72.5 million of availability under the Credit Facility.

As of the effective date of the Credit Facility Amendment, outstanding borrowings under our Credit Facility bear interest at a prime rate or a BSBY rate, plus an applicable margin based our leverage ratio.

At June 30, 2022, the prime rate margin was equivalent to 1.125% and the BSBY rate margin was 2.125%.

The weighted average interest rate on our Credit Facility was 2.5% and 2.9% for the three months ended June 30, 2021 and 2022, respectively and 2.8% and 2.5% for the six months ended June 30, 2021 and 2022, respectively.

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Credit Facility interest expense $ 372 $ 1,314 $ 817 $ 2,161

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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.

At June 30, 2022, operating and finance lease obligations were $36.7 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 March 31,

Three months ended June 30, Six months ended June 30,

2020 2021 2021 2022

Operating lease cost $ 964 $ 853 $ 1,924 $ 1,701

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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.

At June 30, 2022, acquisition debt obligations were $6.4 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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Acquisition debt imputed interest expense $ 93 $ 79 $ 190 $ 159

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

At June 30, 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.

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The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 83 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%.

For both the three and six months ended June 30, 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 and six months ended June 30, 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 6.87% and 6.69%, respectively.

For the six months ended June 30, 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 6.20% and 6.88%, respectively.

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.

At June 30, 2022, the fair value of the Senior Notes, which are Level 2 measurements, was $327.7 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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Senior Notes interest expense $ 6,642 $ 4,230 $ 13,267 $ 8,480

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Senior Notes amortization of debt issuance costs 53 35 127 69

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

At June 30, 2022, our future interest payments on our outstanding balance were $116.9 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 March 31,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Revenue $ 88,277 $ 90,600 $ 184,914 $ 188,761

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Gross profit $ 28,927 $ 27,712 $ 63,988 $ 62,190

Net income $ 12,933 $ 16,402

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.

Net income (loss) $ (6,167) $ 10,899 $ 6,766 $ 27,301

Revenue for the three months ended June 30, 2022 increased $2.3 million compared to the three months ended June 30, 2021, as we experienced a 1.5% increase in funeral contract volume, as well as a 2.0% increase in average revenue per funeral contract primarily due to market share gains and higher normalized death rates, offset by a 7.2% decrease in the number of preneed interment rights (property) sold, as well as a 5.6% decrease in the average price per interment right sold.

Gross profit for the three months ended June 30, 2022 decreased $1.2 million compared to the three months ended June 30, 2021, primarily due to the increase in operating expenses in our cemetery segment.

Net income for the three months ended June 30, 2022 increased $17.1 million compared to the three months ended June 30, 2021, primarily due to a $23.8 million loss on extinguishment of debt in 2021, a $2.0 million increase in net gain on divestitures, disposals and impairments charges, a $1.5 million decrease in interest expense, and a $1.4 million gain on insurance reimbursements, offset by a $8.4 million increase in income tax expense.

Revenue for the six months ended June 30, 2022 increased $3.8 million compared to the six months ended June 30, 2021, as we experienced a 1.6% increase in funeral contract volume, as well as a 2.1% increase in average revenue per funeral

contract primarily due to market share gains and higher normalized death rates, offset by a 0.8% decrease in the number of preneed interment rights (property) sold, as well as a 3.8% decrease in the average price per interment right sold.

Gross profit for the six months ended June 30, 2022 decreased $1.8 million compared to the six months ended June 30, 2021, primarily due to the increase in operating expenses in our cemetery segment.

Net income for the six months ended June 30, 2022 increased $20.5 million compared to the six months ended June 30, 2021, primarily due primarily due to a $23.8 million loss on extinguishment of debt in 2021, a $3.5 million decrease in interest expense, a $3.3 million gain on insurance reimbursements and a $0.9 million increase in net gain on divestitures, disposals and impairments charges, offset by a $7.9 million increase in income tax expense.

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

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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 March 31, 2022 issued on April 27, 2022 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 June 30, 2022 issued on July 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.

We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with United States generally accepted accounting principles (“GAAP”).

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

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

Three months ended March 31,

Net income $ 12,933 $ 16,402

The Trend Report contains non-GAAP financial measures that we believe provides insight into underlying trends in our business.

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

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Net income (loss) $ (6,167) $ 10,899 $ 6,766 $ 27,301

Special items (1)

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Accretion of discount on Convertible Notes (1)

Net loss on divestitures and other costs (1)

Loss on extinguishment of debt (3)

23,807 — 23,807 —

Net (gain) loss on divestitures and other costs 205 (1,284) (103) (581)

Litigation reserve (4)

Net gain on insurance reimbursements (5)

— (1,376) — (3,275)

Disaster recovery and pandemic costs (6)

145 — 1,039 168

Change in uncertain tax reserves and other (1)

Other special items (7)

1,334 — 1,334 —

Sum of special items $ 25,491 $ (2,460) $ 27,672 $ (4,021)

Tax effect on special items (1)

7,457 (653) 7,881 (926)

Adjusted net income (8)

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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 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.

Special items are taxed at the operating tax rate for the period except for the Accretion of the discount on Convertible Notes, as this is a non-tax deductible item and 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.

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

(4) Costs related to litigation matters.

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

(6) 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.

We purchased more PPE during the three and six months ended 2021 compared to the same periods in 2022.

(7) Relates to the write-off of certain fixed assets and interest paid on our Original Senior Notes for the two-week period during which our Senior Notes were issued prior to the redemption of our Original Senior Notes.

(8) 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 March 31,

Below is a reconciliation of Gross profit (a GAAP financial measure) to Operating profit (a non-GAAP financial measure) (in thousands):

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Gross profit $ 28,927 $ 27,712 $ 63,988 $ 62,190

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Funeral Home and Cemetery.

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

Three months ended March 31,

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

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Funeral Home $ 24,184 $ 24,152 $ 57,090 $ 57,887

2 unchanged sentences

Operating profit margin (1)

45.3% 42.6% 46.4% 44.5%

(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 months ended March 31, 2022 and 2021.

The following is a discussion of our results of operations for the three and six months ended June 30, 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 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 Funeral Home Segment, refers to two funeral homes we sold and one funeral home we merged with another business in an existing market in the first six months of 2022 and three funeral homes we sold in the first six months of 2021.

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

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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 March 31,

Three months ended June 30,

Same store operating revenue $ 48,922 $ 50,631

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

Three months ended March 31,

Three months ended June 30,

Contract volume 9,241 9,415

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Cremation rate 56.7% 57.2%

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.

Funeral home same store operating revenue increased $1.7 million for the three months ended June 30, 2022 compared to the same period in 2021.

The increase in operating revenue is primarily related to a 1.9% increase in same store contract volume, as well as a 1.6% 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.

The same store contract volume increased in spite of a 45.4% decrease in same store COVID-19 related contracts during the second quarter of 2022 compared to the second 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 increase in average revenue per contract in the second quarter of 2022 reflects increases of 1.8% in cremations with memorial services and 1.5% in burials with memorial services compared to the second quarter of 2021.

These increases are primarily due to the normalization of customer preferences for memorial services and 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 June 30, 2022 decreased $0.1 million when compared to the same period in 2021, due to the increase in operating expenses.

The comparable operating profit margin decreased 150 basis points to 37.6%.

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.

Operating expenses as a percentage of operating revenue increased 1.5% with the largest

increases in property and general liability insurance of 0.5%, transportation costs of 0.3%, and general and administrative expenses of 0.3%, which were partially offset by a decrease in salaries and benefits expenses of 0.4%, primarily due to lower health insurance expenses.

Funeral home acquired operating revenue for the three months ended June 30, 2022 increased $0.7 million compared to the same period in 2021.

The increase in operating revenue is primarily due to a 6.9% increase in the average revenue per contract excluding preneed interest, as well as a 3.0% increase in acquired contract volume.

The acquired contract volume increased in spite of a 74.1% decrease in acquired COVID-19 related contracts for the second quarter of 2022 compared to the second 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 second quarter of 2022 reflects increases of 6.1% in burials with memorial services and 1.8% in cremations with memorial services compared to the second quarter of 2021.

Funeral home acquired operating profit for the three months ended June 30, 2022 increased $0.3 million when compared to the same period in 2021, due to the increase in acquired operating revenue and a decrease in operating expenses.

The comparable operating profit margin increased 10 basis points to 40.0%.

Operating expenses as a percentage of operating revenue decreased 0.1% with the largest decrease in salaries and benefits expenses of 0.9%, primarily due to lower health insurance expenses, offset by an increase in allowance for credit losses of 0.8%, due to the aging of higher accounts receivable related to the high volume of sales due to the COVID-19 spike during the latter half of 2021.

Ancillary revenue, recorded in Other revenue , which represents revenue from our flower shop, pet cremation and online cremation businesses, as well as Ancillary operating profit each decreased $0.1 million for the three months ended June 30, 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, increased $0.2 million for the three months ended June 30, 2022 compared to the same period in 2021.

The increase is primarily related to the increase in funeral insurance commissions, resulting from an increase in preneed insurance sales.

Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased $0.1 million for the same comparative period, primarily due to the increase in preneed funeral insurance commission revenue.

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

Six months ended June 30,

Same store operating revenue $ 107,777 $ 112,157

Acquired operating revenue 14,924 16,251

Divested/planned divested revenue 1,984 1,146

Ancillary revenue 2,295 2,050

Preneed funeral insurance commissions 593 672

Preneed funeral trust and insurance 4,033 4,017

Total $ 131,606 $ 136,293

Operating profit:

Same store operating profit $ 45,770 $ 46,541

Acquired operating profit 6,413 6,809

Divested/planned divested operating profit 264 71

Ancillary operating profit 516 372

Preneed funeral insurance commissions 168 158

Preneed funeral trust and insurance 3,959 3,936

Total $ 57,090 $ 57,887

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

Six months ended June 30,

Contract volume 20,516 21,068

Average revenue per contract, excluding preneed funeral trust earnings $ 5,253 $ 5,324

Average revenue per contract, including preneed funeral trust earnings $ 5,429 $ 5,491

Burial rate 36.5% 34.7%

Cremation rate 56.5% 57.1%

Contract volume 3,194 3,195

Average revenue per contract, excluding preneed funeral trust earnings $ 4,673 $ 5,086

Average revenue per contract, including preneed funeral trust earnings $ 4,747 $ 5,177

Burial rate 38.4% 37.3%

Cremation rate 56.5% 57.4%

Funeral home same store operating revenue increased $4.4 million for the six months ended June 30, 2022 compared to the same period in 2021.

The increase in operating revenue is primarily related to a 2.7% increase in same store contract volume, as well as a 1.4% increase in the average revenue per contract excluding preneed interest.

The same store contract volume increased in spite of a 48.4% decrease in COVID-19 related contracts for the six months ended June 30, 2022 compared to the same period in 2021.

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

The increase in average revenue per contract for the six months ended June 30, 2022 reflects increases of 4.2% in burials with memorial services and 2.3% in cremations with memorial services compared to the same period of 2021.

Funeral home same store operating profit for the six months ended June 30, 2022 increased $0.8 million when compared to the same period in 2021, due to the increase in operating revenue, offset by the increase in operating expenses as a percentage of revenue.

The comparable operating profit margin decreased 100 basis points to 41.5%.

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.

Operating expenses as a percentage of revenue increased 1.0% with the largest increases in allowance for credit losses of 0.3%, transportation costs of 0.2%, and general and administrative expenses of 0.2%, which were partially offset by a decrease in salaries and benefits expenses of 0.4%, primarily due to lower health insurance expenses.

Funeral home acquired operating revenue for the six months ended June 30, 2022 increased $1.3 million compared to the same period in 2021.

The increase in operating revenue is primarily due to an 8.8% increase in the average revenue per contract excluding preneed interest, while the acquired contract volume was flat in spite of a 65.6% decrease in COVID-19 related contracts for the six months ended June 30, 2022 compared to the same period in 2021.

The increase in average revenue per contract in the six months ending June 30, 2022 reflects increases of 6.9% in burials with memorial services and 5.2% in cremations with memorial services compared to the same period of 2021.

Funeral home acquired operating profit for the six months ended June 30, 2022 increased $0.4 million when compared to the same period in 2021, due to the increase in operating revenue, offset by the increase in operating expenses as a percentage of revenue.

The comparable operating profit margin decreased 110 basis points to 41.9%.

Operating expenses as a percentage of revenue increased 1.1% with the largest increases in allowance for credit losses of 0.9% and funeral costs of 0.5%, which were partially offset by a decrease in salaries and benefits expenses of 0.2%, primarily due to lower health insurance expenses.

Ancillary revenue, which is recorded in Other revenue , represents revenue from our flower shop, pet cremation and online cremation businesses, decreased $0.2 million and Ancillary operating profit decreased $0.1 million for the six months ended June 30, 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, increased $0.1 million for the six months ended June 30, 2022 compared to the same period in 2021.

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

Cemetery Segment

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

Three months ended March 31,

Three months ended June 30,

Same store operating revenue $ 16,906 $ 16,969

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

Three months ended March 31,

Three months ended June 30,

Preneed revenue as a percentage of operating revenue 63% 65%

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Average price per interment right sold $ 5,704 $ 4,838

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.

Cemetery same store preneed revenue increased $0.4 million for the three months ended June 30, 2022 compared to the same period in 2021, as we experienced a 6.1% increase in the number of interment rights sold, while the average price per interment right sold remained flat.

Cemetery same store atneed revenue, which represents 35% of our same store operating revenue decreased $0.4 million for the three months ended June 30, 2022 compared to the same period in 2021, as we experienced a 3.7% decrease in the number of interment rights sold, as well as a 2.2% decrease in the average price per interment right sold.

Cemetery same store operating profit for the three months ended June 30, 2022 decreased $1.4 million from the same period in 2021, due to the increase in operating expenses.

The comparable operating profit margin decreased 860 basis points to 38.2%.

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.

Operating expenses as a percent of operating revenue increased 8.6% with the largest increases in the following areas:

(1) allowance for credit losses of 4.9%, due to a change in estimate in the prior period, which resulted in lower credit loss expense in the prior period;

(2) promotional expenses of 2.4% due to an increase in commissions paid on preneed sales;

and (3) facilities and grounds expenses of 1.8%, primarily due to an increase in property and general liability insurance.

Cemetery acquired preneed revenue decreased $0.7 million for the three months ended June 30, 2022 compared to the same period in 2021, as we experienced a 15.2% decrease in the average price per interment right sold, while the number of interment rights sold increased 10.7%.

Cemetery acquired atneed revenue, which represents 34% of our acquired operating revenue, increased $0.7 million for the three months ended June 30, 2022 compared to the same period in 2021, as we experienced a 42.8% increase in the average price per interment right sold, while the number of interment rights sold decreased 16.3%.

Cemetery acquired operating profit decreased $0.1 million for the three months ended June 30, 2022 from the same period in 2021.

The comparable operating profit margin decreased 130 basis points to 56.6% primarily as a result a 1.3% increase in operating expenses as a percent of operating revenue.

Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenue ) on a combined basis increased $0.2 million for the three months ended June 30, 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.

Operating profit for the two categories of Other Revenue , on a combined basis, increased $0.2 million for the three months ended June 30, 2022 compared to the same period in 2021 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):

Six months ended June 30,

Same store operating revenue $ 31,541 $ 31,220

Acquired operating revenue 15,155 14,490

Divested revenue 150 —

Preneed cemetery trust revenue 5,943 6,197

Preneed cemetery finance charges 519 561

Total $ 53,308 $ 52,468

Operating profit:

Same store operating profit $ 13,611 $ 11,779

Acquired operating profit 8,839 7,939

Divested operating profit 47 —

Preneed cemetery trust operating profit 5,695 5,923

Preneed cemetery finance charges 519 561

Total $ 28,711 $ 26,202

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

Six months ended June 30,

Preneed revenue as a percentage of operating revenue 61% 62%

Preneed revenue (in thousands) $ 19,134 $ 19,201

Atneed revenue (in thousands) 12,407 12,019

Number of preneed interment rights sold 4,152 4,171

Average price per interment right sold $ 4,093 $ 4,056

Preneed revenue as a percentage of operating revenue 69% 65%

Preneed revenue (in thousands) 10,498 9,386

Atneed revenue (in thousands) 4,657 5,104

Number of preneed interment rights sold 1,763 1,718

Average price per interment right sold $ 5,745 $ 5,231

Cemetery same store preneed revenue increased $0.1 million for the six months ended June 30, 2022 compared to the same period in 2021, as we experienced a 0.5% increase in the number of interment rights sold, while the average price per interment right sold decreased 0.9%.

Cemetery same store atneed revenue, which represents 38% of our same store operating revenue, decreased $0.4 million for the six months ended June 30, 2022 compared to the same period in 2021, as we experienced a 3.6% decrease in the number of interment rights sold, while the average price per interment right sold increased 0.5%.

Cemetery same store operating profit for the six months ended June 30, 2022 decreased $1.8 million from the same period in 2021, due to the decrease in operating revenue and increase in operating costs.

The comparable operating profit margin decreased 550 basis points to 37.7%.

Operating expenses as a percent of operating revenue increased 5.4% with the largest increases in the following areas:

(1) allowance for credit losses of 2.6%, due to a change in estimate in the second quarter of the prior year, which resulted in lower credit loss expense in the prior period;

(2) promotional expenses of 1.4% due to an increase in commissions paid on preneed sales;

and (3) facilities and grounds expenses of 1.2%, primarily due to an increase in property and general liability insurance.

Cemetery acquired preneed revenue decreased $1.1 million for the six months ended June 30, 2022 compared to the same period in 2021, as we experienced an 8.9% decrease in the average price per interment right sold, as well as a 2.6% decrease in the number of interment rights sold.

Cemetery acquired atneed revenue, which represents 35% of our acquired operating revenue, increased $0.4 million for the six months ended June 30, 2022 compared to the same period in 2021, as we experienced a 15.3% increase in the average price per interment right sold, while the number of interment rights sold decreased 12.7%.

Cemetery acquired operating profit decreased $0.9 million for the six months ended June 30, 2022 from the same period in 2021, due to the decrease in operating revenue and increase in operating costs.

The comparable operating profit margin decreased 350 basis points to 54.8%.

Operating expenses as a percent of operating revenue increased 3.5% with the largest increases in the following areas:

(1) facilities and grounds expenses of 1.5%, primarily due to an increase in property and general liability insurance;

(2) promotional expenses of 0.9% due to an increase in commissions paid on preneed and atneed sales;

and (3) general and administrative expenses increased 0.7%.

Preneed cemetery trust revenue and preneed cemetery finance charges (recorded in Other revenue ) on a combined basis increased $0.3 million for the six months ended June 30, 2022 compared to the same period in 2021.

The increase in trust revenue is primarily due to an increase in realized gains on delivered merchandise and services contracts.

Operating profit for the two categories of Other Revenue , on a combined basis, increased $0.3 million for the six months ended June 30, 2022 compared to the same period in 2021 primarily due to the increase in revenue.

Cemetery property amortization .

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.

Cemetery property amortization totaled $1.7 million and $3.0 million for the three and six months ended June 30, 2022, respectively, a decrease of $0.5 million and $0.7 million, respectively, compared to the same periods in 2021, primarily due to the decrease in property sold across our cemetery portfolio.

Field depreciation.

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.

Depreciation expense for our field businesses totaled $3.3 million and $6.6 million for the three and six months ended June 30, 2022, respectively, an increase of $0.1 million and $0.3 million, respectively, compared to the same periods in 2021, primarily due to depreciation from technology equipment added in the last twelve months.

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 $6.3 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;

Regional and unallocated funeral and cemetery costs totaled $6.0 million for the three months ended June 30, 2022, an increase of $0.2 million compared to the same period in 2021, primarily due to the following:

(1) a $0.6 million increase in incentive award trips and annual managing partner meetings, which were postponed in the prior year due to COVID-19;

(2) a $0.2 million increase in salary and benefits expenses, which includes additional cemetery sales employees;

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.

offset by (3) a $0.5 million decrease in cash incentives and equity compensation;

and (4) a $0.1 million decrease in health and safety expenses related to COVID-19.

Regional and unallocated funeral and cemetery costs totaled $12.3 million for the six months ended June 30, 2022, an increase of $0.5 million compared to the same period in 2021, primarily due to the following:

(1) a $1.0 million increase in incentive award trips and annual managing partner meetings, which were postponed in the prior year due to COVID-19;

(2) a $0.5 million increase in salary and benefits expenses, which includes additional cemetery sales employees;

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

and (4) a $0.1 million increase in separation expenses;

offset by (4) a $0.7 million decrease in cash incentives and equity compensation;

and (5) a $0.7 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 $8.6 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;

General, administrative and other expenses totaled $9.2 million for the three months ended June 30, 2022, an increase of $2.0 million compared to the same period in 2021, primarily due to the following:

(1) a $1.0 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, which includes five new employees in our recently developed marketing department.

(2) a $0.8 million increase in salary and benefits expenses, which includes talent investment in our recently developed marketing department, as well as a Chief Information Officer;

and (3) a $0.2 million increase in cash incentives and equity compensation.

General, administrative and other expenses totaled $17.7 million for the six months ended June 30, 2022, an increase of $1.4 million compared to the same period in 2021, primarily due to the following:

(1) a $1.3 million increase in other general administrative costs, which includes higher online marketing and advertising costs and software license fees for new technology;

(2) a $1.1 million increase in salary and benefits expenses, which includes talent investment in our recently developed marketing department, as well as a Chief Information Officer;

(3) a $0.7 million increase in cash incentives and equity compensation;

offset by (4) 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 (5) a $0.1 million decrease in divestiture expenses.

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,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Net (gain) loss on divestitures and real property $ 205 $ (1,278) (103) (575)

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Total $ 827 $ (1,193) $ 519 $ (426)

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.

During the six months ended June 30, 2022, we sold real property for $2.7 million and two funeral homes for $0.9 million for a net gain of $0.6 million.

During the six months ended June 30, 2021, we sold three funeral homes for $3.5 million for a net gain of $0.1 million and disposed of fixed assets for a net loss of $0.6 million.

Interest expense .

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

Three months ended March 31,

Three months ended June 30, Six months ended June 30,

2021 2022 2021 2022

Senior Notes $ 6,795 $ 4,387 $ 13,574 $ 8,793

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Convertible Notes — — 19 —

Other 1 1 7 9

Total $ 7,478 $ 5,988 $ 15,062 $ 11,530

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.

During the three and six months ended June 30, 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 $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.

We had an income tax expense of $4.2 million and an income tax benefit of $4.2 million for the three months ended June 30, 2022 and 2021, respectively and income tax expense of $9.3 million and $1.4 million for the six month ended June 30, 2022 and 2021, respectively.

Our operating tax rate before discrete items was 28.0% and 33.0% for the three months ended June 30, 2022 and 2021, respectively and 27.15% and 28.5% for the six month ended June 30, 2022 and 2021, respectively.

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

2 unchanged sentences

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.

As a result, we recorded a $0.6 million reduction to the reserve for uncertain tax positions, including interest, during the six months ended June 30, 2022.

At December 31, 2021 and June 30, 2022, the reserve for uncertain tax positions was $3.8 million and $3.2 million, respectively, related to carrying back the net operating losses 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

10 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis