What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-02 compared with 2024-05-03 · 222 added, 145 removed, 206 unchanged (64% of the section changed)

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Funeral Home operations, which currently accounts for approximately 65% of our total revenue, and Cemetery operations, which currently accounts for approximately 35% of our total revenue.

At March 31, 2024, we operated 165 funeral homes in 26 states and 31 cemeteries in 11 states.

At June 30, 2024, we operated 164 funeral homes in 26 states and 31 cemeteries in 11 states.

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

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Board of Directors and Leadership Changes

On February 22, 2024, the Board of Directors (the “Board”) of the Company announced the conclusion of the Company’s review of strategic alternatives, first announced on June 29, 2023, which was overseen by the Board with assistance from experienced financial advisors and legal counsel.

On February 21, 2024, the Board voted to bring the strategic review process to a close.

The Board unanimously determined that continuing to execute on the Company’s strategic plan as an independent, public company is in the best interests of the Company and its stockholders at this time.

On February 22, 2024 (the “Transition Date”), the Company announced that Melvin C.

Payne, the Company’s founder and former Chief Executive Officer, would cease to serve as Executive Chairman of the Board, but will remain on the Board until the Company’s 2024 annual meeting of stockholders, when the term for Class I directors is scheduled to expire.

Beginning on the Transition Date, Mr.

Payne began serving as a special advisor to the Board and senior management in a consulting role.

On April 2, 2024, the Board of Directors (the “Board”) of the Company revised the Director Compensation Policy to provide that each independent director is entitled to a quarterly retainer of $37,500 payable in cash and/or unrestricted shares of our common stock at the end of each quarter.

The chair of the Board, so long as he or she is an independent director, and the chair of our Audit Committee shall be entitled to an additional annual retainer of $20,000, the chair of our Compensation Committee is entitled to an additional annual retainer of $15,000, and the chair of our Corporate Governance Committee is entitled to an additional annual retainer of $10,000, which are payable in quarterly installments at the end of each quarter.

On May 14, 2024, the Board elected Julie Sanders to serve as chair of the Board’s Corporate Governance Committee, effective on that date, which was a result of the previous announcement of Chad Fargason, the prior chair of the Corporate Governance Committee, being elected to serve as the Company’s Non-Executive Chairman of the Board, effective March 7, 2024.

On June 6, 2024, L.

Kian Granmayeh informed the Company that he would resign from his position as Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) effective July 1, 2024 and will serve as a consultant for the Company for six months thereafter.

Granmayeh’s resignation was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies, or practices, including any matters concerning the Company’s controls or any financial or accounting-related matters or disclosures.

In connection with Mr.

Payne’s termination of employment, the employment-related provisions of his Employment Agreement, dated as of November 5, 2019, with the Company (as amended prior to the Transition Date, the “Employment Agreement”) terminated on the Transition Date.

On February 21, 2024, the Company and Mr.

Payne entered into a Transition Agreement (the “Transition Agreement”), setting forth the terms of his severance benefits and his consulting arrangement.

Under the Transition Agreement, Mr.

Payne is entitled to receive certain benefits, subject to the timely execution and non-revocation by Mr.

Payne and his spouse of waiver and release agreements in connection with the Transition Date and the end of the 12-month consulting term set forth in the Transition Agreement (the “Releases”).

These payments and benefits include the following:

• Salary continuation for 24 months of $2.0 million;

• 2023 annual bonus of $1.25 million;

• Prorated 2024 bonus of $181,500;

• Prorated settlement of performance awards of $3.0 million payable in cash;

• Consulting payments of $1.0 million;

• Payments for maintaining health benefits for Mr.

Payne and his spouse for up to 36 months;

• Reimbursement of legal expenses up to $35,000.

All of the payments and benefits provided under the Transition Agreement are subject to Mr.

Payne’s continued compliance with certain confidentiality, non-competition, non-solicitation and non-disparagement provisions of the Employment Agreement, as well as compliance by Mr.

Payne and his spouse with their respective Releases.

The Transition Agreement may be terminated by the Company upon the material breach of the Transition Agreement, the Employment Agreement or either of the Releases.

Payne’s death, any consulting fee payments would be paid to his estate.

On March 7, 2024, upon the recommendation of the Corporate Governance Committee of the Company, the Board realigned the Company’s classes of directors to provide for equal apportionment among the three classes as a result of the previous announcement of Mr.

Payne, a current Class I director, remaining on the Board until the Company’s 2024 annual meeting of stockholders, at which time his term will expire.

To facilitate the class realignment, on March 7, 2024, Julie Sanders resigned from the Board as a Class II director (term expiring in 2025), and, effective as of March 7, 2024, was re-elected by the Board to serve as a Class I director until the Company’s 2024 annual meeting of shareholders.

Sanders will continue to serve on the Audit, Compensation and Corporate Governance Committees of the Board.

On March 7, 2024, upon the recommendation of the Corporate Governance Committee of the Company, the Board elected Chad Fargason to serve as the Company’s first Non-Executive Chairman of the Board, effective on that date.

The election of Mr.

Fargason as the Board’s Non-Executive Chairman was as a result of the previous announcement of Mr.

Payne ceasing to serve as Executive Chairman of the Board of the Company, effective February 22, 2024.

Effective March 25, 2024, Kathryn Shanley was appointed to serve as the Company’s Chief Accounting Officer (Principal Accounting Officer).

In connection with the appointment of Ms.

Shanley as the Company’s Chief Accounting Officer (Principal Accounting Officer), effective March 25, 2024, L.

Kian Granmayeh ceased serving as the Company’s Principal Accounting Officer.

Granmayeh continues to serve as the Company’s Executive Vice President, Chief Financial Officer, and Treasurer (Principal Financial Officer).

During the three months ended March 31, 2024, we sold six funeral homes and one cemetery for an aggregate of $10.9 million for a net loss of $1.5 million.

Granmayeh’s resignation, the Company’s Board appointed Kathryn Shanley, the Company’s Chief Accounting Officer (Principal Accounting Officer) as the Company’s interim Principal Financial Officer, effective June 6, 2024, until a permanent replacement is identified.

No new compensatory arrangements were entered into with Ms.

Shanley in connection with her appointment as the Company’s interim Principal Financial Officer.

Contingent Liability

During the three and six months ended June 30, 2024, we recorded a $5.0 million contingent liability to reflect our agreement to pay our financial advisor in connection with the review of strategic alternatives.

Inflationary and Macroeconomic Trends

During the first quarter of 2024, we experienced a stabilization of inflationary costs from our vendors and suppliers for merchandise and goods, particularly as it relates to utilities, funeral supplies and merchandise costs, with costs remaining flat when compared to the same period during 2023.

During the second quarter of 2024, we continued to experience a stabilization of inflationary costs from our vendors and suppliers for merchandise and goods, particularly as it relates to utilities, funeral supplies and merchandise costs, with costs remaining flat when compared to the same period during 2023.

Although we continue to experience higher variable interest rates under our Credit Facility, we anticipate lower borrowing costs as we continue prioritizing paying down our outstanding debt throughout the year.

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More broadly, the U.S.

economy continues to experience the impact of several years of higher rates of inflation, which has impacted a wide variety of industries and sectors, with consumers facing rising prices.

economy continues to experience the impact of several years of higher rates of inflation, which has impacted a wide variety of industries and sectors,

with consumers facing rising prices.

Such inflation may negatively impact consumer discretionary spending, including the amount that consumers are able to spend on our services, although we have not experienced any material 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 throughout the year, we will assess these impacts and take the appropriate steps, if necessary, to mitigate any changes in consumer preferences or additional cost increases, if possible.

During the first quarter of 2024, we experienced lower volumes as compared to prior years due to fluctuations in the death rate, although overall financial performance remains at or above prior reporting periods.

During the second quarter of 2024, we continued to experience lower volumes as compared to prior years due to fluctuations in the death rate, although overall financial performance remains at or above prior reporting periods.

Although we expect fluctuations in the death rate to continue, we are unable to predict or forecast the duration or variation of the death rate with any certainty.

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

Our plan is to remain focused on executing our strategic objectives and growth strategy.

This includes prioritizing our capital allocation for debt repayments, the payment of dividends and debt obligations and internal growth capital expenditures, which we expect to fund using cash on hand and borrowings under our Credit Facility, along with general corporate purposes, as allowed under our Credit Facility.

We believe that our existing and anticipated cash resources, including, as needed, additional borrowings or other financings that we may be able to obtain, 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.

However, if our capital allocations and expenditures or acquisition plans change, we may need to access the capital markets or seek further borrowing capacity from our lenders 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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For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.

Our plan is to remain focused on integrating our recently acquired business and prioritizing our capital allocation for debt repayments, the payment of dividends and debt obligations and internal growth capital expenditures, which we expect to fund using cash on hand and borrowings under our Credit Facility, along with general corporate purposes, as allowed under our Credit Facility.

We began 2024 with $1.5 million in cash and ended the first quarter with $1.7 million in cash.

At March 31, 2024, we had borrowings of $154.1 million outstanding on our Credit Facility compared to $179.1 million at December 31, 2023.

Our cash balance has remained consistent throughout the year as we began the year and ended the second quarter with $1.5 million in cash.

At June 30, 2024, we had borrowings of $155.0 million outstanding on our Credit Facility compared to $179.1 million at December 31, 2023.

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 $ 1,523 $ 1,170

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Capital expenditures (7,096) (8,960)

Net (cash used) provided by investing activities (47,286) 7,372

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations 22,773 (25,152)

Net proceeds from (payments for) employee equity plans 428 (71)

Net cash provided by (used in) investing activities 4,392 (49,895)

Net (payments) borrowings on our Credit Facility, acquisition debt and finance lease obligations (24,405) 13,044

Net proceeds from employee equity plans 1,523 804

Dividends paid on common stock (3,390) (3,340)

Net cash provided by (used in) financing activities 21,540 (26,909)

Net cash (used in) provided by financing activities (26,272) 10,508

Cash at end of the period $ 1,503 $ 970

Operating Activities

For the three months ended March 31, 2024, cash provided by operating activities was $19.7 million compared to $25.9 million for the three months ended March 31, 2023, a decrease of $6.2 million primarily due to a $7.0 million withdrawal of realized capital gains and earnings from our preneed funeral and cemetery trust investments received in the first quarter of 2023.

For the six months ended June 30, 2024, cash provided by operating activities was $21.9 million compared to $39.2 million for the six months ended June 30, 2023.

The decrease of $17.3 million is primarily due to the following non-recurring events, which occurred during the first six months of 2023:

i) an $8.6 million withdrawal of realized capital gains and earnings from our preneed funeral and cemetery trust investments;

and ii) receipt of 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.

Investing Activities

Our investing activities, resulted in a net cash inflow of $7.4 million for the three months ended March 31, 2024 compared to a net cash outflow of $47.3 million for the three months ended March 31, 2023, an increase of $54.7 million.

Our investing activities resulted in a net cash inflow of $4.4 million for the six months ended June 30, 2024 compared to a net cash outflow of $49.9 million for the six months ended June 30, 2023, an increase of $54.3 million.

Acquisition and Divestiture Activity

During the three months ended March 31, 2024, we sold six funeral homes and one cemetery for an aggregate of $10.9 million.

During the three months ended March 31, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business for $44.0 million.

During the six months ended June 30, 2024, we sold six funeral homes and one cemetery for an aggregate of $10.9 million.

Additionally, we sold real property for $0.3 million.

During the six months ended June 30, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business for $44.0 million.

In addition, we sold one funeral home and two cemeteries for $0.8 million

and real property for $1.2 million.

Insurance Proceeds

During the six months ended June 30, 2024, we received proceeds of $0.3 million from our property insurance policy for the reimbursement of renovation costs for certain of our funeral businesses damaged by Hurricane Ian that occurred during the third quarter of 2022.

During the six months ended June 30, 2023, we received proceeds of $1.1 million from our property insurance policy for the reimbursement of renovation costs for certain of our funeral businesses damaged by Hurricane Ian that occurred during the third quarter of 2022 and a fire that occurred during the first quarter of 2023.

Capital Expenditures

For the three months ended March 31, 2024, our capital expenditures (comprised of growth and maintenance spend) totaled $3.6 million compared to $5.0 million for the three months ended March 31, 2023, a decrease of $1.4 million.

For the six months ended June 30, 2024, our capital expenditures (comprised of growth and maintenance spend) totaled $7.1 million compared to $9.0 million for the six months ended June 30, 2023, a decrease of $1.9 million.

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

Three months ended March 31,

Six months ended June 30,

Cemetery development $ 3,639 $ 3,505

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Total Growth $ 4,432 $ 5,237

Three months ended March 31,

(1) During the six months ended June 30, 2023, we spent $0.5 million for renovations on two businesses that were affected by Hurricane Ian, which occurred during the third quarter of 2022 and $0.3 million for renovations on one business that was damaged by a fire, which occurred during the first quarter of 2023, all of which was reimbursed by our property insurance.

Six months ended June 30,

General equipment and furniture $ 1,187 $ 2,260

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Financing Activities

Our financing activities resulted in a net cash outflow of $26.9 million for the three months ended March 31, 2024 compared to a net cash inflow of $21.5 million for the three months ended March 31, 2023, a decrease of $48.4 million.

During the three months ended March 31, 2024, we had net payments on our Credit Facility, acquisition debt and finance leases of $25.2 million and paid dividends of $1.7 million.

During the three months ended March 31, 2023, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $22.8 million, offset by $1.7 million of dividends paid.

Our financing activities resulted in a net cash outflow of $26.3 million for the six months ended June 30, 2024 compared to a net cash inflow of $10.5 million for the six months ended June 30, 2023, a decrease of $36.8 million.

During the six months ended June 30, 2024, we had net payments on our Credit Facility, acquisition debt and finance leases of $24.4 million and paid dividends of $3.4 million.

During the six months ended June 30, 2023, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $13.0 million, offset by $3.3 million of dividends paid.

Share Repurchase

We did not repurchase any shares during the three months ended March 31, 2023 and 2024.

At March 31, 2024, our share repurchase program had $48.9 million authorized for repurchases.

We did not repurchase any shares during the six months ended June 30, 2024 and 2023.

At June 30, 2024, our share repurchase program had $48.9 million authorized for repurchases.

Cash Dividends

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$ 0.1125 $ 1,686

$ 0.1125 $ 1,704

2023 Per Share Dollar Value

$ 0.1125 $ 1,661

$ 0.1125 $ 1,679

Credit Facility, Lease Obligations and Acquisition Debt

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at March 31, 2024 is as follows (in thousands):

March 31, 2024

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at June 30, 2024 is as follows (in thousands):

June 30, 2024

Credit Facility $ 155,000

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Credit Facility

At March 31, 2024, our senior secured revolving credit facility (the “Credit Facility”) was comprised of:

At June 30, 2024, 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.

On July 31, 2024, we entered into a fourth amendment (the “Credit Facility Amendment”) to the Credit Facility.

See Note 18 – Subsequent Events for more information on the Credit Facility Amendment.

As amended by the Credit Facility Amendment, the final maturity of the Credit Facility will occur on July 31, 2029, provided, that if the Senior Notes (as defined in the Credit Facility) have a stated maturity prior to July 31, 2029, then the maturity date will instead be the date that is 91 days prior to the stated maturity date.

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”).

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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, pay dividends and make other restricted payments, and certain financial maintenance covenants.

At March 31, 2024, we were subject to the following financial covenants under our Credit Facility:

At June 30, 2024, we were subject to the following financial covenants under our Credit Facility:

(A) a Total Leverage Ratio not to exceed 5.50 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 at March 31, 2024.

At March 31, 2024, we had outstanding borrowings under the Credit Facility of $154.1 million.

We were in compliance with all of the covenants contained in our Credit Facility at June 30, 2024.

At June 30, 2024, we had outstanding borrowings under the Credit Facility of $155.0 million.

We also had one letter of credit for $2.6 million under the Credit Facility.

The letter of credit will expire on November 25, 2024 and is expected to automatically renew annually and secures our obligations under our various self-insured policies.

At March 31, 2024, we had $93.3 million of availability under the Credit Facility.

At June 30, 2024, we had $92.4 million of availability under the Credit Facility.

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,

2024 2023 2024 2023

Credit Facility interest expense $ 3,523 $ 4,668 $ 7,439 $ 8,479

Credit Facility amortization of debt issuance costs 138 138 276 276

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 March 31, 2024, the prime rate margin was equivalent to 2.375% and the BSBY rate margin was 3.375%.

The weighted average interest rate on our Credit Facility was 7.9% and 8.9% for the three months ended March 31, 2023 and 2024, respectively.

Prior to our entry into the Credit Facility Amendment, outstanding borrowings under our Credit Facility bore 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, 2024, the prime rate margin was equivalent to 2.125% and the BSBY rate margin was 3.125%.

The weighted average interest rate on our Credit Facility was 8.7% and 8.6% for the three months ended June 30, 2024 and 2023, respectively, and 8.8% and 8.3% for the six months ended June 30, 2024 and 2023, respectively.

The Credit Facility Amendment provided, among other things, for the establishment of the Term Secured Overnight Financing Rate (“SOFR”) as a benchmark rate and the removal of BSBY from the Credit Facility.

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.

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In addition, we lease certain other funeral homes, vehicles and equipment under finance leases with original terms ranging from three and a half to forty years.

At March 31, 2024, operating and finance lease obligations were $35.5 million, with $5.5 million payable within 12 months.

At June 30, 2024, operating and finance lease obligations were $34.3 million, with $5.5 million payable within 12 months.

The components of lease cost are as follows (in thousands):

Three months ended March 31,

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

2024 2023 2024 2023

Operating lease cost $ 999 $ 917 $ 1,977 $ 1,792

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A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 6.5% to 7.3%.

Original maturities typically range from five to twenty years.

At March 31, 2024, acquisition debt obligations were $9.2 million, with $0.9 million payable within 12 months.

Original maturities range from nine to twenty years.

At June 30, 2024, acquisition debt obligations were $9.0 million, with $0.9 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,

2024 2023 2024 2023

Acquisition debt imputed interest expense $ 103 $ 71 $ 207 $ 142

At March 31, 2024, the principal amount of our 4.25% senior notes due in May 2029 (the “Senior Notes”) was $400.0 million.

At June 30, 2024, 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 59 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 months ended March 31, 2023 and 2024 was 4.42% and 4.30%, respectively.

At March 31, 2024, the fair value of the Senior Notes, which are Level 2 measurements, was $355.2 million.

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, 2024 and 2023 was 4.42% and 4.30%, respectively.

At June 30, 2024, the fair value of the Senior Notes, which are Level 2 measurements, was $357.0 million.

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 March 31,

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

2024 2023 2024 2023

Senior Notes interest expense $ 4,250 $ 4,250 $ 8,500 $ 8,500

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Senior Notes amortization of debt issuance costs 38 37 76 73

At March 31, 2024, our future interest payments on our outstanding balance were $93.5 million, with $17.0 million payable within 12 months.

At June 30, 2024, our future interest payments on our outstanding balance were $85.0 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,

2024 2023 2024 2023

Revenue $ 102,318 $ 97,678 $ 205,811 $ 193,192

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Net income $ 6,259 $ 8,286 $ 13,232 $ 17,130

Revenue for the three months ended March 31, 2024 increased $8.0 million compared to the three months ended March 31, 2023, as we experienced a 37.3% increase in the number of preneed interment rights (property) sold, a 7.9% increase in the average price per interment right sold and a 4.1% increase in the average revenue per funeral contract, offset by a 2.6% decrease in funeral contract volume.

Revenue for the three months ended June 30, 2024 increased $4.6 million compared to the three months ended June 30, 2023.

We experienced a 23.2% increase in the number of preneed interment rights (property) sold and a 12.8% increase in the average price per interment right sold.

Additionally, we experienced a 6.6% decrease in funeral contract volume, which was partially offset by a 4.0% increase in the average revenue per funeral contract.

The increase in cemetery revenue highlights the effectiveness of our preneed cemetery sales growth plan, as we continue to focus on executing our strategic goals.

Additionally, despite the funeral contract volume decline due to the COVID-19 related pull forward effect, we increased our average revenue per funeral contract through the successful execution of our enhanced pricing strategy, which was the primary driver in funeral revenue growth this quarter.

Gross profit for the three months ended March 31, 2024 increased $6.2 million compared to the three months ended March 31, 2023, primarily due to the increase in revenue from both our funeral and cemetery segments, as well as the continued progress we have made successfully executing on our cost management initiatives this quarter.

Net income for the three months ended March 31, 2024 decreased $1.9 million compared to the three months ended March 31, 2023, as the $6.2 million increase in profit contribution from our businesses was offset by a $6.1 million increase in general, administrative and other expenses and a $1.3 million increase in loss on divestitures.

Furthermore, despite the funeral contract volume decline due to the COVID-19 related pull forward effect, we continue to increase our average revenue per funeral contract through the successful execution of our enhanced pricing strategy.

Gross profit for the three months ended June 30, 2024 increased $5.8 million compared to the three months ended June 30, 2023, primarily due to the increase in revenue from our cemetery segment, as well as increases in gross profit margins from both segments, as we continue to successfully execute on our cost management initiatives.

Net income for the three months ended June 30, 2024 decreased $2.0 million compared to the three months ended June 30, 2023.

We experienced a $5.8 million increase in gross profit and a $1.1 million decrease in interest expense, which was more than offset by an $8.4 million increase in general, administrative and other expenses, primarily composed of one-time costs related to executive severance payments and our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives.

Revenue for the six months ended June 30, 2024 increased $12.6 million compared to the six months ended June 30, 2023.

We experienced a 29.2% increase in the number of preneed interment rights (property) sold and a 10.3% increase in the average price per interment right sold.

Additionally, we experienced a 4.5% decrease in funeral contract volume, which was partially offset by a 4.0% increase in the average revenue per funeral contract.

The increase in cemetery revenue highlights the effectiveness of our preneed cemetery sales growth plan, as we continue to focus on executing our strategic goals.

Gross profit for the six months ended June 30, 2024 increased $12.0 million compared to the six months ended June 30, 2023, primarily due to the increase in revenue from our cemetery segment, as well as increases in gross profit margins from both segments, as we continue to successfully execute on our cost management initiatives.

Net income for the six months ended June 30, 2024 decreased $3.9 million compared to the six months ended June 30, 2023.

We experienced a $12.0 million increase in gross profit, which was more than offset by a $14.5 million increase in general, administrative and other expenses, primarily composed of one-time costs related to executive severance payments and our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives, as well as a $1.4 million increase in loss on divestitures.

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

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REPORTING AND NON-GAAP FINANCIAL MEASURES

We also present our financial performance in our “Condensed Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the three months ended March 31, 2024 issued on May 1, 2024, and discussed in the corresponding earnings conference call.

We also present our financial performance in our “Condensed Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the three months ended June 30, 2024 issued on July 31, 2024, and discussed in the corresponding earnings conference call.

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

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

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

Three months ended March 31,

Below is a reconciliation of gross profit (a GAAP financial measure) to adjusted operating profit (a non-GAAP financial measure) (in thousands):

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

2024 2023 2024 2023

Gross profit $ 36,993 $ 31,202 $ 74,255 $ 62,257

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Regional and unallocated funeral and cemetery costs 4,245 4,131 8,087 9,568

Operating profit (1)

Adjusted operating profit (1)

$ 47,203 $ 40,780 $ 93,530 $ 81,830

(1) Operating profit is defined as gross profit plus cemetery property amortization, field depreciation expense and regional and unallocated funeral and cemetery costs.

(1) Adjusted operating profit is defined as gross profit plus cemetery property amortization, field depreciation expense and regional and unallocated funeral and cemetery costs.

Our operations are reported in two business segments:

Funeral Home and Cemetery.

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

Three months ended March 31,

Below is a breakdown of adjusted operating profit (a non-GAAP financial measure) by segment (in thousands):

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

2024 2023 2024 2023

Funeral Home $ 26,267 $ 23,947 $ 56,869 $ 52,913

Cemetery 20,936 16,833 36,661 28,917

Operating profit $ 41,050 $ 46,327

Operating profit margin (1)

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

Further discussion of operating profit for our funeral home and cemetery segments is presented under “– Results of Operations.”

Adjusted operating profit $ 47,203 $ 40,780 $ 93,530 $ 81,830

Adjusted operating profit margin (1)

46.1% 41.7% 45.4% 42.4%

(1) Adjusted operating profit margin is defined as operating profit as a percentage of revenue.

Further discussion of adjusted operating profit for our funeral home and cemetery segments is presented under “– Results of Operations.”

RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three months ended March 31, 2024 and 2023.

The following is a discussion of our results of operations for the three and six months ended June 30, 2024 and 2023.

The term “operating” in the funeral home and cemetery segments refers to all funeral homes and cemeteries that we owned and operated in the current reporting period, excluding certain funeral home and cemetery businesses that we have divested in such period.

The term “divested” when discussed in the funeral home segment, refers to six funeral homes we sold in the three months ended March 31, 2024 and one funeral home we sold in the three months ended March 31, 2023.

The term “divested” when discussed in the cemetery segment, refers to the sale of one cemetery in each of the three months ended March 31, 2024 and 2023.

The term “divested” when discussed in the funeral home segment refers to six funeral homes we sold and one funeral home we merged with another business we own in an existing market during the six months ended June 30, 2024, and one funeral home we sold and one funeral home we merged with another business we own in an existing market during the six months ended June 30, 2023.

The term “divested” when discussed in the cemetery segment refers to one cemetery we sold during the six months ended June 30, 2024, and two cemeteries we sold during the six months ended June 30, 2023.

The term “ancillary” in the funeral home segment represents our flower shop, monument business, pet cremation business and online cremation businesses.

Cemetery property amortization, field depreciation expense and regional and unallocated funeral and cemetery costs, are not included in operating profit, a non-GAAP financial measure.

Cemetery property amortization, field depreciation expense and regional and unallocated funeral and cemetery costs, are not included in adjusted operating profit, a non-GAAP financial measure.

Adding back these items will result in gross profit, a GAAP financial measure.

Funeral Home Segment

The following table sets forth certain information regarding our revenue and operating profit for our funeral home operations (in thousands):

Three months ended March 31,

The following table sets forth certain information regarding our revenue and adjusted operating profit for our funeral home operations (in thousands):

Three months ended June 30,

Operating $ 59,225 $ 59,733

3 unchanged sentences

Total $ 63,595 $ 64,505

Operating profit:

Adjusted operating profit (loss):

Operating $ 23,366 $ 21,551

8 unchanged sentences

Cremation rate 59.7% 58.3%

Funeral home operating revenue increased $1.2 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Funeral home operating revenue decreased $0.5 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The decrease in operating revenue is primarily driven by a 6.6% decrease in contract volume, offset by a 4.0% increase in the average revenue per contract excluding preneed interest.

Despite the funeral contract volume decline due to the COVID-19 related pull forward effect, we continue to increase our average revenue per funeral contract through the successful execution of our enhanced pricing strategy.

Funeral home adjusted operating profit for the three months ended June 30, 2024 increased $1.8 million when compared to the same period in 2023, primarily due to a decrease in operating expenses as a percentage of revenue.

The comparable operating profit margin increased 340 basis points to 39.5%.

Operating expenses as a percentage of revenue decreased 3.4%, with the largest decreases in salaries and benefits expenses of 1.8%, other expenses of 0.6% related to a legal settlement we

received in the second quarter, other funeral costs of 0.4% and promotional expenses of 0.3%, which reflects the continued progress we have made successfully executing on our cost management initiatives this quarter.

Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses, decreased $0.2 million, while ancillary adjusted operating profit increased $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023.

The decrease in ancillary revenue is primarily due to a decision to cease the operations of a cremation business at our Bakersfield, CA business, which did not contribute materially to adjusted operating profit.

Other revenue and other adjusted operating profit, which consists of preneed funeral insurance commissions and earnings from delivered preneed funeral trust and insurance contracts, increased $1.0 million and $0.8 million, respectively, for the three months ended June 30, 2024, compared to the same period in 2023.

These increases are primarily due to our continued focus on growth of our preneed funeral sales through our strategic partnership with a national insurance provider that began during the second quarter of 2023.

As a result, we have experienced a 5.4% increase in preneed insurance contracts sold during the second quarter of 2024, compared to the same period in 2023.

The following table sets forth certain information regarding our revenue and adjusted operating profit for our funeral home operations (in thousands):

Six months ended June 30,

Operating $ 125,803 $ 125,140

Divested 916 2,441

Ancillary 2,329 2,289

Other 6,378 4,720

Total $ 135,426 $ 134,590

Adjusted operating profit:

Operating $ 50,893 $ 47,878

Divested 35 644

Ancillary 366 219

Other 5,575 4,172

Total $ 56,869 $ 52,913

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

Contract volume 22,770 23,846

Average revenue per contract, excluding preneed funeral trust earnings $ 5,565 $ 5,350

Average revenue per contract, including preneed funeral trust earnings $ 5,735 $ 5,510

Cremation rate 59.3% 58.7%

Funeral home operating revenue increased $0.7 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The increase in operating revenue is primarily driven by a 4.0% increase in the average revenue per contract excluding preneed interest, which was partially offset by a 4.5% decrease in contract volume.

Despite the funeral contract volume decline due to the COVID-19 related pull forward effect, we increased our average revenue per funeral contract through the successful execution of our enhanced pricing strategy, which was the primary driver in funeral revenue growth this quarter.

Funeral home operating profit for the three months ended March 31, 2024 increased $1.2 million when compared to the same period in 2023, primarily due to the increase in operating revenue, as well as a decrease in operating expenses as a percentage of revenue.

Funeral home adjusted operating profit for the six months ended June 30, 2024 increased $3.0 million when compared to the same period in 2023, primarily due to the increase in operating revenue, as well as a decrease in operating expenses as a percentage of revenue.

The comparable operating profit margin increased 220 basis points to 40.5%.

Operating expenses as a percentage of revenue decreased 1.1%, with the largest decreases in salaries and benefits expenses of 0.6% and promotional expenses of 0.2%, which reflects the continued progress we have made successfully executing on our cost management initiatives this quarter.

Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses, increased $0.2 million, while ancillary operating profit remained flat for the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

The increase in ancillary revenue is primarily due to our Bakersfield, CA business, which was acquired during the last week of March 2023 and therefore was not fully present in the comparative period.

Other revenue and other operating profit, which consists of preneed funeral insurance commissions and earnings from delivered preneed funeral trust and insurance contracts, increased $0.7 million and $0.6 million, respectively, for the three months ended March 31, 2024, compared to the same period in 2023.

Operating expenses as a percentage of revenue decreased 2.2%, with the largest decreases in salaries and benefits expenses of 1.2%, other expenses of 0.2% related to a legal settlement we received in the second quarter, other funeral costs of 0.2% and promotional expenses of 0.2%, which reflects the continued progress we have made successfully executing on our cost management initiatives this year.

Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses remained flat, while ancillary adjusted operating profit increased $0.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023.

The lack of growth in ancillary revenue is primarily due

to a decision to cease the operations of a cremation business at our Bakersfield, CA business, which did not contribute materially to adjusted operating profit.

Other revenue and other adjusted operating profit, which consists of preneed funeral insurance commissions and earnings from delivered preneed funeral trust and insurance contracts, increased $1.7 million and $1.4 million, respectively, for the six months ended June 30, 2024, compared to the same period in 2023.

As a result, we have experienced a 25.7% increase in preneed insurance contracts sold during the first quarter of 2024, compared to the same period in 2023.

As a result, we have experienced an 8.7% increase in preneed insurance contracts sold during the six months ended June 30, 2024, compared to the same period in 2023.

Cemetery Segment

The following table sets forth certain information regarding our revenue and operating profit for our cemetery operations (in thousands):

Three months ended March 31,

The following table sets forth certain information regarding our revenue and adjusted operating profit for our cemetery operations (in thousands):

Three months ended June 30,

Operating $ 34,770 $ 28,833

2 unchanged sentences

Total $ 38,723 $ 33,173

Operating profit (loss):

Adjusted operating profit:

Operating $ 17,065 $ 12,871

8 unchanged sentences

Average price per interment right sold $ 5,908 $ 5,237

Cemetery operating revenue increased $6.3 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, as we experienced a 37.3% increase in the number of preneed interment rights (property) sold and a 7.9% increase in the average price per interment right sold.

Cemetery atneed revenue, which represents 35.0% of our total operating revenue, increased $0.6 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to an increase in delivered merchandise and services across our cemetery portfolio.

The increase in cemetery revenue highlights the effectiveness of our preneed cemetery sales growth plan, as we continue to focus on executing our strategic goals.

Cemetery operating profit increased $3.6 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to the increase in operating revenue, as well as a decrease in operating expenses as a percentage of revenue.

Cemetery operating revenue increased $5.9 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, as we experienced a 23.2% increase in the number of preneed interment rights (property) sold and a 12.8% increase in the average price per interment right sold.

Cemetery atneed revenue, which represents 28.0% of our total operating revenue, increased $0.1 million for the three months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase in delivered merchandise and services across our cemetery portfolio.

The increase in cemetery revenue highlights the effectiveness of our preneed cemetery sales growth plan, as we continue to focus on executing our strategic objectives.

Cemetery adjusted operating profit increased $4.2 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to the increase in operating revenue, as well as a decrease in operating expenses as a percentage of revenue.

The comparable operating profit margin increased 450 basis points to 49.1%.

Operating expenses as a percentage of revenue decreased 4.7%, with the largest decreases in salaries and benefits expenses of 3.9%, allowance for credit losses of 0.4% and general and administrative costs of 0.4%, which reflects the continued progress we have made successfully executing on our cost management initiatives this quarter.

Other revenue and other adjusted operating profit consist of preneed cemetery trust revenue and preneed cemetery finance charges.

Other revenue decreased $0.1 million for the three months ended June 30, 2024, compared to the three months ended June 30, 2023, while other adjusted operating profit remained flat.

The following table sets forth certain information regarding our revenue and adjusted operating profit for our cemetery operations (in thousands):

Six months ended June 30,

Operating $ 62,351 $ 50,150

Divested 154 639

Other 7,880 7,813

Total $ 70,385 $ 58,602

Adjusted operating profit (loss):

Operating $ 29,017 $ 21,183

Divested (32) 160

Other 7,676 7,574

Total $ 36,661 $ 28,917

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

Preneed revenue as a percentage of operating revenue 69.0% 63.0%

Preneed revenue (in thousands) $ 42,944 $ 31,848

Atneed revenue (in thousands) $ 19,561 $ 18,941

Number of preneed interment rights sold 7,616 5,895

Average price per interment right sold $ 5,430 $ 4,922

Cemetery operating revenue increased $12.2 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, as we experienced a 29.2% increase in the number of preneed interment rights (property) sold and a 10.3% increase in the average price per interment right sold.

Cemetery atneed revenue, which represents 31.0% of our total operating revenue, increased $0.6 million for the six months ended June 30, 2024, compared to the same period in 2023, primarily due to an increase in delivered merchandise and services across our cemetery portfolio.

The increase in cemetery revenue highlights the effectiveness of our preneed cemetery sales growth plan, as we continue to focus on executing our strategic objectives.

Cemetery adjusted operating profit increased $7.8 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to the increase in operating revenue, as well as a decrease in operating expenses as a percentage of revenue.

The comparable operating profit margin increased 430 basis points to 46.5%.

Operating expenses as a percentage of revenue decreased 4.3%, with the largest decreases in salaries and benefits expenses of 3.4%, merchandise costs of 0.6%, and facilities and grounds expenses of 0.4%, which reflects the continued progress we have made successfully executing on our cost management initiatives this quarter.

Other revenue and other operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, both increased $0.1 million for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to an increase in finance charge revenue related to the increase in cemetery sales during the first quarter of 2024, compared to the same period in 2023.

Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, both increased $0.1 million for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, primarily due to an increase in finance charge revenue related to the increase in cemetery sales during the current year.

Cemetery property amortization .

Cemetery property amortization totaled $1.8 million for the three months ended March 31, 2024, an increase of $0.6 million compared to the same period in 2023, primarily due to the increase in property sold across our cemetery portfolio.

Cemetery property amortization totaled $2.6 million and $4.3 million for the three and six months ended June 30, 2024, respectively, an increase of $0.7 million and $1.2 million compared to the same periods in 2023, primarily driven by the increase in property sold across our cemetery portfolio.

Field depreciation.

Depreciation expense for our field businesses totaled $3.5 million for the three months ended March 31, 2024, an increase of $0.1 million compared to the same period in 2023.

Depreciation expense for our field businesses totaled $3.4 million and $6.9 million for the three and six months ended June 30, 2024, respectively, a decrease of $0.2 million compared to the same quarter in the prior year, while the expense compared to the year-to-date period in the prior year remained flat, both were primarily driven by our business decision in 2023 to lease vehicles rather than purchase them.

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 $3.8 million for the three months ended March 31, 2024, a decrease of $1.6 million compared to the same period in 2023, primarily due to an $0.8 million decrease in cash incentives and equity compensation costs and an $0.8 million decrease in incentive award trip costs.

Regional and unallocated funeral and cemetery costs totaled $4.2 million for the three months ended June 30, 2024, an increase of $0.1 million compared to the same period in 2023.

Regional and unallocated funeral and cemetery costs totaled $8.1 million for the six months ended June 30, 2024, a decrease of $1.5 million compared to the same period in 2023, primarily driven by a $1.0 million decrease in incentive compensation costs and a $0.5 million decrease in incentive award trip costs.

Other Financial Statement Items

General, administrative and other.

General, administrative and other expenses, which includes salaries and benefits and cash and equity incentive compensation for the Houston support office, totaled $16.2 million for the three months ended March 31, 2024, an increase of $6.1 million compared to the same period in 2023, which is primarily due to the following:

(1) a $4.2 million increase in salary and benefits expenses and cash and equity incentive compensation costs, primarily driven by the termination expense recorded during the first quarter of 2024 for our former Executive Chairman of the Board pursuant to his Transition Agreement effective February 22, 2024;

(2) a $1.5 million increase in professional fees related to the Board’s review of strategic alternatives;

and (3) a $0.4 million increase in all other expenses.

General, administrative and other expenses, which include salaries and benefits and cash and equity incentive compensation for our Houston support office, totaled $18.6 million for the three months ended June 30, 2024, an increase of $8.4 million compared to the same period in 2023, primarily driven by the following:

i) a $5.0 million increase related to our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives;

ii) a $1.3 million expected increase in other professional fees primarily related to the development of our digital transformation project;

iii) an $0.8 million increase in separation and severance expenses related to our former Chief Financial Officer pursuant to his Separation and Release Agreement dated June 6, 2024;

iv) a $0.6 million increase in incentive and stock compensation;

v) a $0.3 million increase related to consulting fees paid to our former Executive Chairman of the Board pursuant to his Transition Agreement;

and vi) a $0.4 million increase in all other expenses.

General, administrative and other expenses totaled $34.8 million for the six months ended June 30, 2024, an increase of $14.5 million compared to the same period in 2023, primarily driven by the following:

i) a $6.2 million increase primarily related to our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives;

ii) a $5.7 million increase in salary and benefits expenses and cash and equity incentive compensation costs, primarily driven by the termination expense recorded during the first quarter of 2024 for our former Executive Chairman of the Board pursuant to his Transition Agreement effective February 22, 2024 and termination expense for our former Chief Financial Officer pursuant to his Separation and Release Agreement dated June 6, 2024 recorded in the second quarter of 2024;

iii) a $2.0 million expected increase in other professional fees primarily related to the development of our digital transformation project;

iv) a $0.2 million increase related to consulting fees paid to our former Executive Chairman of the Board pursuant to his Transition Agreement;

and v) a $0.4 million increase in all other expenses.

Net loss on divestitures, disposals and impairments charges.

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

Three months ended March 31,

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

2024 2023 2024 2023

Net loss on divestitures $ 8 $ — $ 1,509 $ 82

Impairment related to assets held for sale — 243 — 243

Net loss on disposals of fixed assets 15 22 59 181

Total $ 23 $ 265 $ 1,568 $ 506

During the three months ended March 31, 2024, we sold six funeral homes and one cemetery for an aggregate loss of $1.5 million.

During the three months ended March 31, 2023, we sold one funeral home and two cemeteries for an aggregate loss of $0.1 million.

During the six months ended June 30, 2024, we sold six funeral homes and one cemetery for an aggregate loss of $1.5 million.

During the six months ended June 30, 2023, we sold one funeral home and two cemeteries for an aggregate loss of $0.1 million.

We also recognized an impairment of $0.2 million related to property, plant and equipment for assets held for sale.

Interest expense .

Interest expense related to its respective debt arrangement is as follows (in thousands):

Three months ended March 31,

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

2024 2023 2024 2023

Senior Notes $ 4,422 $ 4,414 $ 8,842 $ 8,827

2 unchanged sentences

Acquisition debt 103 71 207 142

Other 15 2 25 2

Total $ 8,324 $ 9,396 $ 17,036 $ 17,935

Net loss on property damage, net of insurance claims.

During the three months ended March 31, 2023, we recorded a $0.3 million loss, net of insurance proceeds, for property damaged by a fire that occurred during first quarter of 2023.

We did not record any gain or loss activity during the three months ended March 31, 2024.

During the three months ended March 31, 2023, we recorded a $0.5 million gain on the sale of other real estate not used in business operations.

We did not record any gain or loss activity during the three months ended March 31, 2024.

Net (gain) loss on property damage, net of insurance claims.

During the three and six months ended June 30, 2024, we recorded a $0.4 million gain, net of insurance proceeds, for damages from Hurricane Ian, which occurred during the third quarter of 2022.

During the three and six months ended June 30, 2023, we recorded a $0.2 million gain and $36,000 loss, respectively, net of insurance proceeds, for property damaged by a fire that occurred during first quarter of 2023.

During the three and six months ended June 30, 2023, we recorded a $0.1 million gain and a $0.6 million gain, respectively, on the sale of other real estate not used in business operations.

Income taxes.

Income tax expense totaled $3.7 million for the three months ended March 31, 2024, an increase of $0.2 million compared to the same period in 2023, primarily due to an increase in tax expense on discrete items.

Our operating tax rate before discrete items was 32.8% and 28.9% for the three months ended March 31, 2024 and 2023, respectively.

Income tax expense totaled $4.2 million for the three months ended June 30, 2024, an increase of $0.8 million compared to the same period in 2023, primarily driven by an increase in tax expense on discrete items related to equity.

Our operating tax rate before discrete items was 33.6% and 28.0% for the three months ended June 30, 2024 and 2023, respectively.

Income tax expense totaled $7.9 million for the six months ended June 30, 2024, an increase of $1.0 million compared to the same period in 2023, primarily driven by an increase in tax expense on discrete items related to equity.

Our operating tax rate before discrete items was 33.2% and 28.5% for the six months ended June 30, 2024 and 2023, respectively.

CRITICAL ACCOUNTING ESTIMATES

12 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis