CARRIAGE SERVICES INC 10-Q

Item 1. Financial Statements. CARRIAGE SERVICES, INC. CONSOLIDATED BALANCE SHEET (unaudited and in thousands, except share data) September 30, 2024 December 31, 2023 ASSETS Current assets: Cash and cash equivalents $ 1,260 $ 1,523 Accounts receivable, net 30,913 27,060 Inventories 8,230 8,347 Prepaid and other current assets 3,198 4,791 Total current assets 43,601 41,721 Preneed cemetery trust investments 102,391 96,374 Preneed funeral trust investments 108,956 107,842 Preneed cemetery receivables, net 50,049 35,575 Receivables from preneed funeral trusts, net 22,315 21,530 Property, plant and equipment, net 279,534 287,484 Cemetery property, net 113,091 114,580 Goodwill 414,859 423,643 Intangible and other non-current assets, net 39,175 37,677 Operating lease right-of-use assets 15,522 16,295 Cemetery perpetual care trust investments 85,925 85,331 Total assets $ 1,275,418 $ 1,268,052 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Current portion of debt and lease obligations $ 4,015 $ 3,842 Accounts payable 15,054 11,866 Accrued and other liabilities 41,101 35,362 Total current liabilities 60,170 51,070 Acquisition debt, net of current portion 5,350 5,461 Credit facility 138,293 177,794 Senior notes 396,421 395,905 Obligations under finance leases, net of current portion 6,107 5,831 Obligations under operating leases, net of current portion 14,660 15,797 Deferred preneed cemetery revenue 65,467 61,048 Deferred preneed funeral revenue 40,776 39,537 Deferred tax liability 50,289 52,127 Other long-term liabilities 1,391 1,855 Deferred preneed cemetery receipts held in trust 102,391 96,374 Deferred preneed funeral receipts held in trust 108,956 107,842 Care trusts’ corpus 87,018 84,351 Total liabilities 1,077,289 1,094,992 Commitments and contingencies: Stockholders’ equity: Common stock, $ 0.01 par value; 80,000,000 shares authorized and 26,850,922 and 26,627,319 shares issued, respectively and 15,223,104 and 14,999,501 shares outstanding, respectively 269 266 Additional paid-in capital 243,259 241,291 Retained earnings 233,354 210,256 Treasury stock, at cost; 11,627,818 shares ( 278,753 ) ( 278,753 ) Total stockholders’ equity 198,129 173,060 Total liabilities and stockholders’ equity $ 1,275,418 $ 1,268,052 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenue: Service revenue $ 44,916 $ 43,708 $ 139,048 $ 136,437 Property and merchandise revenue 47,419 40,287 142,511 125,928 Other revenue 8,352 6,499 24,939 21,321 100,687 90,494 306,498 283,686 Field costs and expenses: Cost of service 22,739 22,650 68,119 69,202 Cost of merchandise 31,492 30,302 95,423 92,255 Cemetery property amortization 1,957 1,318 6,273 4,411 Field depreciation expense 3,411 3,634 10,283 10,546 Regional and unallocated funeral and cemetery costs 4,085 3,771 12,172 13,339 Other expenses 1,513 1,407 4,483 4,264 65,197 63,082 196,753 194,017 Gross profit 35,490 27,412 109,745 89,669 Corporate costs and expenses: General, administrative and other 12,206 11,303 47,047 31,682 Net loss on divestitures, disposals and impairments charges 387 423 1,955 929 Operating income 22,897 15,686 60,743 57,058 Interest expense 8,035 9,278 25,071 27,213 Net gain on property damage, net of insurance claims — ( 379 ) ( 417 ) ( 343 ) Other, net 13 11 59 ( 636 ) Income before income taxes 14,849 6,776 36,030 30,824 Expense for income taxes 4,930 2,058 11,962 8,899 Expense related to discrete income tax items 53 73 970 150 Total expense for income taxes 4,983 2,131 12,932 9,049 Net income $ 9,866 $ 4,645 $ 23,098 $ 21,775 Basic earnings per common share: $ 0.65 $ 0.31 $ 1.52 $ 1.46 Diluted earnings per common share: $ 0.63 $ 0.30 $ 1.48 $ 1.39 Dividends declared per common share: $ 0.1125 $ 0.1125 $ 0.3375 $ 0.3375 Weighted average number of common and common equivalent shares outstanding: Basic 15,011 14,820 14,951 14,791 Diluted 15,491 15,514 15,400 15,480 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) Nine months ended September 30, 2024 2023 Cash flows from operating activities: Net income $ 23,098 $ 21,775 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 17,274 15,623 Provision for credit losses 2,303 2,314 Stock-based compensation expense 4,521 6,155 Deferred income tax (benefit) expense ( 1,838 ) 87 Amortization of intangibles 1,012 982 Amortization of debt issuance costs 495 524 Amortization and accretion of debt 402 384 Net loss on divestitures, disposals and impairment charges 1,955 929 Net gain on property damage, net of insurance claims ( 417 ) ( 343 ) Gain on sale of excess land — ( 658 ) Changes in operating assets and liabilities that provided (used) cash: Accounts and preneed receivables ( 20,880 ) ( 4,607 ) Inventories, prepaid and other current assets 1,543 ( 52 ) Intangible and other non-current assets ( 3,624 ) ( 2,285 ) Preneed funeral and cemetery trust investments ( 6,367 ) 990 Accounts payable 3,189 ( 117 ) Accrued and other liabilities 5,909 5,297 Incentive payment from vendor — 6,000 Deferred preneed funeral and cemetery revenue 7,546 11,110 Deferred preneed funeral and cemetery receipts held in trust 6,595 ( 2,259 ) Net cash provided by operating activities 42,716 61,849 Cash flows from investing activities: Acquisitions of businesses — ( 44,000 ) Proceeds from divestitures and sale of other assets 12,015 2,296 Proceeds from insurance claims 403 1,388 Capital expenditures ( 11,710 ) ( 13,069 ) Net cash provided by (used in) investing activities 708 ( 53,385 ) Cash flows from financing activities: Borrowings from the credit facility 32,100 68,100 Payments against the credit facility ( 71,200 ) ( 71,500 ) Payment of debt issuance costs for the credit facility ( 782 ) — Payments on acquisition debt and obligations under finance leases ( 464 ) ( 491 ) Proceeds from the exercise of stock options and employee stock purchase plan contributions 2,181 1,207 Taxes paid on restricted stock vestings and exercise of stock options ( 424 ) ( 252 ) Dividends paid on common stock ( 5,098 ) ( 5,023 ) Net cash used in financing activities ( 43,687 ) ( 7,959 ) Net (decrease) increase in cash and cash equivalents ( 263 ) 505 Cash and cash equivalents at beginning of period 1,523 1,170 Cash and cash equivalents at end of period $ 1,260 $ 1,675 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 September 30, 2024 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – June 30, 2024 15,236 $ 269 $ 242,883 $ 223,488 $ ( 278,753 ) $ 187,887 Net income — — — 9,866 — 9,866 Issuance of common stock from employee stock purchase plan 11 — 239 — — 239 Issuance of common stock to directors and board advisor 4 — 136 — — 136 Exercise of stock options 1 — — — — — Restricted common stock and stock options surrendered for taxes paid ( 29 ) — ( 5 ) — — ( 5 ) Stock-based compensation expense — — 1,714 — — 1,714 Dividends on common stock — — ( 1,708 ) — — ( 1,708 ) Balance – September 30, 2024 15,223 $ 269 $ 243,259 $ 233,354 $ ( 278,753 ) $ 198,129 Three months ended September 30, 2023 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – June 30, 2023 14,958 $ 266 $ 240,681 $ 193,973 $ ( 278,753 ) $ 156,167 Net income — — — 4,645 — 4,645 Issuance of common stock from employee stock purchase plan 12 — 284 — — 284 Issuance of common stock to directors and board advisor 5 — 161 — — 161 Exercise of stock options 7 — ( 133 ) — — ( 133 ) Stock-based compensation expense — — 1,831 — — 1,831 Dividends on common stock — — ( 1,683 ) — — ( 1,683 ) Balance – September 30, 2023 14,982 $ 266 $ 241,141 $ 198,618 $ ( 278,753 ) $ 161,272 - 6 - Nine months ended September 30, 2024 Shares Outstanding Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Total Balance – December 31, 2023 15,000 $ 266 $ 241,291 $ 210,256 $ ( 278,753 ) $ 173,060 Net income — — — 23,098 — 23,098 Issuance of common stock from employee stock purchase plan 42 — 910 — — 910 Issuance of common stock to directors and board advisor 14 — 400 — — 400 Issuance of restricted common stock 157 2 ( 2 ) — — — Exercise of stock options 51 1 1,271 — — 1,272 Restricted common stock and stock options surrendered for taxes paid ( 72 ) — ( 424 ) — — ( 424 ) Stock-based compensation expense — — 4,121 — — 4,121 Dividends on common stock — — ( 5,098 ) — — ( 5,098 ) Other 31 — 790 — — 790 Balance – September 30, 2024 15,223 $ 269 $ 243,259 $ 233,354 $ ( 278,753 ) $ 198,129 Nine months ended September 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 — — — 21,775 — 21,775 Issuance of common stock from employee stock purchase plan 50 — 1,207 — — 1,207 Issuance of common stock to directors and board advisor 11 — 338 — — 338 Issuance of common stock to former executive 30 — 826 — — 826 Issuance of restricted common stock 142 2 ( 2 ) — — — Exercise of stock options 12 — ( 174 ) — — ( 174 ) Restricted common stock and stock options surrendered for taxes paid ( 3 ) — ( 78 ) — — ( 78 ) Stock-based compensation expense — — 4,991 — — 4,991 Dividends on common stock — — ( 5,023 ) — — ( 5,023 ) Other 8 — 276 — — 276 Balance – September 30, 2023 14,982 $ 266 $ 241,141 $ 198,618 $ ( 278,753 ) $ 161,272 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 65 % of our total revenue, and Cemetery Operations, which currently accounts for approximately 35 % of our total revenue. At September 30, 2024, we operated 162 funeral homes in 26 states and 31 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, 2023. 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, 2023 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 - Contingent Liability During the nine months ended September 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. At September 30, 2024, the contingency has been resolved resulting in no change to the liability recorded. Deferred Revenue During the nine months ended September 30, 2023, we withdrew $ 8.6 million of realized capital gains and earnings from our preneed funeral and cemetery trust investments. We did not withdraw any realized capital gains and earnings from our preneed trust investments during the nine months ended September 30, 2024. 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 nine months ended September 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 is subject to partial claw-back if certain preneed funeral sales volumes are not met within the ten-year term of the agreement. As such, we will recognize the incentive payment in proportion to our achieved preneed funeral sales volume per the agreement at each reporting period. Held for Sale At September 30, 2024, we had $ 0.3 million of assets classified as held for sale on our Consolidated Balance Sheet related to one funeral home. 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 $ 40 thousand related to property, plant and equipment, which was recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. Goodwill The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries we acquire is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test. We performed our most recent annual goodwill impairment test as of August 31, 2024. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results. Our quantitative goodwill impairment test involves estimates and management judgment. In the quantitative analysis, we compare the fair value of each reporting unit to its carrying value, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, the goodwill of that reporting unit is not considered impaired. We determine fair value for each reporting unit using both an income approach, weighted 90%, and a market approach, weighted 10%. Our methodology for determining an income-based fair value is based on discounting projected future cash flows. The projected future cash flows include assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows discounted at our weighted average cost of capital based on market participant assumptions. Our methodology for determining a market approach fair value utilizes the guideline public company method, in which we rely on market multiples of comparable companies operating in the same industry as the individual reporting units. In accordance with the guidance, if the fair value of the reporting unit is less than its carrying amount an impairment charge is recorded in an amount equal to the difference. For our 2024 and 2023 annual qualitative assessments, we determined that there were no factors that would indicate the need to perform an additional quantitative goodwill impairment test. We concluded that it is more-likely-than-not that the fair value of our reporting units is greater than their carrying value and thus there was no impairment to goodwill. - 9 - When we divest a portion of a reporting unit that constitutes a business in accordance with GAAP, we allocate goodwill associated with that business to be included in the gain or loss on divestiture. The goodwill allocated is based on the relative fair value of the business being divested and the portion of the reporting unit that will be retained. Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value. For the nine months ended September 30, 2024 and 2023, after each divestiture, we concluded that it was more-likely-than not that the fair value of our reporting units was greater than their carrying value and thus there was no impairment to goodwill. See Note 4 to the Consolidated Financial Statements included herein for additional information related to our goodwill. Intangible Assets Our intangible assets include tradenames resulting from acquisitions and are included in Intangible and other non-current assets , net on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than-not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test. We performed our most recent annual intangible assets impairment test as of August 31, 2024. We intend to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. We conducted a quantitative assessment in 2022 and a qualitative assessment in 2023. In addition to our intangible assets annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends. Our quantitative intangible asset impairment test involves estimates and management judgment. Our quantitative analysis is performed using the relief from royalty method, which measures the tradenames by determining the value of the royalties that we are relieved from paying due to our ownership of the asset. We determine the fair value of the asset by discounting the cash flows that represent a savings in lieu of paying a royalty fee for use of the tradename. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate. To estimate the royalty rates for the individual tradename, we mainly rely on the profit split method, but also consider the comparable third-party license agreements and the return on asset method. A scorecard is used to assess the relative strength of the individual tradename to further adjust the royalty rates selected under the profit-split method for qualitative factors. In accordance with the guidance, if the fair value of the tradename is less than its carrying amount, then an impairment charge is recorded in an amount equal to the difference. As a result of our 2024 and 2023 qualitative assessments, we determined that there were factors that would indicate the need to perform additional quantitative impairment tests for certain funeral home businesses. As a result of these additional quantitative impairment tests, we recorded an impairment to the tradenames for certain funeral home businesses of $ 0.6 million and $ 0.2 million, during the nine months ended September 30, 2024 and 2023, respectively, as the carrying amount of these tradenames exceeded their fair value. See Note 10 to the Consolidated Financial Statements included herein for additional information related to our intangible assets. - 10 - Property, Plant and Equipment Property, plant and equipment is comprised of the following (in thousands): September 30, 2024 December 31, 2023 Land $ 86,609 $ 87,635 Buildings and improvements 264,836 263,522 Furniture, equipment and vehicles 73,393 74,372 Property, plant and equipment, at cost 424,838 425,529 Less: accumulated depreciation ( 145,304 ) ( 138,045 ) Property, plant and equipment, net $ 279,534 $ 287,484 During the nine months ended September 30, 2024, we sold six funeral homes and one cemetery that had a carrying value of property, plant and equipment of $ 3.1 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations, more fully described in Note 5 to the Consolidated Financial Statements. Additionally, during the nine months ended September 30, 2024, we sold real property for $ 1.1 million, with a carrying value of $ 0.8 million and we recognized an impairment related to property, plant and equipment for assets held for sale of $ 40 thousand, which was recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. During the nine months ended September 30, 2023, we acquired $ 12.8 million of property, plant and equipment related to our acquisition of a business located in Bakersfield, CA, more fully described in Note 3 to the Consolidated Financial Statements. Additionally, during the nine months ended September 30, 2023, 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. We also divested one funeral home that had a carrying value of $ 0.3 million, which was included in the loss on the sale of divestitures and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations, more fully described in Note 5 to the Consolidated Financial Statements. Our growth and maintenance capital expenditures totaled $ 2.9 million and $ 2.4 million for the three months ended September 30, 2024 and 2023, respectively, and $ 6.4 million and $ 7.9 million for the nine months ended September 30, 2024 and 2023, respectively. In addition, we recorded depreciation expense of $ 3.5 million and $ 3.8 million for the three months ended September 30, 2024 and 2023, respectively, and $ 10.7 million and $ 11.0 million for the nine months ended September 30, 2024 and 2023, respectively. Cemetery Property Cemetery property was $ 113.1 million and $ 114.6 million, net of accumulated amortization of $ 70.7 million and $ 64.6 million at September 30, 2024 and December 31, 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 $ 1.7 million and $ 1.6 million for the three months ended September 30, 2024 and 2023, respectively, and $ 5.3 million and $ 5.1 million for the nine months ended September 30, 2024 and 2023, respectively. We recorded amortization expense for cemetery interment rights of $ 2.0 million and $ 1.3 million for the three months ended September 30, 2024 and 2023, respectively, and $ 6.3 million and $ 4.4 million for the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, we sold one cemetery that had a carrying value of cemetery property of $ 0.8 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations, more fully described in Note 5 to the Consolidated Financial Statements. During the nine months ended September 30, 2023, we acquired cemetery property for $ 9.0 million related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. We also sold two cemeteries that had a carrying value of cemetery property of $ 0.8 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations, more fully described in Note 5 to the Consolidated Financial Statements. - 11 - Income Taxes Income tax expense was $ 5.0 million and $ 2.1 million for the three months ended September 30, 2024 and 2023, respectively, and $ 12.9 million and $ 9.0 million for the nine months ended September 30, 2024 and 2023, respectively. Our operating tax rate before discrete items was 33.2 % and 30.4 % for the three months ended September 30, 2024 and 2023, respectively, and 33.2 % and 28.9 % for the nine months ended September 30, 2024 and 2023, respectively. Subsequent Events We have evaluated events and transactions during the period subsequent to September 30, 2024 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 Segment Reporting In November 2023, the FASB issued ASU, Segment Reporting - Improvements to Reportable Segment Disclosures (“Topic 280”) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update require that a public entity disclose, on an annual and interim basis (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; and (2) an amount for other segment items, as described in the amendments, by reportable segment and a description of its composition. Additionally, the amendments require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and therefore were effective for us for our fiscal year beginning January 1, 2024 and for interim periods within our fiscal year beginning January 1, 2025. We expect the adoption will have no impact on our Consolidated Financial Statements. Accounting Pronouncements Not Yet Adopted Income Taxes In December 2023, the FASB issued ASU, Income Taxes - Improvements to Income Tax Disclosures (“Topic 740”) to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to rate reconciliation and income taxes paid information. The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation; and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate). The amendments in this update also require that all entities disclose on an annual basis (1) the amount of net income taxes paid disaggregated by federal and state taxes; and (2) the amount of net income taxes paid disaggregated by individual jurisdictions in which net income taxes paid is equal to or greater than five percent of total net income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We plan to adopt the amendments of Topic 740 for our fiscal year beginning January 1, 2025. We expect the adoption will have 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. We did not acquire any businesses during the three and nine months ended September 30, 2024. On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in Bakersfield, CA 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. - 12 - The following table summarizes the breakdown of the purchase price allocation for our Bakersfield, CA business 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. As of December 31, 2023, our accounting for this acquisition was complete. 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 ) 4. GOODWILL The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands): September 30, 2024 December 31, 2023 Goodwill at the beginning of the period $ 423,643 $ 410,137 Increase in goodwill related to acquisitions — 13,506 Decrease in goodwill related to divestitures ( 8,784 ) — Goodwill at the end of the period $ 414,859 $ 423,643 During the nine months ended September 30, 2024, we allocated $ 8.8 million of goodwill to the sale of six funeral homes and one cemetery for a loss recorded in Net loss on divestitures, disposals and impairments charges, of which $ 7.8 million was allocated to our funeral home segment and $ 1.0 million was allocated to our cemetery segment. During the nine months ended September 30, 2023, we recognized $ 13.5 million in goodwill related to our acquisition of a business located in Bakersfield, CA, of which $ 4.5 million was allocated to our cemetery segment and $ 9.0 million was allocated to our funeral home segment. See Note 1 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our goodwill impairment test. 5. DIVESTED OPERATIONS During the three months ended September 30, 2024, we merged two funeral homes with other businesses we own in existing markets. During the nine months ended September 30, 2024, we sold six funeral homes and one cemetery for an aggregate of $ 10.9 million and merged three funeral homes with other businesses we own in existing markets. During the three months ended September 30, 2023, we sold one funeral home for $ 0.3 million. During the nine months ended September 30, 2023, we sold two funeral homes and two cemeteries for an aggregate of $ 1.1 million and merged one funeral home with another business we own in an existing market. - 13 - 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Revenue $ 25 $ 18 $ 1,383 $ 242 Operating income (loss) ( 154 ) 8 42 3 Gain (loss) on divestitures (1) 295 ( 24 ) ( 1,214 ) ( 107 ) Income tax (expense) benefit ( 47 ) 5 389 30 Net gain (loss) from divested operations, after tax $ 94 $ ( 11 ) $ ( 783 ) $ ( 74 ) (1) Gain (loss) on divestitures is recorded in Net 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): September 30, 2024 Funeral Cemetery Corporate Total Trade and financed receivables $ 7,597 $ 23,443 $ — $ 31,040 Other receivables 342 433 336 1,111 Allowance for credit losses ( 322 ) ( 916 ) — ( 1,238 ) Accounts receivable, net $ 7,617 $ 22,960 $ 336 $ 30,913 December 31, 2023 Funeral Cemetery Corporate Total Trade and financed receivables $ 8,822 $ 18,459 $ — $ 27,281 Other receivables 404 595 286 1,285 Allowance for credit losses ( 266 ) ( 1,240 ) — ( 1,506 ) Accounts receivable, net $ 8,960 $ 17,814 $ 286 $ 27,060 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, 2024 Provision for Credit Losses Write Offs Recoveries September 30, 2024 Trade and financed receivables: Funeral $ ( 266 ) $ ( 941 ) $ 1,679 $ ( 794 ) $ ( 322 ) Cemetery ( 1,240 ) ( 550 ) 874 — ( 916 ) Total allowance for credit losses on trade and financed receivables $ ( 1,506 ) $ ( 1,491 ) $ 2,553 $ ( 794 ) $ ( 1,238 ) Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $ 10.7 million at both September 30, 2024 and December 31, 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. - 14 - Cemetery Receivables Our cemetery receivables are comprised of the following (in thousands): September 30, 2024 December 31, 2023 Interment rights $ 76,269 $ 60,863 Merchandise and services 12,682 11,223 Unearned finance charges 5,371 5,669 Cemetery receivables $ 94,322 $ 77,755 The components of our cemetery receivables are as follows (in thousands): September 30, 2024 December 31, 2023 Cemetery receivables $ 94,322 $ 77,755 Less: unearned finance charges ( 5,371 ) ( 5,669 ) Cemetery receivables, at amortized cost $ 88,951 $ 72,086 Less: allowance for credit losses ( 2,623 ) ( 3,495 ) Less: balances due on undelivered cemetery preneed contracts ( 13,752 ) ( 15,797 ) Less: amounts in accounts receivable ( 22,527 ) ( 17,219 ) Preneed cemetery receivables, net $ 50,049 $ 35,575 The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands): January 1, 2024 Provision for Credit Losses Write Offs September 30, 2024 Total allowance for credit losses on Preneed cemetery receivables, net $ ( 2,255 ) $ ( 812 ) $ 1,360 $ ( 1,707 ) The amortized cost basis of our cemetery receivables by year of origination at September 30, 2024 is as follows (in thousands): 2024 2023 2022 2021 2020 Prior Total Total preneed cemetery receivables, at amortized cost $ 40,126 $ 24,821 $ 14,445 $ 6,304 $ 2,239 $ 1,016 $ 88,951 The aging of past due cemetery receivables at September 30, 2024 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 $ 1,548 $ 969 $ 340 $ 2,610 $ 5,467 $ 69,732 $ 75,199 Deferred revenue 573 190 109 673 1,545 17,578 19,123 Total contracts $ 2,121 $ 1,159 $ 449 $ 3,283 $ 7,012 $ 87,310 $ 94,322 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 $ 13.8 million and $ 15.8 million at September 30, 2024 and December 31, 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 September 30, 2024, the carrying value and fair value of our Credit Facility was $ 140.0 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 - 15 - debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as of the reporting date. At September 30, 2024, the carrying value of our acquisition debt was $ 5.9 million, which approximated its fair value. The fair value of our Senior Notes was $ 371.4 million at September 30, 2024, 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 investment strategy of this fund is to generate attractive, risk-adjusted returns over a multi-year performance period through the construction of a concentrated portfolio of investments possessing certain distinct business attributes that suggest the potential for long-term value creation. Beginning March 31, 2024, the agreement permits us to withdraw a percentage of the value of the investments in this fund through quarterly withdrawals with the intention to permit withdrawal of the entire investment over twelve successive withdrawal dates. Our unfunded commitment for this investment at September 30, 2024 was $ 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 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. - 16 - Preneed Cemetery Trust Investments The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands): September 30, 2024 December 31, 2023 Preneed cemetery trust investments, at market value $ 105,617 $ 99,461 Less: allowance for contract cancellation ( 3,226 ) ( 3,087 ) Preneed cemetery trust investments $ 102,391 $ 96,374 The cost and market values associated with preneed cemetery trust investments at September 30, 2024 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 24,268 $ — $ — $ 24,268 Fixed income securities: U.S. agency obligations 2 664 — ( 33 ) 631 Foreign debt 2 8,530 1,519 ( 8 ) 10,041 Corporate debt 2 13,669 509 ( 2,446 ) 11,732 Preferred stock 2 10,990 483 ( 1,558 ) 9,915 Certificates of deposit 2 79 — ( 5 ) 74 Common stock 1 31,416 3,033 ( 3,142 ) 31,307 Limited partnership fund 3,514 456 — 3,970 Mutual funds: Equity 1 907 107 ( 1 ) 1,013 Fixed income 2 13,516 181 ( 1,880 ) 11,817 Trust securities $ 107,553 $ 6,288 $ ( 9,073 ) $ 104,768 Accrued investment income $ 849 $ 849 Preneed cemetery trust investments $ 105,617 Market value as a percentage of cost 97.4 % The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands): Due in one year or less $ 139 Due in one to five years 13,444 Due in five to ten years 939 Thereafter 17,871 Total fixed income securities $ 32,393 - 17 - The cost and market values associated with preneed cemetery trust investments at December 31, 2023 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 9,643 $ — $ — $ 9,643 Fixed income securities: U.S. agency obligations 2 803 1 ( 51 ) 753 Foreign debt 2 7,764 1,371 ( 17 ) 9,118 Corporate debt 2 15,071 342 ( 3,657 ) 11,756 Preferred stock 2 10,965 473 ( 1,572 ) 9,866 Certificate of deposit 2 79 — ( 7 ) 72 Common stock 1 43,057 9,466 ( 7,935 ) 44,588 Limited partnership fund 3,575 — ( 3 ) 3,572 Mutual funds: Equity 1 553 10 ( 30 ) 533 Fixed income 2 11,369 16 ( 2,759 ) 8,626 Trust Securities $ 102,879 $ 11,679 $ ( 16,031 ) $ 98,527 Accrued investment income $ 934 $ 934 Preneed cemetery trust investments $ 99,461 Market value as a percentage of cost 95.8 % The following table summarizes our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at September 30, 2024, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): September 30, 2024 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 $ — $ — $ 492 $ ( 33 ) $ 492 $ ( 33 ) Foreign debt — — 210 ( 8 ) 210 ( 8 ) Corporate debt 695 ( 136 ) 2,268 ( 2,310 ) 2,963 ( 2,446 ) Preferred stock 700 ( 2 ) 7,664 ( 1,556 ) 8,364 ( 1,558 ) Certificates of deposit — — 74 ( 5 ) 74 ( 5 ) Total fixed income securities with an unrealized loss $ 1,395 $ ( 138 ) $ 10,708 $ ( 3,912 ) $ 12,103 $ ( 4,050 ) - 18 - 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, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 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 $ — $ — $ 613 $ ( 51 ) $ 613 $ ( 51 ) Foreign debt 284 ( 5 ) 209 ( 12 ) 493 ( 17 ) Corporate debt 666 ( 62 ) 4,239 ( 3,595 ) 4,905 ( 3,657 ) Preferred stock 45 — 7,821 ( 1,572 ) 7,866 ( 1,572 ) Certificates of deposit — — 72 ( 7 ) 72 ( 7 ) Total fixed income securities with an unrealized loss $ 995 $ ( 67 ) $ 12,954 $ ( 5,237 ) $ 13,949 $ ( 5,304 ) Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Investment income $ 647 $ 610 $ 2,030 $ 1,889 Realized gains — 246 11,500 2,247 Realized losses — ( 190 ) ( 8,511 ) ( 1,336 ) Unrealized gains (losses), net 2,151 1,818 ( 2,785 ) ( 6,896 ) Expenses and taxes ( 365 ) ( 454 ) ( 1,704 ) ( 1,076 ) Net change in deferred preneed cemetery receipts held in trust ( 2,433 ) ( 2,030 ) ( 530 ) 5,172 $ — $ — $ — $ — Purchases and sales of investments in the preneed cemetery trusts are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Purchases $ — $ ( 5,481 ) $ ( 11,110 ) $ ( 14,619 ) Sales — 5,368 21,737 11,230 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): September 30, 2024 December 31, 2023 Preneed funeral trust investments, at market value $ 112,373 $ 111,247 Less: allowance for contract cancellation ( 3,417 ) ( 3,405 ) Preneed funeral trust investments $ 108,956 $ 107,842 - 19 - The cost and market values associated with preneed funeral trust investments at September 30, 2024 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 34,849 $ — $ — $ 34,849 Fixed income securities: U.S. treasury debt 1 406 — ( 24 ) 382 Foreign debt 2 8,291 1,485 ( 8 ) 9,768 Corporate debt 2 13,134 496 ( 2,288 ) 11,342 Preferred stock 2 10,345 471 ( 1,548 ) 9,268 Common stock 1 28,794 2,815 ( 2,715 ) 28,894 Limited partnership fund 3,435 446 — 3,881 Mutual funds: Equity 1 773 69 ( 1 ) 841 Fixed income 2 11,941 162 ( 1,697 ) 10,406 Other investments 2 1,938 — — 1,938 Trust securities $ 113,906 $ 5,944 $ ( 8,281 ) $ 111,569 Accrued investment income $ 804 $ 804 Preneed funeral trust investments $ 112,373 Market value as a percentage of cost 97.9 % The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands): Due in one year or less $ 82 Due in one to five years 12,828 Due in five to ten years 809 Thereafter 17,041 Total fixed income securities $ 30,760 - 20 - The cost and market values associated with preneed funeral trust investments at December 31, 2023 are detailed below (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 26,707 $ — $ — $ 26,707 Fixed income securities: U.S. treasury debt 1 451 — ( 34 ) 417 Foreign debt 2 7,300 1,297 ( 16 ) 8,581 Corporate debt 2 13,848 323 ( 3,255 ) 10,916 Preferred stock 2 9,786 442 ( 1,468 ) 8,760 Common stock 1 38,600 8,858 ( 6,855 ) 40,603 Limited partnership fund 3,383 — ( 2 ) 3,381 Mutual funds: Equity 1 401 3 ( 29 ) 375 Fixed income 2 9,513 15 ( 2,383 ) 7,145 Other investments 2 3,510 — — 3,510 Trust securities $ 113,499 $ 10,938 $ ( 14,042 ) $ 110,395 Accrued investment income $ 852 $ 852 Preneed funeral trust investments $ 111,247 Market value as a percentage of cost 97.3 % The following table summarizes our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at September 30, 2024, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): September 30, 2024 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 $ — $ — $ 382 $ ( 24 ) $ 382 $ ( 24 ) Foreign debt — — 205 ( 8 ) 205 ( 8 ) Corporate debt 680 ( 133 ) 2,115 ( 2,155 ) 2,795 ( 2,288 ) Preferred stock 684 ( 2 ) 7,125 ( 1,546 ) 7,809 ( 1,548 ) Total fixed income securities with an unrealized loss $ 1,364 $ ( 135 ) $ 9,827 $ ( 3,733 ) $ 11,191 $ ( 3,868 ) 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, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 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 $ — $ — $ 371 $ ( 34 ) $ 371 $ ( 34 ) Foreign debt 269 ( 5 ) 198 ( 11 ) 467 ( 16 ) Corporate debt 630 ( 59 ) 3,802 ( 3,196 ) 4,432 ( 3,255 ) Preferred stock — — 7,078 ( 1,468 ) 7,078 ( 1,468 ) Total fixed income securities with an unrealized loss $ 899 $ ( 64 ) $ 11,449 $ ( 4,709 ) $ 12,348 $ ( 4,773 ) - 21 - Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Investment income $ 486 $ 479 $ 1,597 $ 1,542 Realized gains — 235 10,626 2,178 Realized losses — ( 181 ) ( 7,504 ) ( 1,278 ) Unrealized gains (losses), net 1,638 1,911 ( 2,337 ) ( 5,294 ) Expenses and taxes ( 213 ) ( 182 ) ( 880 ) ( 576 ) Net change in deferred preneed funeral receipts held in trust ( 1,911 ) ( 2,262 ) ( 1,502 ) 3,428 $ — $ — $ — $ — Purchases and sales of investments in the preneed funeral trusts are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Purchases $ — $ ( 5,237 ) $ ( 10,214 ) $ ( 13,987 ) Sales — 5,135 19,726 10,820 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): September 30, 2024 December 31, 2023 Cemetery perpetual care trust investments, at market value $ 85,925 $ 85,331 Obligations due to (due from) trust 1,093 ( 980 ) Care trusts’ corpus $ 87,018 $ 84,351 The following table reflects the cost and market values associated with the trust investments held in cemetery perpetual care trust funds at September 30, 2024 (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 13,900 $ — $ — $ 13,900 Fixed income securities: Foreign debt 2 7,699 1,335 ( 7 ) 9,027 Corporate debt 2 12,401 486 ( 2,289 ) 10,598 Preferred stock 2 10,241 418 ( 1,406 ) 9,253 Common stock 1 27,278 2,697 ( 2,825 ) 27,150 Limited partnership fund 3,051 396 — 3,447 Mutual funds: Equity 1 783 87 ( 1 ) 869 Fixed income 2 12,336 247 ( 1,691 ) 10,892 Trust securities $ 87,689 $ 5,666 $ ( 8,219 ) $ 85,136 Accrued investment income $ 789 $ 789 Cemetery perpetual care investments $ 85,925 Market value as a percentage of cost 97.1 % - 22 - 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 11,555 Due in five to ten years 928 Thereafter 16,395 Total fixed income securities $ 28,878 The following table reflects the cost and market values associated with the trust investments held in cemetery perpetual care trust funds at December 31, 2023 (in thousands): Fair Value Hierarchy Level Cost Unrealized Gains Unrealized Losses Fair Market Value Cash and money market accounts 1 $ 6,688 $ — $ — $ 6,688 Fixed income securities: Foreign debt 2 7,101 1,177 ( 18 ) 8,260 Corporate debt 2 13,491 334 ( 3,367 ) 10,458 Preferred stock 2 10,723 415 ( 1,435 ) 9,703 Common stock 1 36,413 8,098 ( 6,580 ) 37,931 Limited partnership fund 3,042 — ( 2 ) 3,040 Mutual funds: Equity 1 467 5 ( 26 ) 446 Fixed income 2 10,326 14 ( 2,382 ) 7,958 Trust securities $ 88,251 $ 10,043 $ ( 13,810 ) $ 84,484 Accrued investment income $ 847 $ 847 Cemetery perpetual care investments $ 85,331 Market value as a percentage of cost 95.7 % The following table summarizes our fixed income securities (excluding mutual funds) within our cemetery perpetual care trust investment in an unrealized loss position at September 30, 2024, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): September 30, 2024 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 $ — $ — $ 182 $ ( 7 ) $ 182 $ ( 7 ) Corporate debt 604 ( 118 ) 2,218 ( 2,171 ) 2,822 ( 2,289 ) Preferred stock 608 ( 2 ) 7,349 ( 1,404 ) 7,957 ( 1,406 ) Total fixed income securities with an unrealized loss $ 1,212 $ ( 120 ) $ 9,749 $ ( 3,582 ) $ 10,961 $ ( 3,702 ) - 23 - 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, 2023, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands): December 31, 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 $ 440 $ ( 8 ) $ 178 $ ( 10 ) $ 618 $ ( 18 ) Corporate debt 567 ( 53 ) 3,879 ( 3,314 ) 4,446 ( 3,367 ) Preferred stock — — 7,301 ( 1,435 ) 7,301 ( 1,435 ) Total fixed income securities with an unrealized loss $ 1,007 $ ( 61 ) $ 11,358 $ ( 4,759 ) $ 12,365 $ ( 4,820 ) 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Realized gains $ — $ 31 $ 1,419 $ 862 Realized losses — ( 24 ) ( 1,089 ) ( 494 ) Unrealized gains (losses), net 1,676 1,444 ( 2,553 ) ( 5,883 ) Net change in care trusts’ corpus ( 1,676 ) ( 1,451 ) 2,223 5,515 Total $ — $ — $ — $ — Cemetery perpetual care trust investment security transactions recorded in Other revenue are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Investment income $ 3,820 $ 2,663 $ 10,444 $ 8,741 Realized losses, net ( 1,087 ) ( 322 ) ( 2,212 ) ( 796 ) Total $ 2,733 $ 2,341 $ 8,232 $ 7,945 Purchases and sales of investments in the cemetery perpetual care trusts are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Purchases $ — $ ( 4,625 ) $ ( 9,113 ) $ ( 11,336 ) Sales — 4,529 19,130 15,433 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): September 30, 2024 December 31, 2023 Preneed funeral trust funds, at cost $ 23,005 $ 22,196 Less: allowance for contract cancellation ( 690 ) ( 666 ) Receivables from preneed funeral trusts, net $ 22,315 $ 21,530 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 September 30, 2024 and December 31, 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. - 24 - The composition of the preneed funeral trust funds at September 30, 2024 is as follows (in thousands): Historical Cost Basis Fair Value Cash and cash equivalents $ 6,771 $ 6,771 Fixed income investments 12,996 12,996 Mutual funds and common stocks 3,234 3,068 Annuities 4 4 Total $ 23,005 $ 22,839 The composition of the preneed funeral trust funds at December 31, 2023 is as follows (in thousands): Historical Cost Basis Fair Value Cash and cash equivalents $ 6,547 $ 6,547 Fixed income investments 12,732 12,732 Mutual funds and common stocks 2,913 2,695 Annuities 4 4 Total $ 22,196 $ 21,978 10. INTANGIBLE AND OTHER NON-CURRENT ASSETS Intangible and other non-current assets are as follows (in thousands): September 30, 2024 December 31, 2023 Tradenames $ 28,116 $ 28,862 Capitalized commissions on preneed contracts, net of accumulated amortization of $ 4,422 and $ 3,788 , respectively 4,957 4,678 Internal-use software, net of accumulated amortization of $ 694 and $ 444 , respectively 4,785 2,422 Prepaid agreements not-to-compete, net of accumulated amortization of $ 3,427 and $ 3,158 , respectively 1,037 1,335 Other 280 380 Intangible and other non-current assets, net $ 39,175 $ 37,677 Tradenames Our tradenames have indefinite lives and therefore are not amortized. During the nine months ended September 30, 2024, two of the funeral homes that we sold had a carrying value of tradenames of $ 0.2 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. As a result of our 2024 qualitative assessment, we determined that there were factors that would indicate the need to perform an additional quantitative impairment test for certain funeral home businesses. As a result of this additional quantitative impairment test, we recorded a $ 0.6 million impairment to the tradename of one funeral home, during the three and nine months ended September 30, 2024, as the carrying amount of this tradename exceeded its fair value. For our 2023 assessment, we determined that there were factors that would indicate the need to perform an additional quantitative impairment test for certain funeral home businesses. As a result of this additional quantitative impairment test, we recorded an impairment to the tradenames for two of our funeral homes of $ 0.2 million, during the three and nine months ended September 30, 2023, as the carrying amount of these tradenames exceeded their fair value. See Note 1 to the Consolidated Financial Statements included herein for a discussion of the methodology used for our indefinite-lived intangible asset impairment test. 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. - 25 - Amortization expense was $ 0.2 million for both the three months ended September 30, 2024, and 2023, and $ 0.7 million and $ 0.6 million for the nine months ended September 30, 2024 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 $ 0.1 million for both the three months ended September 30, 2024 and 2023, and $ 0.3 million and $ 0.2 million for the nine months ended September 30, 2024 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 $ 0.1 million for both the three months ended September 30, 2024, and 2023 and $ 0.4 million for both the nine months ended September 30, 2024 and 2023. The aggregate amortization expense for our capitalized commissions, internal-use software and prepaid agreements as of September 30, 2024 is as follows (in thousands): Capitalized Commissions Internal-use Software Prepaid Agreements Years ending December 31, Remainder of 2024 $ 429 $ 76 $ 115 2025 833 1,022 390 2026 779 1,013 262 2027 720 1,007 142 2028 644 867 78 Thereafter 1,552 800 50 Total amortization expense $ 4,957 $ 4,785 $ 1,037 11. CREDIT FACILITY AND ACQUISITION DEBT At September 30, 2024, our senior secured revolving credit facility (as amended, 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. On July 31, 2024, the Company entered into a fourth amendment, (the “Credit Facility Amendment”), to our Credit Facility, with the financial institutions party thereto, as lenders, and Bank of America, N.A., as administrative agent. The Credit Facility Amendment provided, among other things, for (i) the extension of the maturity date of the Credit Facility to July 31, 2029, provided that, if the Senior Notes (as defined in the Credit Facility) have a stated maturity date that is prior to July 31, 2029, then the maturity date shall instead be the date that is 91 days prior to the stated maturity date of the Senior Notes; (ii) the establishment of Term Secured Overnight Financing Rate (“SOFR”) as a benchmark rate and the removal of BSBY from the Credit Facility, including conforming revisions to certain defined terms under the Credit Facility; (iii) the conversion of each existing BSBY Rate Loan (as defined in the Credit Facility prior to giving effect to the Credit Facility Amendment) to a Term SOFR Loan (as defined in the Credit Facility); (iv) modifications to the definitions of “Applicable Rate” and “Applicable Fee Rate” to change the applicable rates and pricing levels set forth in each pricing grid; (v) the removal of certain mandatory prepayments arising from the issuance of either Equity Interests or Debt (as both are defined by the Credit Facility); and (vi) modifications to the permitted investments covenant, relating to the Company’s ability to make certain acquisitions, subject to the satisfaction of certain conditions therein. We incurred $ 0.8 million in transactions costs related to the Credit Facility Amendment, which were capitalized and will be amortized over the remaining term of the related debt using the straight-line method. 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, and the maintenance of property and insurance, among 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 - 26 - liens, make investments, engage in mergers and acquisitions, pay dividends and make other restricted payments, and certain financial maintenance covenants. At September 30, 2024, we were subject to the following financial covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed 5.25 to 1.00 and (B) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis. We were in compliance with all of the covenants contained in our Credit Facility at September 30, 2024. Our Credit Facility and acquisition debt consisted of the following (in thousands): September 30, 2024 December 31, 2023 Credit Facility $ 140,000 $ 179,100 Debt issuance costs, net of accumulated amortization of $ 2,859 and $ 2,478 , respectively ( 1,707 ) ( 1,306 ) Total Credit Facility $ 138,293 $ 177,794 Acquisition debt $ 5,938 $ 5,998 Less: current portion ( 588 ) ( 537 ) Total acquisition debt, net of current portion $ 5,350 $ 5,461 At September 30, 2024, we had outstanding borrowings under the Credit Facility of $ 140.0 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 September 30, 2024, we had $ 107.4 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Credit Facility interest expense $ 3,230 $ 4,508 $ 10,669 $ 12,987 Credit Facility amortization of debt issuance costs 105 138 381 414 At September 30, 2024, our outstanding borrowings under our Credit Facility bore interest at a prime rate or the SOFR rate, plus an applicable margin based on our leverage ratio. At September 30, 2024, the prime rate margin was equivalent to 1.50 % and the SOFR term margin was 2.60 %. The weighted average interest rate on our Credit Facility was 8.5 % and 9.0 % for the three months ended September 30, 2024 and 2023, respectively, and 8.7 % and 8.5 % for the nine months ended September 30, 2024 and 2023, respectively. 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 6.5 % to 7.3 %. 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Acquisition debt imputed interest expense $ 102 $ 70 $ 309 $ 212 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): September 30, 2024 December 31, 2023 Long-term liabilities: Principal amount $ 400,000 $ 400,000 Debt discount, net of accumulated amortization of $ 1,711 and $ 1,309 , respectively ( 2,789 ) ( 3,191 ) Debt issuance costs, net of accumulated amortization of $ 487 and $ 373 , respectively ( 790 ) ( 904 ) Carrying value of the Senior Notes $ 396,421 $ 395,905 At September 30, 2024, the fair value of the Senior Notes, which are Level 2 measurements, was $ 371.4 million. - 27 - 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 the ability of 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Senior Notes interest expense $ 4,250 $ 4,250 $ 12,750 $ 12,750 Senior Notes amortization of debt discount 136 129 402 384 Senior Notes amortization of debt issuance costs 38 37 114 110 The debt discount and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 56 months of the Senior Notes. The effective interest rates on the unamortized debt discount and the unamortized debt issuance costs for the Senior Notes for both the three and nine months ended September 30, 2024 and 2023 were 4.42 % and 4.30 %, respectively. 13. LEASES Our lease obligations consist of operating and finance leases related to real estate, vehicles and equipment. The components of lease cost are as follows (in thousands): Three months ended September 30, Nine months ended September 30, Income Statement Classification 2024 2023 2024 2023 Operating lease cost Facilities and grounds expense (1) $ 1,007 $ 887 $ 2,984 $ 2,638 Short-term lease cost Facilities and grounds expense (1) 63 75 157 261 Variable lease cost Facilities and grounds expense (1) 86 69 278 183 Finance lease cost: Depreciation of leased assets Depreciation and amortization (2) $ 126 $ 190 $ 378 $ 407 Interest on lease liabilities Interest expense 119 137 366 345 Total finance lease cost 245 327 744 752 Total lease cost $ 1,401 $ 1,358 $ 4,163 $ 3,834 (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): Nine months ended September 30, 2024 2023 Cash paid for operating leases included in operating activities $ 3,235 $ 2,840 Cash paid for finance leases included in financing activities 813 806 - 28 - Right-of-use assets obtained in exchange for new lease liabilities are as follows (in thousands): Nine months ended September 30, 2024 2023 Right-of-use assets obtained in exchange for new operating lease liabilities $ 1,131 $ 412 Right-of-use assets obtained in exchange for new finance lease liabilities 1,027 2,703 Supplemental balance sheet information related to leases is as follows (in thousands): Lease Type Balance Sheet Classification September 30, 2024 December 31, 2023 Operating lease right-of-use assets Operating lease right-of-use assets $ 15,522 $ 16,295 Finance lease right-of-use assets Property, plant and equipment, net $ 8,897 $ 8,249 Accumulated depreciation Property, plant and equipment, net ( 3,414 ) ( 3,059 ) Finance lease right-of-use assets, net $ 5,483 $ 5,190 Operating lease current liabilities Current portion of operating lease obligations $ 2,831 $ 2,713 Finance lease current liabilities Current portion of finance lease obligations 596 592 Total current lease liabilities $ 3,427 $ 3,305 Operating lease non-current liabilities Obligations under operating leases, net of current portion $ 14,660 $ 15,797 Finance lease non-current liabilities Obligations under finance leases, net of current portion 6,107 5,831 Total non-current lease liabilities $ 20,767 $ 21,628 Total lease liabilities $ 24,194 $ 24,933 The average lease terms and discount rates at September 30, 2024 are as follows: Weighted-average remaining lease term (years) Weighted-average discount rate Operating leases 7.3 8.1 % Finance leases 13.1 8.1 % The aggregate future lease payments for non-cancelable operating and finance leases at September 30, 2024 are as follows (in thousands): Operating Finance Lease payments due: Remainder of 2024 $ 1,088 $ 270 2025 4,044 1,063 2026 3,907 1,072 2027 3,665 1,073 2028 3,348 822 Thereafter 6,867 7,040 Total lease payments 22,919 11,340 Less: Interest ( 5,428 ) ( 4,637 ) Present value of lease liabilities $ 17,491 $ 6,703 At September 30, 2024, we had no significant operating or finance leases that had not yet commenced. - 29 - 14. STOCKHOLDERS ’ EQUITY Restricted Stock Restricted stock activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — 156,630 $ 3,834 142,020 $ 4,634 Returned for payroll taxes — $ — — $ — 16,354 $ 419 1,473 $ 50 Cancelled 28,810 $ 781 — $ — 55,050 $ 1,623 1,826 $ 61 (1) Restricted stock granted during the nine months ended September 30 2024 and 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 $ 24.48 and $ 32.63 , respectively. We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for restricted stock awards of $ 0.4 million for both the three months ended September 30, 2024 and 2023, and $ 1.5 million and $ 1.0 million for the nine months ended September 30, 2024 and 2023, respectively. Stock Options Stock option grants and cancellations are as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — 370,590 $ 3,830 214,191 $ 2,506 Cancelled 44,490 $ 460 1,700 $ 20 532,266 $ 6,311 103,550 $ 1,354 (1) Stock options granted during the nine months ended September 30, 2024 and 2023 had a weighted average price of $ 24.48 and $ 32.69 , respectively. The fair value of these options was calculated using the Black-Scholes option pricing model. The options granted in 2024 and 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. The fair value of the options granted during the nine months ended September 30, 2024 was estimated using the Black-Scholes option pricing model with the following assumptions: Grant Date February 21, 2024 Expected holding period (years) 6.00 Awards granted 370,590 Dividend yield 1.79 % Expected volatility 43.59 % Risk-free interest rate 4.31 % Black-Scholes value $ 10.34 Additional stock option activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Cash Shares Cash Shares Cash Shares Cash Exercised (1) 2,360 N/A 44,900 N/A 52,360 $ 1,271 74,200 N/A Returned for option price (2) 2,086 $ — 34,160 $ — 2,086 $ — 56,957 $ — Returned for payroll taxes (3) 176 $ 5 4,021 $ 133 176 $ 5 5,486 $ 174 (1) Stock options exercised during the three months ended September 30, 2024 and 2023 had a weighted average exercise price of $ 26.54 and $ 25.10 with an aggregate intrinsic value of $ 14,844 and $ 0.4 million, respectively. Stock options exercised during the nine months ended September 30, 2024 and 2023 had a weighted average exercise price of $ 25.48 and $ 23.98 with an aggregate intrinsic value of $ 0.4 million and $ 0.5 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. - 30 - We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for stock options of $ 0.7 million for both the three months ended September 30, 2024 and 2023, and $ 1.7 million and $ 2.2 million for the nine months ended September 30, 2024 and 2023, respectively. Performance Awards Performance award activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Cancelled — $ — — $ — 80,276 $ 871 40,181 $ 1,012 We recorded stock-based compensation expense, which is included in General, administrative and other expenses , for performance awards of $ 0.5 million and $ 0.6 million, for the three months ended September 30, 2024 and 2023, respectively, and $ 0.6 million and $ 1.3 million for nine months ended September 30, 2024 and 2023, respectively. Employee Stock Purchase Plan ESPP activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Price Shares Price Shares Price Shares Price ESPP 11,376 $ 21.26 11,782 $ 24.01 42,942 $ 21.26 49,824 $ 24.21 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: 2024 Dividend yield 1.84 % Expected volatility 41.15 % Risk-free interest rate 5.46 %, 5.24 %, 5.02 %, 4.80 % Expected life (years) 0.25 , 0.50 , 0.75 , 1.00 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 $ 0.1 million for both the three months ended September 30, 2024 and 2023, and $ 0.3 million and $ 0.5 million for the nine months ended September 30, 2024 and 2023, respectively. Common Stock Former Employee Common stock activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 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 nine months ended September 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 $ 0.8 million, for the nine months ended September 30, 2023. - 31 - Good To Great Incentive Program Common stock issued to certain employees under this incentive program is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Granted (1) — $ — — $ — 31,470 $ 790 8,444 $ 276 (1) Common stock granted during the nine months ended September 30, 2024 and 2023 had a grant date stock price of $ 25.08 and $ 32.69 , respectively. Non-Employee Director and Board Advisor Compensation 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 , payable in quarterly installments of $ 5,000 each at the end of each quarter, the chair of our Compensation Committee is entitled to an additional annual retainer of $ 15,000 , payable in quarterly installments of $ 3,750 at the end of each quarter, and the chair of our Corporate Governance Committee is entitled to an additional annual retainer of $ 10,000 , payable in quarterly installments of $ 2,500 at the end of each quarter. Any new independent director will receive upon admission to the Board a grant of $ 25,000 (in addition to the independent director annual retainer prorated at the time the new director is admitted to the Board) which can be taken in cash or unrestricted shares of our common stock. The number of shares of such common stock will be determined by dividing the cash amount by the closing price of our common stock on the date of grant, which will be the date of admission to the Board. Non-Employee Director and Board Advisor common stock activity is as follows (in thousands, except shares): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Shares Fair Value Shares Fair Value Shares Fair Value Shares Fair Value Board of Directors (1) 3,919 $ 131 3,747 $ 106 13,345 $ 385 8,342 $ 248 Advisor to the Board (1) 152 $ 5 176 $ 5 522 $ 15 492 $ 15 (1) Common stock granted during the three months ended September 30, 2024 and 2023 had a weighted average price of $ 32.83 and $ 28.25 , respectively, and $ 28.66 and $ 29.78 for the nine months ended September 30, 2024 and 2023, respectively. 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 $ 0.2 million and $ 0.3 million for the three months ended September 30, 2024, and 2023, respectively, and $ 0.9 million and $ 0.6 million for the nine months ended September 30, 2024 and 2023, respectively. Share Repurchase We did not repurchase any shares during the three and nine months ended September 30, 2024 and 2023. At September 30, 2024, our share repurchase program had $ 48.9 million authorized for repurchases. Cash Dividends Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts): 2024 Per Share Dollar Value March 1 st $ 0.1125 $ 1,686 June 1 st $ 0.1125 $ 1,704 September 1 st $ 0.1125 $ 1,708 2023 Per Share Dollar Value March 1 st $ 0.1125 $ 1,661 June 1 st $ 0.1125 $ 1,679 September 1 st $ 0.1125 $ 1,683 - 32 - 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 September 30, Nine months ended September 30, 2024 2023 2024 2023 Numerator for basic and diluted earnings per share: Net income $ 9,866 $ 4,645 $ 23,098 $ 21,775 Less: Earnings allocated to unvested restricted stock ( 127 ) ( 44 ) ( 304 ) ( 194 ) Income attributable to common stockholders $ 9,739 $ 4,601 $ 22,794 $ 21,581 Denominator: Denominator for basic earnings per common share – weighted average shares outstanding 15,011 14,820 14,951 14,791 Effect of dilutive securities: Stock options 64 83 33 78 Performance awards 416 611 416 611 Denominator for diluted earnings per common share – weighted average shares outstanding 15,491 15,514 15,400 15,480 Basic earnings per common share: $ 0.65 $ 0.31 $ 1.52 $ 1.46 Diluted earnings per common share: $ 0.63 $ 0.30 $ 1.48 $ 1.39 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 (in thousands): Three months ended September 30, Nine months ended September 30, 2024 2023 2024 2023 Antidilutive stock options 1,070 1,234 1,192 1,200 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 September 30, 2024, 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. 16. SEGMENT REPORTING Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands): Three months ended September 30, 2024 Funeral Cemetery Total Services $ 39,892 $ 5,024 $ 44,916 Merchandise 19,455 4,757 24,212 Cemetery property — 23,207 23,207 Other revenue 4,355 3,997 8,352 Total $ 63,702 $ 36,985 $ 100,687 - 33 - Three months ended September 30, 2023 Funeral Cemetery Total Services $ 39,090 $ 4,618 $ 43,708 Merchandise 20,325 4,067 24,392 Cemetery property — 15,895 15,895 Other revenue 3,211 3,288 6,499 Total $ 62,626 $ 27,868 $ 90,494 Nine months ended September 30, 2024 Funeral Cemetery Total Services $ 124,288 $ 14,760 $ 139,048 Merchandise 61,778 13,380 75,158 Cemetery property — 67,353 67,353 Other revenue 13,062 11,877 24,939 Total $ 199,128 $ 107,370 $ 306,498 Nine months ended September 30, 2023 Funeral Cemetery Total Services $ 122,491 $ 13,946 $ 136,437 Merchandise 64,505 12,245 76,750 Cemetery property — 49,178 49,178 Other revenue 10,220 11,101 21,321 Total $ 197,216 $ 86,470 $ 283,686 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 September 30, 2024 $ 19,958 $ 15,145 $ ( 12,206 ) $ 22,897 Three months ended September 30, 2023 18,145 8,844 ( 11,303 ) 15,686 Nine months ended September 30, 2024 $ 63,434 $ 44,348 $ ( 47,039 ) $ 60,743 Nine months ended September 30, 2023 58,236 30,496 ( 31,674 ) 57,058 Income (loss) before income taxes: Three months ended September 30, 2024 $ 19,767 $ 15,282 $ ( 20,200 ) $ 14,849 Three months ended September 30, 2023 18,377 8,902 ( 20,503 ) 6,776 Nine months ended September 30, 2024 $ 63,301 $ 44,652 $ ( 71,923 ) $ 36,030 Nine months ended September 30, 2023 58,824 30,757 ( 58,757 ) 30,824 Total assets: September 30, 2024 $ 784,108 $ 472,464 $ 18,846 $ 1,275,418 December 31, 2023 802,368 448,018 17,666 1,268,052 - 34 - 17. SUPPLEMENTARY DATA Balance Sheet The following table presents the detail of certain balance sheet accounts (in thousands): September 30, 2024 December 31, 2023 Prepaid and other current assets: Prepaid expenses $ 2,776 $ 3,779 Federal income tax receivable 285 454 State income tax receivable — 421 Other current assets 137 137 Total prepaid and other current assets $ 3,198 $ 4,791 Current portion of debt and lease obligations: Acquisition debt $ 588 $ 537 Finance lease obligations 596 592 Operating lease obligations 2,831 2,713 Total current portion of debt and lease obligations $ 4,015 $ 3,842 Accrued and other liabilities: Incentive compensation $ 10,132 $ 13,156 Salaries and wages 6,727 2,285 Interest 6,552 2,409 Insurance 3,481 3,017 Vacation 3,448 3,647 Unrecognized tax benefit 3,449 3,382 Ad valorem and franchise taxes 2,505 2,395 Employee meetings and award trips 1,599 1,185 Commissions 1,045 1,144 Income tax payable 679 — Perpetual care trust payable 487 1,358 Other accrued liabilities 997 1,384 Total accrued and other liabilities $ 41,101 $ 35,362 Other long-term liabilities: Incentive compensation $ 972 $ 1,855 Other long-term liabilities 419 — Total other long-term liabilities $ 1,391 $ 1,855 Cash Flow The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands): Nine months ended September 30, 2024 2023 Cash paid for interest $ 19,729 $ 21,754 Cash paid for taxes 13,434 9,388 - 35 - 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, cost inflation, overhead, including talent recruitment, field and corporate incentive compensation, preneed sales or other financial items; any statements of the plans, strategies, objectives and timing of management for future operations or financing activities, including, but not limited to, technology improvements, product development, capital allocation, organizational performance, execution of our strategic objectives and growth plan, planned divestitures, the ability to obtain credit or financing, anticipated integration, performance and other benefits of recently completed and anticipated acquisitions, and cost management 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 projections or expectations related to the conclusion of the Board's strategic review; 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 strategic objectives and growth strategy, if at all; • the potential adverse effects on the Company's business, financial and equity performance if management fails to meet the expectations of its strategic objectives and growth plan; • 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 and Strategic Acquisition Models; • the effects of competition; • changes in the number of deaths in our markets, which are not predictable from market to market or over the short term; • 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, including, but not limited to, the effects of increased borrowing costs under our Credit Facility and our ability to minimize such costs, if at all; • 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 of our 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; - 36 - • 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; • 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 those that were taken with the COVID-19 coronavirus, including potential responses to any new or emerging public health threats; • effects and expense of litigation; • consolidation in 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 shareholder or market perceptions of our recent announcement regarding the conclusion of our Board’s review of potential strategic alternatives; • 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, 2023. 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. - 37 -