CARRIAGE SERVICES INC 10-Q

Item 1. Financial Statements. CARRIAGE SERVICES, INC. CONSOLIDATED BALANCE SHEET (unaudited and in thousands, except share data) December 31, 2022 June 30, 2023 ASSETS Current assets: Cash and cash equivalents $ 1,170 $ 970 Accounts receivable, net 24,458 24,639 Inventories 7,613 8,448 Prepaid and other current assets 4,733 3,610 Total current assets 37,974 37,667 Preneed cemetery trust investments 95,065 89,874 Preneed funeral trust investments 104,553 103,317 Preneed cemetery receivables, net 26,672 33,274 Receivables from preneed funeral trusts, net 19,976 21,080 Property, plant and equipment, net 278,106 287,582 Cemetery property, net 104,170 112,830 Goodwill 410,137 423,643 Intangible and other non-current assets, net 32,930 37,333 Operating lease right-of-use assets 17,060 17,123 Cemetery perpetual care trust investments 66,307 78,363 Total assets $ 1,192,950 $ 1,242,086 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of debt and lease obligations $ 3,172 $ 3,568 Accounts payable 11,675 9,402 Accrued and other liabilities 30,621 29,564 Total current liabilities 45,468 42,534 Acquisition debt, net of current portion 3,438 3,370 Credit facility 188,836 202,418 Senior notes 395,243 395,571 Obligations under finance leases, net of current portion 4,743 4,537 Obligations under operating leases, net of current portion 17,315 16,860 Deferred preneed cemetery revenue 51,746 59,941 Deferred preneed funeral revenue 32,029 39,782 Deferred tax liability 48,820 48,827 Other long-term liabilities 3,065 1,299 Deferred preneed cemetery receipts held in trust 95,065 89,874 Deferred preneed funeral receipts held in trust 104,553 103,317 Care trusts’ corpus 65,495 77,589 Total liabilities 1,055,816 1,085,919 Commitments and contingencies: Stockholders’ equity: Common stock, $ 0.01 par value; 80,000,000 shares authorized and 26,359,876 and 26,585,341 shares issued, respectively and 14,732,058 and 14,957,523 shares outstanding, respectively 264 266 Additional paid-in capital 238,780 240,681 Retained earnings 176,843 193,973 Treasury stock, at cost; 11,627,818 shares ( 278,753 ) ( 278,753 ) Total stockholders’ equity 137,134 156,167 Total liabilities and stockholders’ equity $ 1,192,950 $ 1,242,086 The accompanying condensed notes are an integral part of these Consolidated Financial Statements. - 3 - CARRIAGE SERVICES, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited and in thousands, except per share data) Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Revenue: Service revenue $ 42,550 $ 44,522 $ 92,287 $ 92,729 Property and merchandise revenue 41,276 45,630 82,888 85,641 Other revenue 6,774 7,526 13,586 14,822 90,600 97,678 188,761 193,192 Field costs and expenses: Cost of service 21,389 23,075 43,488 46,552 Cost of merchandise 29,306 32,219 58,636 61,953 Cemetery property amortization 1,704 1,892 3,036 3,093 Field depreciation expense 3,253 3,555 6,550 6,912 Regional and unallocated funeral and cemetery costs 5,966 4,131 12,313 9,568 Other expenses 1,270 1,604 2,548 2,857 62,888 66,476 126,571 130,935 Gross profit 27,712 31,202 62,190 62,257 Corporate costs and expenses: General, administrative and other 9,180 10,199 17,740 20,379 Net (gain) loss on divestitures, disposals and impairments charges ( 1,193 ) 265 ( 426 ) 506 Operating income 19,725 20,738 44,876 41,372 Interest expense 5,988 9,396 11,530 17,935 Net (gain) loss on property damage, net of insurance claims ( 1,376 ) ( 235 ) ( 3,275 ) 36 Other, net ( 7 ) ( 125 ) 17 ( 647 ) Income before income taxes 15,120 11,702 36,604 24,048 Expense for income taxes 4,234 3,273 9,938 6,841 Tax adjustment related to discrete items ( 13 ) 143 ( 635 ) 77 Total expense for income taxes 4,221 3,416 9,303 6,918 Net income $ 10,899 $ 8,286 $ 27,301 $ 17,130 Basic earnings per common share: $ 0.74 $ 0.55 $ 1.82 $ 1.14 Diluted earnings per common share: $ 0.69 $ 0.53 $ 1.70 $ 1.10 Dividends declared per common share: $ 0.1125 $ 0.1125 $ 0.2250 $ 0.2250 Weighted average number of common and common equivalent shares outstanding: Basic 14,798 14,793 15,020 14,776 Diluted 15,712 15,454 16,033 15,461 The accompanying condensed notes are an integral part of these Consolidated Financial Statements. - 4 - CARRIAGE SERVICES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited and in thousands) Six months ended June 30, 2022 2023 Cash flows from operating activities: Net income $ 27,301 $ 17,130 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 9,895 10,437 Provision for credit losses 1,657 1,344 Stock-based compensation expense 3,085 4,163 Deferred income tax expense 1,711 7 Amortization of intangibles 634 647 Amortization of debt issuance costs 253 349 Amortization and accretion of debt 243 255 Net (gain) loss on divestitures, disposals and impairment charges ( 426 ) 506 Net (gain) loss on property damage, net of insurance claims ( 3,275 ) 36 Gain on sale of real property — ( 658 ) Other ( 6 ) — Changes in operating assets and liabilities that provided (used) cash: Accounts and preneed receivables ( 3,200 ) ( 1,694 ) Inventories, prepaid and other current assets 2,967 1,011 Intangible and other non-current assets ( 747 ) ( 1,767 ) Preneed funeral and cemetery trust investments ( 11,100 ) 5,341 Accounts payable ( 2,712 ) ( 2,272 ) Accrued and other liabilities ( 10,242 ) ( 3,328 ) Incentive payment from vendor — 6,000 Deferred preneed funeral and cemetery revenue 2,633 8,106 Deferred preneed funeral and cemetery receipts held in trust 11,506 ( 6,426 ) Net cash provided by operating activities 30,177 39,187 Cash flows from investing activities: Acquisitions of businesses and real property ( 2,601 ) ( 44,000 ) Proceeds from divestitures and sale of other assets 3,720 1,973 Proceeds from insurance claims 2,167 1,092 Capital expenditures ( 13,468 ) ( 8,960 ) Net cash used in investing activities ( 10,182 ) ( 49,895 ) Cash flows from financing activities: Borrowings from the credit facility 97,900 64,700 Payments against the credit facility ( 78,100 ) ( 51,400 ) Payment of debt issuance costs for the credit facility and senior notes ( 339 ) — Payments on acquisition debt and obligations under finance leases ( 202 ) ( 256 ) Proceeds from the exercise of stock options and employee stock purchase plan contributions 1,060 923 Taxes paid on restricted stock vestings and exercise of stock options ( 286 ) ( 119 ) Dividends paid on common stock ( 3,455 ) ( 3,340 ) Purchase of treasury stock ( 36,663 ) — Net cash provided by (used in) financing activities ( 20,085 ) 10,508 Net decrease in cash and cash equivalents ( 90 ) ( 200 ) Cash and cash equivalents at beginning of period 1,148 1,170 Cash and cash equivalents at end of period $ 1,058 $ 970 The accompanying condensed notes are an integral part of these Consolidated Financial Statements. - 5 - CARRIAGE SERVICES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (unaudited and in thousands) Three months ended June 30, 2022 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – March 31, 2022 14,889 $ 263 $ 238,423 $ 151,864 $ ( 270,529 ) $ 120,021 Net income — — — 10,899 — 10,899 Issuance of common stock from employee stock purchase plan 12 — 398 — — 398 Issuance of common stock to directors and board advisor 2 — 99 — — 99 Cancellation and surrender of restricted stock — — 2 — — 2 Stock-based compensation expense — — 1,379 — — 1,379 Dividends on common stock — — ( 1,730 ) — — ( 1,730 ) Treasury stock acquired ( 205 ) — — — ( 8,224 ) ( 8,224 ) Balance – June 30, 2022 14,698 $ 263 $ 238,571 $ 162,763 $ ( 278,753 ) $ 122,844 Three months ended June 30, 2023 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – March 31, 2023 14,935 $ 266 $ 239,962 $ 185,687 $ ( 278,753 ) $ 147,162 Net income — — — 8,286 — 8,286 Issuance of common stock from employee stock purchase plan 16 — 397 — — 397 Issuance of common stock to directors and board advisor 2 — 65 — — 65 Exercise of stock options 4 — ( 20 ) — — ( 20 ) Cancellation and surrender of common and restricted stock 1 — ( 1 ) — — ( 1 ) Stock-based compensation expense — — 1,957 — — 1,957 Dividends on common stock — — ( 1,679 ) — — ( 1,679 ) Balance – June 30, 2023 14,958 $ 266 $ 240,681 $ 193,973 $ ( 278,753 ) $ 156,167 - 6 - Six months ended June 30, 2022 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – December 31, 2021 15,332 $ 263 $ 236,809 $ 135,462 $ ( 244,519 ) $ 128,015 Net income — — — 27,301 — 27,301 Issuance of common stock from employee stock purchase plan 25 — 1,001 — — 1,001 Issuance of common stock to directors and board advisor 5 — 246 — — 246 Exercise of stock options 9 — ( 22 ) — — ( 22 ) Cancellation and surrender of restricted stock ( 5 ) — ( 205 ) — — ( 205 ) Stock-based compensation expense — — 2,839 — — 2,839 Dividends on common stock — — ( 3,455 ) — — ( 3,455 ) Treasury stock acquired ( 695 ) — — — ( 34,234 ) ( 34,234 ) Other 27 — 1,358 — — 1,358 Balance – June 30, 2022 14,698 $ 263 $ 238,571 $ 162,763 $ ( 278,753 ) $ 122,844 Six months ended June 30, 2023 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – December 31, 2022 14,732 $ 264 $ 238,780 $ 176,843 $ ( 278,753 ) $ 137,134 Net income — — — 17,130 — 17,130 Issuance of common stock from employee stock purchase plan 38 — 923 — — 923 Issuance of common stock to directors and board advisor 6 — 177 — — 177 Issuance of common stock to former executive 30 — 826 — — 826 Issuance of restricted stock 142 2 ( 2 ) — — — Exercise of stock options 5 — ( 41 ) — — ( 41 ) Cancellation and surrender of common and restricted stock ( 3 ) — ( 78 ) — — ( 78 ) Stock-based compensation expense — — 3,160 — — 3,160 Dividends on common stock — — ( 3,340 ) — — ( 3,340 ) Other 8 — 276 — — 276 Balance – June 30, 2023 14,958 $ 266 $ 240,681 $ 193,973 $ ( 278,753 ) $ 156,167 The accompanying condensed notes are an integral part of these Consolidated Financial Statements. - 7 - CARRIAGE SERVICES, INC. CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. Our operations are reported in two business segments: Funeral Home operations, which currently accounts for approximately 70 % of our total revenue and Cemetery operations, which currently accounts for approximately 30 % of our total revenue. At June 30, 2023, we operated 172 funeral homes in 26 states and 32 cemeteries in 11 states. Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis. Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis. Principles of Consolidation and Interim Condensed Disclosures Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented. There have been no material changes in our accounting policies previously disclosed in Part II, Item 8 “Financial Statements and Supplementary Data” in Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2022 unless otherwise disclosed herein, and should be read in conjunction therewith. Use of Estimates The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our critical estimates and judgments, which include those related to the impairment of goodwill and the fair value measurements used in business combinations. 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 the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period. Cash and Cash Equivalents We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Inventory Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts. - 8 - Held for Sale At June 30, 2023, we had $ 0.3 million of assets classified as held for sale in Property, plant and equipment, net on our Consolidated Balance Sheet related to one funeral home that we divested on July 12, 2023. The carrying value of these assets held for sale exceeded their fair value and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we recognized an impairment of $ 0.2 million for assets related to property, plant and equipment, which was recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. Deferred Revenue During the six months ended June 30, 2023, we withdrew $ 8.6 million of realized capital gains and earnings from our preneed funeral and cemetery trust investments. In certain states, we are allowed to make these withdrawals prior to the delivery of preneed merchandise and service contracts. The realized capital gains and earnings withdrawn increase our cash flow from operations, but are not recognized as revenue in our Consolidated Statements of Operations, however, they reduce our Preneed funeral trust investments and Preneed cemetery trust investments and increase our Deferred preneed funeral revenue and Deferred preneed cemetery revenue. Additionally, during the three and six months ended June 30, 2023, we received a $ 6.0 million incentive payment from a vendor for entering into a strategic partnership agreement to market and sell prearranged funeral services in the future, which increased our cash flow from operations and Deferred preneed funeral revenue. The incentive payment will be deferred until we complete our implementation of the program and begin selling prearranged funeral services. Property, Plant and Equipment Property, plant and equipment is comprised of the following (in thousands): December 31, 2022 June 30, 2023 Land $ 84,405 $ 85,717 Buildings and improvements 251,778 261,514 Furniture, equipment and automobiles 70,522 75,025 Property, plant and equipment, at cost 406,705 422,256 Less: accumulated depreciation ( 128,599 ) ( 134,674 ) Property, plant and equipment, net $ 278,106 $ 287,582 During the six months ended June 30, 2023, we acquired $ 12.8 million of property, plant and equipment related to our 2023 business combination, described in Note 3 to the Consolidated Financial Statements. Additionally, we sold real property for $ 1.2 million, with a carrying value of $ 0.6 million, resulting in a gain on the sale of $ 0.6 million, which was recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. During the six months ended June 30, 2022, we acquired real property for $ 2.6 million. Additionally, we sold real property for $ 2.7 million, with a carrying value of $ 1.4 million, resulting in a gain on the sale of $ 1.3 million.We also divested two funeral homes that had a carrying value of property, plant and equipment of $ 0.7 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges. Our growth and maintenance capital expenditures totaled $ 5.2 million and $ 2.6 million for the three months ended June 30, 2022 and 2023, respectively and $ 9.8 million and $ 5.5 million for the six months ended June 30, 2022 and 2023, respectively, for property, plant and equipment. In addition, we recorded depreciation expense of $ 3.4 million and $ 3.7 million for the three months ended June 30, 2022 and 2023, respectively and $ 6.7 million and $ 7.2 million for the six months ended June 30, 2022 and 2023, respectively. Cemetery Property Cemetery property was $ 104.2 million and $ 112.8 million, net of accumulated amortization of $ 59.0 million and $ 61.7 million at December 31, 2022 and June 30, 2023, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures for cemetery property development totaled $ 1.4 million for both the three months ended June 30, 2022 and 2023 and $ 3.7 million and $ 3.5 million for the six months ended June 30, 2022 and 2023, respectively. We recorded amortization expense for cemetery interment rights of $ 1.7 million and $ 1.9 million for the three months ended June 30, 2022 and 2023, respectively and $ 3.0 million and $ 3.1 million for the six months ended June 30, 2022 and 2023, respectively. During the six months ended June 30, 2023, we acquired cemetery property for $ 9.0 million related to our 2023 business combination, described in Note 3 to the Consolidated Financial Statements. We also divested two cemeteries that had a carrying - 9 - value of cemetery property of $ 0.8 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. Income Taxes Income tax expense was $ 4.2 million and $ 3.4 million for the three months ended June 30, 2022 and 2023, respectively and $ 9.3 million and $ 6.9 million for the six months ended June 30, 2022 and 2023, respectively. Our operating tax rate before discrete items was 28.0 % for both the three months ended June 30, 2022 and 2023 and 27.2 % and 28.5 % for the six months ended June 30, 2022 and 2023, respectively. Subsequent Events We have evaluated events and transactions during the period subsequent to June 30, 2023 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report. 2. RECENTLY ISSUED ACCOUNTING STANDARDS Credit Losses - Vintage Disclosures In March 2022, the FASB issued ASU, Financial Instruments - Credit Losses (“Topic 326”) to make the requirement to disclose gross write-offs by class of financing receivable and major security type consistent for all public business entities. The amendment in this update provides specific guidance on the disclosure for current period write-offs by year of origination for financing receivables. This amendment is effective for fiscal years beginning after December 15, 2022, and therefore was effective for us beginning January 1, 2023. Our adoption of these amendments had no impact on our consolidated financial statements. 3. BUSINESS COMBINATIONS Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the measurement period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition. On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in the Bakersfield, California area for $ 44.0 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business. The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected in our Consolidated Statements of Operations from the date of acquisition. The measurement period to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of 12 months from the date of the acquisition or as soon as we receive the information we are seeking about facts and circumstances that existed as of the acquisition date. Subsequent to our initial purchase price allocation for this acquisition made during the first quarter of 2023, we have adjusted our purchase price allocation based on additional information which became available prior to June 30, 2023. Provisional estimates for cemetery property have been recorded for the acquisition as our valuation has not been finalized at June 30, 2023. - 10 - The following table summarizes the breakdown of the purchase price allocation for our 2023 acquisition (in thousands): Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation Current assets $ 7,087 $ 131 $ 7,218 Preneed trust assets — 11,428 11,428 Property, plant & equipment 12,577 245 12,822 Cemetery property 9,035 — 9,035 Goodwill 13,612 ( 106 ) 13,506 Intangible and other non-current assets 3,763 — 3,763 Assumed liabilities ( 300 ) ( 66 ) ( 366 ) Preneed trust liabilities — ( 11,428 ) ( 11,428 ) Deferred revenue ( 1,774 ) ( 204 ) ( 1,978 ) Purchase price $ 44,000 $ — $ 44,000 The current assets relate to accounts receivable and inventory. The intangible and other non-current assets relate to the fair value of tradenames and right-of-use operating lease assets. The assumed liabilities relate to operating lease obligations and commissions payable. The following table summarizes the fair value of the assets acquired and liabilities assumed for this business (in thousands): Acquisition Date Type of Business Market Assets Acquired (Excluding Goodwill) Goodwill Recorded Liabilities and Debt Assumed March 22, 2023 Three Funeral Homes, Two Cemeteries and One Cremation Focused Business Bakersfield, CA $ 44,266 $ 13,506 $ ( 13,772 ) We did not acquire any businesses during the six months ended June 30, 2022. 4. GOODWILL The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands): December 31, 2022 June 30, 2023 Goodwill at the beginning of the period $ 391,972 $ 410,137 Increase in goodwill related to acquisitions 19,511 13,506 Decrease in goodwill related to divestitures ( 901 ) — Decrease in goodwill related to assets held for sale ( 445 ) — Goodwill at the end of the period $ 410,137 $ 423,643 During the six months ended June 30, 2023, we recognized $ 13.5 million in goodwill related to our 2023 business combination; $ 4.5 million was allocated to our cemetery segment and $ 9.0 million was allocated to our funeral home segment. 5. DIVESTED OPERATIONS During the three months ended June 30, 2023, we merged one funeral home with another business we own in an existing market. During the six months ended June 30, 2023, we sold one funeral home and two cemeteries for an aggregate of $ 0.8 million and merged one funeral home with another business we own in an existing market. During the three months ended June 30, 2022, we merged one funeral home with another business we own in an existing market. During the six months ended June 30, 2022, we sold two funeral homes for an aggregate of $ 0.9 million and merged one funeral home with another business we own in an existing market. - 11 - The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Revenue $ 63 $ — $ 296 $ 66 Operating income (loss) ( 4 ) ( 2 ) 25 24 Loss on divestitures (1) — — ( 703 ) ( 82 ) Income tax benefit 1 1 184 17 Net loss from divested operations, after tax $ ( 3 ) $ ( 1 ) $ ( 494 ) $ ( 41 ) (1) Loss on divestitures is recorded in Net (gain) loss on divestitures, disposals and impairments charges on our Consolidated Statements of Operations. 6. RECEIVABLES Accounts Receivable Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed. Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are also recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net. Accounts receivable is comprised of the following (in thousands): June 30, 2023 Funeral Cemetery Corporate Total Trade and financed receivables $ 7,439 $ 17,504 $ — $ 24,943 Other receivables 616 359 136 1,111 Allowance for credit losses ( 284 ) ( 1,131 ) — ( 1,415 ) Accounts receivable, net $ 7,771 $ 16,732 $ 136 $ 24,639 December 31, 2022 Funeral Cemetery Corporate Total Trade and financed receivables $ 9,518 $ 14,429 $ — $ 23,947 Other receivables 643 833 48 1,524 Allowance for credit losses ( 311 ) ( 702 ) — ( 1,013 ) Accounts receivable, net $ 9,850 $ 14,560 $ 48 $ 24,458 Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future. The following table summarizes the activity in our allowance for credit losses by segment (in thousands): January 1, 2023 Provision for Credit Losses Write Offs Recoveries June 30, 2023 Trade and financed receivables: Funeral $ ( 311 ) $ ( 562 ) $ 1,183 $ ( 594 ) $ ( 284 ) Cemetery ( 702 ) ( 295 ) ( 134 ) — ( 1,131 ) Total allowance for credit losses on trade and financed receivables $ ( 1,013 ) $ ( 857 ) $ 1,049 $ ( 594 ) $ ( 1,415 ) Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 8.9 million and $ 10.3 million at December 31, 2022 and June 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts. - 12 - Preneed Cemetery Receivables Our preneed cemetery receivables are comprised of the following (in thousands): December 31, 2022 June 30, 2023 Interment rights $ 45,351 $ 56,781 Merchandise and services 8,585 10,242 Unearned finance charges 4,894 5,316 Preneed cemetery receivables $ 58,830 $ 72,339 The components of our preneed cemetery receivables are as follows (in thousands): December 31, 2022 June 30, 2023 Preneed cemetery receivables $ 58,830 $ 72,339 Less: unearned finance charges ( 4,894 ) ( 5,316 ) Preneed cemetery receivables, at amortized cost $ 53,936 $ 67,023 Less: allowance for credit losses ( 1,985 ) ( 3,172 ) Less: balances due on undelivered cemetery preneed contracts ( 11,552 ) ( 14,204 ) Less: amounts in accounts receivable ( 13,727 ) ( 16,373 ) Preneed cemetery receivables, net $ 26,672 $ 33,274 The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands): January 1, 2023 Provision for Credit Losses Write Offs June 30, 2023 Total allowance for credit losses on Preneed cemetery receivables, net $ ( 1,283 ) $ ( 487 ) $ ( 271 ) $ ( 2,041 ) The amortized cost basis of our preneed cemetery receivables by year of origination at June 30, 2023 is as follows (in thousands): 2023 2022 2021 2020 2019 Prior Total Total preneed cemetery receivables, at amortized cost $ 20,254 $ 23,893 $ 12,418 $ 6,082 $ 2,563 $ 1,813 $ 67,023 The aging of past due preneed cemetery receivables at June 30, 2023 is as follows (in thousands): 31-60 Past Due 61-90 Past Due 91-120 Past Due >120 Past Due Total Past Due Current Total Recognized revenue $ 1,376 $ 700 $ 273 $ 3,304 $ 5,653 $ 47,166 $ 52,819 Deferred revenue 361 224 95 1,150 1,830 17,690 19,520 Total contracts $ 1,737 $ 924 $ 368 $ 4,454 $ 7,483 $ 64,856 $ 72,339 Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $ 11.6 million and $ 14.2 million at December 31, 2022 and June 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts. 7. FAIR VALUE MEASUREMENTS We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 11) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy. At June 30, 2023, the carrying value and fair value of our Credit Facility was $ 204.0 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as - 13 - of the reporting date. At June 30, 2023, the carrying value of our acquisition debt was $ 3.9 million, which approximated its fair value. The fair value of our Senior Notes was $ 343.1 million at June 30, 2023 based on the last traded or broker quoted price. We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including U.S. agency obligations, foreign debt, corporate debt, preferred stocks, certificates of deposit and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. In addition, we have an investment in a limited partnership fund, whose fair value has been estimated using the net asset value per share practical expedient described in ASC 820-10-35-59, Fair Value Measurement of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and therefore, has not been classified in the fair value hierarchy. The value of the investments in this fund cannot be redeemed because the investments include restrictions that do not allow for redemption within the first 12 months after acquisition. Our unfunded commitment for this investment at June 30, 2023 is $ 10.0 million. Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. See Notes 8 and 9 to our Consolidated Financial Statements for the fair value hierarchy levels of our trust investments. 8. TRUST INVESTMENTS Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery. Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights that we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue. Changes in the fair value of our trust fund assets ( Preneed funeral, cemetery and perpetual care trust investments ) are offset by changes in the fair value of our trust fund liabilities ( Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus ) and reflected in Other, net . There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract. We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations. Preneed Cemetery Trust Investments The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands): December 31, 2022 June 30, 2023 Preneed cemetery trust investments, at market value $ 98,269 $ 92,898 Less: allowance for contract cancellation ( 3,204 ) ( 3,024 ) Preneed cemetery trust investments $ 95,065 $ 89,874 - 14 - The cost and market values associated with preneed cemetery trust investments at June 30, 2023 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 8,330 $ — $ — $ 8,330 Fixed income securities: U.S. agency obligations 2 803 — ( 65 ) 738 Foreign debt 2 10,978 1,028 ( 421 ) 11,585 Corporate debt 2 14,593 180 ( 4,625 ) 10,148 Preferred stock 2 11,553 449 ( 1,521 ) 10,481 Certificates of deposit 2 79 — ( 9 ) 70 Common stock 1 38,955 6,335 ( 7,183 ) 38,107 Limited partnership fund 3,579 — ( 1 ) 3,578 Mutual funds: Equity 1 554 — ( 52 ) 502 Fixed income 2 11,379 17 ( 2,846 ) 8,550 Trust securities $ 100,803 $ 8,009 $ ( 16,723 ) $ 92,089 Accrued investment income $ 809 $ 809 Preneed cemetery trust investments $ 92,898 Market value as a percentage of cost 91.4 % The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands): Due in one year or less $ 137 Due in one to five years 9,043 Due in five to ten years 4,782 Thereafter 19,060 Total fixed income securities $ 33,022 The cost and market values associated with preneed cemetery trust investments at December 31, 2022 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 10,434 $ — $ — $ 10,434 Fixed income securities: U.S. agency obligations 2 803 — ( 72 ) 731 Foreign debt 2 12,241 910 ( 644 ) 12,507 Corporate debt 2 15,066 104 ( 4,139 ) 11,031 Preferred stock 2 12,560 436 ( 1,789 ) 11,207 Certificate of deposit 2 79 — ( 8 ) 71 Common stock 1 42,929 5,102 ( 6,228 ) 41,803 Mutual funds: Equity 1 362 — ( 33 ) 329 Fixed income 2 12,324 10 ( 3,310 ) 9,024 Trust Securities $ 106,798 $ 6,562 $ ( 16,223 ) $ 97,137 Accrued investment income $ 1,132 $ 1,132 Preneed cemetery trust investments $ 98,269 Market value as a percentage of cost 91.0 % - 15 - The following table summarizes our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at June 30, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): June 30, 2023 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: U.S. agency obligations $ 161 $ ( 25 ) $ 577 $ ( 40 ) $ 738 $ ( 65 ) Foreign debt 2,684 ( 100 ) 1,926 ( 321 ) 4,610 ( 421 ) Corporate debt 4,560 ( 3,423 ) 2,950 ( 1,202 ) 7,510 ( 4,625 ) Preferred stock 4,118 ( 825 ) 4,151 ( 696 ) 8,269 ( 1,521 ) Certificates of deposit — — 70 ( 9 ) 70 ( 9 ) Total fixed income securities with an unrealized loss $ 11,523 $ ( 4,373 ) $ 9,674 $ ( 2,268 ) $ 21,197 $ ( 6,641 ) The following table summarizes our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 2022 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: U.S. agency obligations $ 732 $ ( 72 ) $ — $ — $ 732 $ ( 72 ) Foreign debt 5,394 ( 308 ) 744 ( 336 ) 6,138 ( 644 ) Corporate debt 8,037 ( 3,922 ) 563 ( 217 ) 8,600 ( 4,139 ) Preferred stock 7,146 ( 1,271 ) 2,517 ( 518 ) 9,663 ( 1,789 ) Certificates of deposit 71 ( 8 ) — — 71 ( 8 ) Total fixed income securities with an unrealized loss $ 21,380 $ ( 5,581 ) $ 3,824 $ ( 1,071 ) $ 25,204 $ ( 6,652 ) Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Investment income $ 571 $ 689 $ 1,062 $ 1,279 Realized gains 6,870 728 8,893 2,001 Realized losses ( 2,320 ) ( 269 ) ( 2,383 ) ( 1,146 ) Unrealized gains (losses), net ( 15,977 ) 3,439 ( 9,100 ) ( 8,714 ) Expenses and taxes ( 507 ) ( 316 ) ( 871 ) ( 622 ) Net change in deferred preneed cemetery receipts held in trust 11,363 ( 4,271 ) 2,399 7,202 $ — $ — $ — $ — Purchases and sales of investments in the preneed cemetery trusts are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Purchases $ ( 309 ) $ ( 2,784 ) $ ( 1,624 ) $ ( 9,138 ) Sales 461 2,817 661 5,862 - 16 - Preneed Funeral Trust Investments Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust. The components of Preneed funeral trust investments on our Consolidated Balance Sheet are as follows (in thousands): December 31, 2022 June 30, 2023 Preneed funeral trust investments, at market value $ 107,995 $ 106,713 Less: allowance for contract cancellation ( 3,442 ) ( 3,396 ) Preneed funeral trust investments $ 104,553 $ 103,317 The cost and market values associated with preneed funeral trust investments at June 30, 2023 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 26,018 $ — $ — $ 26,018 Fixed income securities: U.S treasury debt 1 485 — ( 42 ) 443 Foreign debt 2 10,433 992 ( 385 ) 11,040 Corporate debt 2 13,219 166 ( 4,161 ) 9,224 Preferred stock 2 10,537 428 ( 1,443 ) 9,522 Common stock 1 35,390 6,071 ( 6,319 ) 35,142 Limited partnership fund 3,453 — ( 1 ) 3,452 Mutual funds: Equity 1 409 — ( 48 ) 361 Fixed income 2 9,714 16 ( 2,479 ) 7,251 Other investments 2 3,521 — — 3,521 Trust securities $ 113,179 $ 7,673 $ ( 14,878 ) $ 105,974 Accrued investment income $ 739 $ 739 Preneed funeral trust investments $ 106,713 Market value as a percentage of cost 93.6 % The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands): Due in one year or less $ 79 Due in one to five years 8,062 Due in five to ten years 4,443 Thereafter 17,645 Total fixed income securities $ 30,229 - 17 - The cost and market values associated with preneed funeral trust investments at December 31, 2022 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 29,641 $ — $ — $ 29,641 Fixed income securities: U.S. treasury debt 1 484 — ( 45 ) 439 Foreign debt 2 10,851 818 ( 555 ) 11,114 Corporate debt 2 12,735 89 ( 3,443 ) 9,381 Preferred stock 2 10,730 391 ( 1,564 ) 9,557 Common stock 1 36,478 4,485 ( 5,187 ) 35,776 Mutual funds: Equity 1 326 — ( 30 ) 296 Fixed income 2 9,907 9 ( 2,691 ) 7,225 Other investments 2 3,592 — — 3,592 Trust securities $ 114,744 $ 5,792 $ ( 13,515 ) $ 107,021 Accrued investment income $ 974 $ 974 Preneed funeral trust investments $ 107,995 Market value as a percentage of cost 93.3 % The following table summarizes our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at June 30, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): June 30, 2023 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: U.S. treasury debt $ — $ — $ 443 $ ( 42 ) $ 443 $ ( 42 ) Foreign debt 2,538 ( 79 ) 1,774 ( 306 ) 4,312 ( 385 ) Corporate debt 4,090 ( 3,227 ) 2,648 ( 934 ) 6,738 ( 4,161 ) Preferred stock 4,080 ( 830 ) 3,523 ( 613 ) 7,603 ( 1,443 ) Total fixed income securities with an unrealized loss $ 10,708 $ ( 4,136 ) $ 8,388 $ ( 1,895 ) $ 19,096 $ ( 6,031 ) The following table summarizes our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 2022 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: U.S. treasury debt $ 439 $ ( 45 ) $ — $ — $ 439 $ ( 45 ) Foreign debt 4,766 ( 274 ) 626 ( 281 ) 5,392 ( 555 ) Corporate debt 6,742 ( 3,248 ) 506 ( 195 ) 7,248 ( 3,443 ) Preferred stock 5,908 ( 1,099 ) 2,261 ( 465 ) 8,169 ( 1,564 ) Total fixed income securities with an unrealized loss $ 17,855 $ ( 4,666 ) $ 3,393 $ ( 941 ) $ 21,248 $ ( 5,607 ) - 18 - Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Investment income $ 481 $ 577 $ 847 $ 1,063 Realized gains 6,147 703 7,890 1,943 Realized losses ( 2,088 ) ( 260 ) ( 2,146 ) ( 1,097 ) Unrealized gains (losses), net ( 13,927 ) 3,380 ( 7,400 ) ( 7,205 ) Expenses and taxes ( 322 ) ( 202 ) ( 537 ) ( 394 ) Net change in deferred preneed funeral receipts held in trust 9,709 ( 4,198 ) 1,346 5,690 $ — $ — $ — $ — Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Purchases $ — $ ( 2,687 ) $ ( 590 ) $ ( 8,750 ) Sales 30 2,742 530 5,685 Cemetery Perpetual Care Trust Investments Care trusts’ corpus on our Consolidated Balance Sheet represents the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus are as follows (in thousands): December 31, 2022 June 30, 2023 Cemetery perpetual care trust investments, at market value $ 66,307 $ 78,363 Obligations due from trust ( 812 ) ( 774 ) Care trusts’ corpus $ 65,495 $ 77,589 The following table reflects the cost and market values associated with the trust investments held in cemetery perpetual care trust funds at June 30, 2023 (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 6,001 $ — $ — $ 6,001 Fixed income securities: Foreign debt 2 9,753 853 ( 404 ) 10,202 Corporate debt 2 12,561 208 ( 4,054 ) 8,715 Preferred stock 2 10,990 384 ( 1,359 ) 10,015 Common stock 1 32,130 5,361 ( 5,874 ) 31,617 Limited partnership fund 2,969 — ( 1 ) 2,968 Mutual funds: Equity 1 458 — ( 45 ) 413 Fixed income 2 10,119 15 ( 2,411 ) 7,723 Trust securities $ 84,981 $ 6,821 $ ( 14,148 ) $ 77,654 Accrued investment income $ 709 $ 709 Cemetery perpetual care investments $ 78,363 Market value as a percentage of cost 91.4 % - 19 - The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands): Due in one year or less $ — Due in one to five years 6,963 Due in five to ten years 4,183 Thereafter 17,786 Total fixed income securities $ 28,932 The following table reflects the cost and market values associated with the trust investments held in cemetery perpetual care trust funds at December 31, 2022 (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 5,326 $ — $ — $ 5,326 Fixed income securities: Foreign debt 2 8,746 600 ( 470 ) 8,876 Corporate debt 2 10,540 118 ( 2,961 ) 7,697 Preferred stock 2 9,831 287 ( 1,374 ) 8,744 Common stock 1 28,625 3,443 ( 4,297 ) 27,771 Mutual funds: Equity 1 345 2 ( 22 ) 325 Fixed income 2 9,046 26 ( 2,310 ) 6,762 Trust securities $ 72,459 $ 4,476 $ ( 11,434 ) $ 65,501 Accrued investment income $ 806 $ 806 Cemetery perpetual care investments $ 66,307 Market value as a percentage of cost 90.4 % The following table summarizes our fixed income securities (excluding mutual funds) within our cemetery perpetual care trust investment in an unrealized loss position at June 30, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): June 30, 2023 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: Foreign debt $ 2,502 $ ( 84 ) $ 1,916 $ ( 320 ) $ 4,418 $ ( 404 ) Corporate debt 3,516 ( 2,774 ) 2,699 ( 1,280 ) 6,215 ( 4,054 ) Preferred stock 3,369 ( 681 ) 4,108 ( 678 ) 7,477 ( 1,359 ) Total fixed income securities with an unrealized loss $ 9,387 $ ( 3,539 ) $ 8,723 $ ( 2,278 ) $ 18,110 $ ( 5,817 ) - 20 - The following table summarizes our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at December 31, 2022, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 2022 In Loss Position Less than 12 months In Loss Position Greater than 12 months Total Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fair Market Value Unrealized Losses Fixed income securities: Foreign debt $ 4,123 $ ( 218 ) $ 554 $ ( 252 ) $ 4,677 $ ( 470 ) Corporate debt 5,413 ( 2,818 ) 371 ( 143 ) 5,784 ( 2,961 ) Preferred stock 6,066 ( 1,032 ) 1,659 ( 342 ) 7,725 ( 1,374 ) Total fixed income securities with an unrealized loss $ 15,602 $ ( 4,068 ) $ 2,584 $ ( 737 ) $ 18,186 $ ( 4,805 ) Cemetery perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Realized gains $ 994 $ 671 $ 1,244 $ 831 Realized losses ( 281 ) ( 293 ) ( 289 ) ( 470 ) Unrealized gains (losses), net ( 10,844 ) 1,746 ( 6,116 ) ( 7,327 ) Net change in care trusts’ corpus 10,131 ( 2,124 ) 5,161 6,966 Total $ — $ — $ — $ — Cemetery perpetual care trust investment security transactions recorded in Other revenue are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Investment income $ 2,776 $ 2,881 $ 5,538 $ 6,078 Realized losses, net ( 258 ) ( 18 ) ( 604 ) ( 474 ) Total $ 2,518 $ 2,863 $ 4,934 $ 5,604 Purchases and sales of investments in the cemetery perpetual care trusts are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Purchases $ ( 280 ) $ ( 2,310 ) $ ( 411 ) $ ( 6,711 ) Sales 441 8,694 441 10,904 9. RECEIVABLES FROM PRENEED FUNERAL TRUSTS Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. Receivables from preneed funeral trusts are as follows (in thousands): December 31, 2022 June 30, 2023 Preneed funeral trust funds, at cost $ 20,594 $ 21,732 Less: allowance for contract cancellation ( 618 ) ( 652 ) Receivables from preneed funeral trusts, net $ 19,976 $ 21,080 The following summary reflects the composition of the assets held in trust and controlled by third parties to satisfy our future obligations related to the underlying preneed funeral contracts at December 31, 2022 and June 30, 2023. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes unrealized gains and losses on trust assets. - 21 - The composition of the preneed funeral trust funds at June 30, 2023 is as follows (in thousands): Historical Cost Basis Fair Value Cash and cash equivalents $ 6,283 $ 6,283 Fixed income investments 12,590 12,590 Mutual funds and common stocks 2,855 2,581 Annuities 4 4 Total $ 21,732 $ 21,458 The composition of the preneed funeral trust funds at December 31, 2022 is as follows (in thousands): Historical Cost Basis Fair Value Cash and cash equivalents $ 6,071 $ 6,071 Fixed income investments 11,795 11,795 Mutual funds and common stocks 2,725 2,440 Annuities 3 3 Total $ 20,594 $ 20,309 10. INTANGIBLE AND OTHER NON-CURRENT ASSETS Intangible and other non-current assets are as follows (in thousands): December 31, 2022 June 30, 2023 Tradenames $ 25,610 $ 29,074 Capitalized commissions on preneed contracts, net of accumulated amortization of $ 2,990 and $ 3,375 , respectively 4,048 4,350 Prepaid agreements not-to-compete, net of accumulated amortization of $ 3,515 and $ 3,576 , respectively 1,877 1,592 Internal-use software, net of accumulated amortization of $ 200 and $ 300 , respectively 1,271 1,935 Other 124 382 Intangible and other non-current assets, net $ 32,930 $ 37,333 Tradenames During the six months ended June 30, 2023, we increased the value of our tradenames by $ 3.5 million, with $ 1.3 million allocated to our funeral home segment and $ 2.2 million allocated to our cemetery segment, related to our 2023 business combination, described in Note 3 to the Consolidated Financial Statements. Capitalized Commissions We capitalize sales commissions and other direct selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts as these costs are incremental and recoverable costs of obtaining a contract with a customer. Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period of ten years for our preneed funeral trust contracts and eight years for our preneed cemetery merchandise and services contracts. Amortization expense was $ 174,000 and $ 196,000 for the three months ended June 30, 2022 and 2023, respectively and $ 344,000 and $ 385,000 for the six months ended June 30, 2022 and 2023, respectively. Prepaid Agreements Prepaid agreements not-to-compete are amortized over the term of the respective agreements, generally ranging from one to ten years . Amortization expense was $ 142,000 and $ 131,000 for the three months ended June 30, 2022 and 2023, respectively and $ 290,000 and $ 262,000 for the six months ended June 30, 2022 and 2023, respectively. Internal-use Software Internal-use software is amortized on a straight-line basis typically over three to five years . Amortization expense was $ 55,000 and $ 72,000 for the three months ended June 30, 2022 and 2023, respectively and $ 111,000 and $ 134,000 for the six months ended June 30, 2022 and 2023, respectively. - 22 - The aggregate amortization expense for our capitalized commissions, prepaid agreements and internal-use software as of June 30, 2023 is as follows (in thousands): Capitalized Commissions Prepaid Agreements Internal-use Software Years ending December 31, Remainder of 2023 $ 402 $ 257 $ 142 2024 759 424 303 2025 694 377 391 2026 628 262 378 2027 562 142 377 Thereafter 1,305 130 344 Total amortization expense $ 4,350 $ 1,592 $ 1,935 11. CREDIT FACILITY AND ACQUISITION DEBT At June 30, 2023, our senior secured revolving credit facility (the “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 aggregate 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 (as defined in Note 12) and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Subsidiary Guarantors”). 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 June 30, 2023, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed 6.00 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 Credit Facility as of June 30, 2023. Our Credit Facility and acquisition debt consisted of the following (in thousands): December 31, 2022 June 30, 2023 Credit Facility $ 190,700 $ 204,000 Debt issuance costs, net of accumulated amortization of $ 1,926 and $ 2,202 , respectively ( 1,864 ) ( 1,582 ) Total Credit Facility $ 188,836 $ 202,418 Acquisition debt $ 3,993 $ 3,948 Less: current portion ( 555 ) ( 578 ) Total acquisition debt, net of current portion $ 3,438 $ 3,370 At June 30, 2023, we had outstanding borrowings under the Credit Facility of $ 204.0 million. We also had one letter of credit for $ 2.3 million under the Credit Facility. The letter of credit will expire on November 27, 2023 and is expected to automatically renew annually and secures our obligations under our various self-insured policies. At June 30, 2023, we had $ 43.7 million of availability under the Credit Facility. Outstanding borrowings under our Credit Facility bear interest at a prime rate or the Bloomberg Short-Term Bank Yield Index (“BSBY”) rate, plus an applicable margin based on our leverage ratio. At June 30, 2023, the prime rate margin was equivalent to 2.625 % and the BSBY rate margin was 3.625 %. The weighted average interest rate on our Credit Facility was 2.9 % and 8.6 % for the three months ended June 30, 2022 and 2023, respectively and 2.5 % and 8.3 % for the six months ended June 30, 2022 and 2023, respectively. - 23 - The interest expense and amortization of debt issuance costs related to our Credit Facility are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Credit Facility interest expense $ 1,314 $ 4,668 $ 2,161 $ 8,479 Credit Facility amortization of debt issuance costs 96 138 184 276 Acquisition debt consists of deferred purchase price and promissory notes payable to sellers. 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 nine to twenty years . The imputed interest expense related to our acquisition debt is as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Acquisition debt imputed interest expense $ 79 $ 71 $ 159 $ 142 12. SENIOR NOTES The carrying value of our 4.25 % senior notes due 2029 (the “Senior Notes”) is reflected on our Consolidated Balance Sheet as follows (in thousands): December 31, 2022 June 30, 2023 Long-term liabilities: Principal amount $ 400,000 $ 400,000 Debt discount, net of accumulated amortization of $ 794 and $ 1,049 , respectively ( 3,706 ) ( 3,451 ) Debt issuance costs, net of accumulated amortization of $ 226 and $ 299 , respectively ( 1,051 ) ( 978 ) Carrying value of the Senior Notes $ 395,243 $ 395,571 At June 30, 2023, the fair value of the Senior Notes, which are Level 2 measurements, was $ 343.1 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. 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 interest expense and amortization of debt discount and debt issuance costs related to our Senior Notes are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Senior Notes interest expense $ 4,230 $ 4,250 $ 8,480 $ 8,500 Senior Notes amortization of debt discount 122 128 243 255 Senior Notes amortization of debt issuance costs 35 37 69 73 The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 71 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes for both the three and six months ended June 30, 2022 and 2023 was 4.42 % and 4.30 %, respectively. - 24 - 13. LEASES Our lease obligations consist of operating and finance leases related to real estate, equipment and vehicles. The components of lease cost are as follows (in thousands): Three months ended June 30, Six months ended June 30, Income Statement Classification 2022 2023 2022 2023 Operating lease cost Facilities and grounds expense (1) $ 853 $ 917 $ 1,701 $ 1,792 Short-term lease cost Facilities and grounds expense (1) 76 92 178 186 Variable lease cost Facilities and grounds expense (1) 16 56 23 114 Finance lease cost: Depreciation of leased assets Depreciation and amortization (2) $ 109 $ 109 $ 217 $ 217 Interest on lease liabilities Interest expense 112 103 225 208 Total finance lease cost 221 212 442 425 Total lease cost $ 1,166 $ 1,277 $ 2,344 $ 2,517 (1) Facilities and grounds expense is included within Cost of service and General, administrative and other on our Consolidated Statements of Operations. (2) Depreciation and amortization expense is included within Field depreciation expense and General, administrative and other on our Consolidated Statements of Operations. Supplemental cash flow information related to our leases is as follows (in thousands): Six months ended June 30, 2022 2023 Cash paid for operating leases included in operating activities $ 1,795 $ 1,934 Cash paid for finance leases included in financing activities 426 447 Right-of-use assets obtained in exchange for new leases is as follows (in thousands): Six months ended June 30, 2022 2023 Right-of-use assets obtained in exchange for new operating lease liabilities $ 576 $ 1,067 Right-of-use assets obtained in exchange for new finance lease liabilities — — Supplemental balance sheet information related to leases is as follows (in thousands): Lease Type Balance Sheet Classification December 31, 2022 June 30, 2023 Operating lease right-of-use assets Operating lease right-of-use assets $ 17,060 $ 17,123 Finance lease right-of-use assets Property, plant and equipment, net $ 6,770 $ 6,770 Accumulated depreciation Property, plant and equipment, net ( 2,881 ) ( 3,098 ) Finance lease right-of-use assets, net $ 3,889 $ 3,672 Operating lease current liabilities Current portion of operating lease obligations $ 2,203 $ 2,581 Finance lease current liabilities Current portion of finance lease obligations 414 409 Total current lease liabilities $ 2,617 $ 2,990 Operating lease non-current liabilities Obligations under operating leases, net of current portion $ 17,315 $ 16,860 Finance lease non-current liabilities Obligations under finance leases, net of current portion 4,743 4,537 Total non-current lease liabilities $ 22,058 $ 21,397 Total lease liabilities $ 24,675 $ 24,387 - 25 - The average lease terms and discount rates at June 30, 2023 are as follows: Weighted-average remaining lease term (years) Weighted-average discount rate Operating leases 8.3 8.1 % Finance leases 11.1 8.1 % The aggregate future lease payments for non-cancelable operating and finance leases at June 30, 2023 are as follows (in thousands): Operating Finance Lease payments due: Remainder of 2023 $ 1,973 $ 423 2024 3,942 791 2025 3,651 736 2026 3,528 746 2027 3,375 746 Thereafter 10,011 4,064 Total lease payments 26,480 7,506 Less: Interest ( 7,039 ) ( 2,560 ) Present value of lease liabilities $ 19,441 $ 4,946 At June 30, 2023, we had no significant operating or finance leases that had not yet commenced. 14. STOCKHOLDERS ’ EQUITY Restricted Stock Restricted stock activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — — $ — 142,020 $ 4,634 Returned for payroll taxes ( 49 ) $ ( 2 ) 39 $ 1 4,136 $ 205 1,473 $ 50 Cancelled 450 $ 16 776 $ 27 1,450 $ 47 1,826 $ 61 (1) Restricted stock granted during the six months ended June 30 2023 vests over a three-year period, if the employee has remained continuously employed by us during the vesting period, at a weighted average stock price of $ 32.63 . We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for restricted stock awards of $ 40,000 and $ 394,000 , for the three months ended June 30, 2022 and 2023, respectively and $ 97,000 and $ 572,000 for the six months ended June 30, 2022 and 2023, respectively. Stock Options Stock option grants and cancellations are as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — 58,500 $ 959 214,191 $ 2,506 Granted (2) — $ — — $ — 310,000 $ 5,388 — $ — Cancelled 18,138 $ 214 13,810 $ 152 25,138 $ 285 101,850 $ 1,334 (1) Stock options granted during the six months ended June 30, 2022 and 2023 had a weighted average price of $ 49.48 and $ 32.69 , respectively. The fair value of these options was calculated using the Black-Scholes option pricing model. The options granted in 2022 vest over a five-year period and have a ten-year term. The options granted in 2023 vest over a three-year period and have a ten-year term. These options will vest if the employee has remained continuously employed by us through the vesting period. (2) Stock options granted during the six months ended June 30, 2022 had a weighted average price of $ 49.48 . The fair value of these options was calculated using the Black-Scholes option pricing model and vest over a seven-year period and have a ten-year term. These options will vest if the employee has remained continuously employed by us through the vesting period. - 26 - The fair value of the options granted during the six months ended June 30, 2023 was estimated using the Black-Scholes option pricing model with the following assumptions: Grant Date February 22, 2023 Expected holding period (years) 4.00 Awards granted 214,191 Dividend yield 1.38 % Expected volatility 43.68 % Risk-free interest rate 4.27 % Black-Scholes value $ 11.70 Additional stock option activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Cash Shares Cash Shares Cash Shares Cash Exercised (1) — N/A 17,300 N/A 18,736 N/A 29,300 N/A Returned for option price (2) — $ — 12,652 $ — 8,125 $ 60 22,797 $ — Returned for payroll taxes (3) — $ — 736 $ 20 1,601 $ 82 1,465 $ 41 (1) Stock options exercised during the three months ended June 30, 2023 had a weighted average exercise price of $ 20.06 with an aggregate intrinsic value of $ 0.2 million. Stock options exercised during the six months ended June 30, 2022 and 2023 had a weighted average exercise price of $ 25.88 and $ 22.26 , respectively, with an aggregate intrinsic value of $ 0.5 million and $ 0.3 million, respectively. (2) Represents shares withheld/cash received for the payment of the option price. (3) Represents shares withheld/cash paid for the payment of payroll taxes. We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for stock options of $ 550,000 and $ 735,000 , for the three months ended June 30, 2022 and 2023, respectively and $ 1,188,000 and $ 1,445,000 for the six months ended June 30, 2022 and 2023, respectively. Performance Awards Performance award activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted 23,263 $ 1,100 — $ — 27,013 $ 1,262 — $ — Cancelled 13,974 $ 134 2,795 $ 27 20,961 $ 201 40,181 $ 1,012 We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for performance awards of $ 637,000 and $ 665,000 for the three months ended June 30, 2022 and 2023, respectively and $ 1,203,000 and $ 728,000 for the six months ended June 30, 2022 and 2023, respectively. Employee Stock Purchase Plan ESPP activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Price Shares Price Shares Price Shares Price ESPP 11,796 $ 33.70 16,386 $ 24.28 25,089 $ 39.86 38,042 $ 24.28 The fair value of the right (option) to purchase shares under the ESPP is estimated at the date of purchase with the four quarterly purchase dates using the following assumptions: 2023 Dividend yield 1.30 % Expected volatility 53.51 % Risk-free interest rate 4.53 %, 4.77 %, 4.75 %, 4.72 % Expected life (years) 0.25 , 0.50 , 0.75 , 1.00 - 27 - We recorded stock-based compensation expense, which is included in General, administrative and other expenses and Regional and unallocated funeral and cemetery costs , for the ESPP totaling $ 152,000 and $ 163,000 for the three months ended June 30, 2022 and 2023, respectively and $ 351,000 and $ 415,000 for the six months ended June 30, 2022 and 2023 respectively. Common Stock Former Employee Common stock activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — — $ — 30,000 $ 826 Returned for payroll taxes — $ — — $ — — $ — 1,001 $ 28 (1) During the six months ended June 30, 2023, we issued 30,000 shares of common stock to a former executive at a stock price of $ 27.54 , in accordance with his Separation and Release agreement pertaining to his resignation from his position as the Company's Executive Vice President, Chief Financial Officer & Treasurer effective January 2, 2023. We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for common stock awards of $ 826,000 , for the six months ended June 30, 2023. Good To Great Incentive Program During the six months ended June 30, 2023, we issued 8,444 shares of our common stock to certain employees, which were valued at $ 0.3 million at a grant date stock price of $ 32.69 . During the six months ended June 30, 2022, we issued 27,448 shares of our common stock to certain employees, which were valued at $ 1.4 million at a grant date stock price of $ 49.48 . Non-Employee Director and Board Advisor Compensation Non-Employee Director and Board Advisor common stock activity is as follows (in thousands, except shares): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Board of Directors (1) 2,372 $ 94 1,077 $ 35 5,041 $ 236 4,595 $ 142 Advisor to the Board (1) 126 $ 5 153 $ 5 219 $ 10 316 $ 10 (1) Common stock granted during the three months ended June 30, 2022 and 2023 had a weighted average price of $ 39.65 and $ 32.47 , respectively and $ 46.83 and $ 31.01 for six months ended June 30, 2022 and 2023, respectively. On June 21, 2023, the Board elected Chad Fargason to serve as a Class II Director until the 2025 annual meeting of shareholders. Mr. Fargason was appointed to serve as the chairperson of the Corporate Governance Committee and a member of the Audit Committee. Concurrently with his appointment, the Board granted Mr. Fargason 910 shares of our common stock under our Director Compensation Policy, which were valued at approximately $ 25,000 based on the closing price on the grant date. We recorded compensation expense, which is included in General, administrative and other expenses , related to annual retainers, including the value of stock granted to non-employee Directors and an advisor to our Board, of $ 184,000 and $ 189,000 for the three months ended June 30, 2022 and 2023, respectively and $ 385,000 and $ 355,000 for the six months ended June 30, 2022 and 2023, respectively. Share Repurchase Share repurchase activity is as follows (dollar value in thousands): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Number of Shares Repurchased 205,496 — 695,496 — Average Price Paid Per Share $ 40.02 $ — $ 49.22 $ — Dollar Value of Shares Repurchased $ 8,224 $ — $ 34,234 $ — - 28 - 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 stock. At June 30, 2023, our share repurchase program had $ 48.9 million authorized for repurchases. Cash Dividend Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts): 2023 Per Share Dollar Value March 1 st $ 0.1125 $ 1,661 June 1 st $ 0.1125 $ 1,679 2022 Per Share Dollar Value March 1 st $ 0.1125 $ 1,725 June 1 st $ 0.1125 $ 1,730 15. EARNINGS PER SHARE The following table sets forth the computation of the basic and diluted earnings per share (in thousands, except per share data): Three months ended June 30, Six months ended June 30, 2022 2023 2022 2023 Numerator for basic and diluted earnings per share: Net income $ 10,899 $ 8,286 $ 27,301 $ 17,130 Less: Earnings allocated to unvested restricted stock ( 6 ) ( 79 ) ( 20 ) ( 150 ) Income attributable to common stockholders $ 10,893 $ 8,207 27,281 16,980 Denominator: Denominator for basic earnings per common share - weighted average shares outstanding 14,798 14,793 15,020 14,776 Effect of dilutive securities: Stock options 226 50 325 74 Performance awards 688 611 688 611 Denominator for diluted earnings per common share - weighted average shares outstanding 15,712 15,454 16,033 15,461 Basic earnings per common share: $ 0.74 $ 0.55 $ 1.82 $ 1.14 Diluted earnings per common share: $ 0.69 $ 0.53 $ 1.70 $ 1.10 Stock options excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive effect are as follows: Three months ended June 30, Six months ended June 30, 2022 2023 2020 2023 Antidilutive stock options 366,038 1,236,490 259,359 1,183,146 Our performance awards are considered to be contingently issuable shares because their issuance is contingent upon the satisfaction of certain performance and service conditions. At June 30, 2023, we had satisfied certain performance criteria for the first, second and third predetermined growth targets of our performance awards to be considered outstanding. Therefore, we included these awards in the computation of diluted earnings per share as of the beginning of the reporting period. - 29 - 16. SEGMENT REPORTING Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands): Three months ended June 30, 2023 Funeral Cemetery Total Services $ 39,799 $ 4,723 $ 44,522 Merchandise 21,211 4,244 25,455 Cemetery property — 20,175 20,175 Other revenue 3,495 4,031 7,526 Total $ 64,505 $ 33,173 $ 97,678 Three months ended June 30, 2022 Funeral Cemetery Total Services $ 38,140 $ 4,410 $ 42,550 Merchandise 20,525 3,777 24,302 Cemetery property — 16,974 16,974 Other revenue 3,273 3,501 6,774 Total $ 61,938 $ 28,662 $ 90,600 Six months ended June 30, 2023 Funeral Cemetery Total Services $ 83,401 $ 9,328 $ 92,729 Merchandise 44,180 8,178 52,358 Cemetery property — 33,283 33,283 Other revenue 7,009 7,813 14,822 Total $ 134,590 $ 58,602 $ 193,192 Six months ended June 30, 2022 Funeral Cemetery Total Services $ 83,656 $ 8,631 $ 92,287 Merchandise 45,810 6,878 52,688 Cemetery property — 30,200 30,200 Other revenue 6,827 6,759 13,586 Total $ 136,293 $ 52,468 $ 188,761 - 30 - The following table presents operating income (loss), income (loss) before income taxes and total assets (in thousands): Funeral Cemetery Corporate Consolidated Operating income (loss): Three months ended June 30, 2023 $ 17,898 $ 13,039 $ ( 10,199 ) $ 20,738 Three months ended June 30, 2022 18,485 10,421 ( 9,181 ) 19,725 Six months ended June 30, 2023 $ 40,091 $ 21,651 $ ( 20,370 ) $ 41,372 Six months ended June 30, 2022 43,947 18,639 ( 17,710 ) 44,876 Income (loss) before income taxes: Three months ended June 30, 2023 $ 18,112 $ 13,183 $ ( 19,593 ) $ 11,702 Three months ended June 30, 2022 19,765 10,427 ( 15,072 ) 15,120 Six months ended June 30, 2023 $ 40,446 $ 21,854 $ ( 38,252 ) $ 24,048 Six months ended June 30, 2022 46,973 18,686 ( 29,055 ) 36,604 Total assets: June 30, 2023 $ 796,043 $ 429,272 $ 16,771 $ 1,242,086 December 31, 2022 779,500 396,389 17,061 1,192,950 17. SUPPLEMENTARY DATA Balance Sheet The following table presents the detail of certain balance sheet accounts (in thousands): December 31, 2022 June 30, 2023 Prepaid and other current assets: Prepaid expenses $ 4,077 $ 2,803 Federal income taxes receivable 507 678 Other current assets 149 129 Total prepaid and other current assets $ 4,733 $ 3,610 Current portion of debt and lease obligations: Acquisition debt $ 555 $ 578 Finance lease obligations 414 409 Operating lease obligations 2,203 2,581 Total current portion of debt and lease obligations $ 3,172 $ 3,568 Accrued and other liabilities: Incentive compensation $ 12,140 $ 8,337 Insurance 3,051 4,134 Unrecognized tax benefit 3,294 3,338 Vacation 3,430 3,714 Interest 2,329 2,462 Salaries and wages 2,263 2,310 Employee meetings and award trips 746 552 Commissions 743 974 Income tax payable 459 168 Ad valorem and franchise taxes 455 1,634 Perpetual care trust payable 222 400 Other accrued liabilities 1,489 1,541 Total accrued and other liabilities $ 30,621 $ 29,564 Other long-term liabilities: Incentive compensation $ 2,541 $ 1,042 Other long-term liabilities 524 257 Total other long-term liabilities $ 3,065 $ 1,299 - 31 - Cash Flow The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands): Six months ended June 30, 2022 2023 Cash paid for interest $ 10,901 $ 17,056 Cash paid for taxes 4,495 7,329 - 32 - CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS In addition to historical information, this Quarterly Report on Form 10-Q contains certain statements and information that may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical information, should be deemed to be forward-looking statements. Words such as “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions may be used to identify forward-looking statements; however, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding any projections of earnings, revenue, cash flow, investment returns, capital allocation, debt levels, equity performance, death rates, market share growth, overhead, including talent recruitment, field and corporate incentive compensation, or other financial items; any statements of the plans, strategies and objectives of management for future operations or financing activities, including, but not limited to, capital allocation, the ability to obtain credit or financing, organizational performance, anticipated integration, performance and other benefits of recently completed and anticipated acquisitions, and cost and debt reductions; any statements of the plans, timing and objectives of management for acquisition and divestiture activities; any statements regarding future economic and market conditions or performance; any statements regarding the timing of the strategic alternatives review; the outcome of the strategic alternatives review, including whether any transaction occurs, at all; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. While we believe these assumptions concerning future events are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to: • our ability to find and retain skilled personnel; • the effects of our talent recruitment efforts, incentive and compensation plans and programs, including such effects on our Standards Operating Model and the Company’s operational and financial performance; • our ability to execute our growth strategy, if at all; • our ability to execute and meet the objectives of our High Performance and Credit Profile Restoration Plan, if at all; • the execution of our Standards Operating, 4E Leadership and Strategic Acquisition Models; • the effects of competition; • changes in the number of deaths in our markets; • changes in consumer preferences and our ability to adapt to or meet those changes; • our ability to generate preneed sales, including implementing our cemetery portfolio sales strategy, product development and optimization plans; • the investment performance of our funeral and cemetery trust funds; • fluctuations in interest rates; • the effects of inflation on our operational and financial performance, including the increased overall costs for our goods and services, the impact on customer preferences as a result of changes in discretionary income, and our ability, if at all, to mitigate such effects; • our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness; • our ability to meet the timing, objectives and expectations related to our capital allocation framework, including our forecasted rates of return, planned uses of free cash flow and future capital allocation, including share repurchases, potential strategic acquisitions, internal growth projects, dividend increases, or debt repayment plans; • our ability to meet the projected financial and equity performance goals to our updated full year outlook, if at all; • the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts; • the financial condition of third-party insurance companies that fund our preneed funeral contracts; • increased or unanticipated costs, such as merchandise, goods, insurance or taxes, and our ability to mitigate or minimize such costs, if at all; • our level of indebtedness and the cash required to service our indebtedness; • changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service; - 33 - • effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof; • the potential impact of epidemics and pandemics, such as the COVID-19 coronavirus, including any new or emerging public health threats, on customer preferences and on our business; • government, social, business and other actions that have been and will be taken in response to pandemics and epidemics, such as the COVID-19 coronavirus, including potential responses to any new or emerging public health threats; • effects and expense of litigation; • consolidation of the funeral and cemetery industry; • our ability to identify and consummate strategic acquisitions, if at all, and successfully integrate acquired businesses with our existing businesses, including expected performance and financial improvements related thereto; • potential adverse impacts resulting from our recent announcement regarding our board of directors’ review of potential strategic alternatives for the Company; • economic, financial and stock market fluctuations; • interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents, • adverse developments affecting the financial services industry; • acts of war or terrorists acts and the governmental or military response to such acts; • our failure to maintain effective control over financial reporting; and • other factors and uncertainties inherent in the funeral and cemetery industry. For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii) Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022. Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise. - 34 -