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Item 7. Management’s Discussion and Analysis

2025-02-28 compared with 2024-03-01 · 122 added, 144 removed, 337 unchanged (44% of the section changed)

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Inflationary and Macroeconomic Trends

During 2023, we continued to experience cost increases from our vendors and suppliers on merchandise and goods due to increases in the cost of raw materials, as well as inflationary impacts and rising interest rates.

For example, we experienced higher costs related to full-time hourly base rates, utilities, funeral supplies, merchandise costs, insurance, and increased borrowing costs due to higher variable interest rates under our Credit Facility.

Although we have taken steps to mitigate these cost increases and we expect these impacts to continue throughout the next year, the ultimate scope and duration of these impacts are unknown at this time.

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

Also, after giving effect to the Credit Facility Amendment, executed during the third quarter of 2024, we experienced lower variable interest rates under our Credit Facility, which resulted in lower borrowing costs in the second half of the year compared to the same period in the prior year.

Further contributing to our lower borrowing costs was the pay down of $42.1 million on our revolving credit facility as we executed our focus to pay down our outstanding debt throughout 2024.

While we are encouraged by the stabilization of inflationary costs that we have experienced throughout 2024, we are unable to forecast with any certainty whether inflationary costs will continue to moderate in future periods, as the ultimate scope and duration of these impacts remain unknown at this time.

More broadly, the U.S.

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

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

Such inflation may negatively impact consumer discretionary spending, including the amount that consumers are able to spend on our services, although we have not experienced any material impacts to date and our industry has been largely resilient to similar adverse economic and market environments in the past.

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

During 2023, we experienced lower volumes as compared to prior years due to fluctuations in the death rate, although overall financial performance remains at or above prior reporting periods.

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

Although such conditions have not materially impacted our business to date and we expect these trends to continue in 2025, we will continue to assess these impacts and take the appropriate steps, if necessary, to mitigate any changes in consumer preferences or additional cost increases, if possible.

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

Although we expect fluctuations in the

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

Regardless of these fluctuations in the death rate, we continue to focus on expanding market share, cost management and executing on our strategic operational plans.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

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

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

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

For 2025, our plan is to remain focused on executing our strategic objectives and growth strategy.

This includes prioritizing our capital allocation for debt repayments, the payment of dividends and debt obligations, internal growth capital expenditures, and general corporate purposes, as allowed under our Credit Facility.

We expect to fund these payments using cash on hand and borrowings under our Credit Facility.

We believe that our existing and anticipated cash resources, including, as needed, additional borrowings or other financings that we may be able to obtain, will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments and dividends for the next 12 months, as well as our long-term financial obligations.

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

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For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read Part I, Item 1A, Risk Factors.

For 2024, our plan is to remain focused on integrating our recently acquired business and prioritizing our capital allocation for debt repayments, the payment of dividends and debt obligations and internal growth capital expenditures, which we expect to fund using cash on hand and borrowings under our Credit Facility, along with general corporate purposes, as allowed under our Credit Facility.

We began 2024 with $1.5 million in cash and ended the year with $1.2 million in cash.

At December 31, 2023, we had borrowings of $179.1 million outstanding on our Credit Facility compared to $190.7 million as of December 31, 2022 and $155.4 million as of December 31, 2021.

At December 31, 2024, we had borrowings of $137.0 million outstanding on our Credit Facility compared to $179.1 million at December 31, 2023 and $190.7 million at December 31, 2022.

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

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2024 2023 2022

Cash at beginning of year $ 889 $ 1,148 $ 1,170

Cash and cash equivalents at beginning of year $ 1,523 $ 1,170 $ 1,148

Net cash provided by operating activities 51,996 75,590 61,024

Acquisitions of businesses and real estate (3,285) (33,876) (44,500)

Acquisitions of businesses and real property — (44,500) (33,876)

Proceeds from divestitures and sale of other assets 12,057 4,132 5,027

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Net cash used in investing activities (3,638) (57,004) (52,490)

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations 106,869 34,418 (12,767)

Payment to redeem the 6.625% senior notes due 2026 (400,000) — —

Payment of call premium related to the 6.625% senior notes due 2026 (19,876) — —

Proceeds from the issuance of the 4.25% senior notes due 2029 395,500 — —

Payment of debt issuance costs for the Credit Facility and 4.25% senior notes due 2029 (2,197) (922) —

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

Net (payments) borrowings on our credit facility, acquisition debt and finance lease obligations (43,161) (12,767) 34,418

Payment of debt issuance costs for the credit facility (781) — (922)

Net proceeds from employee equity plans 2,033 1,242 1,418

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Purchase of treasury stock — — (36,663)

Other financing costs (461) — —

Net cash used in financing activities (48,716) (18,233) (8,512)

Cash at end of year $ 1,148 $ 1,170 $ 1,523

Cash and cash equivalents at end of year $ 1,165 $ 1,523 $ 1,170

Operating Activities

For the year ended December 31, 2024, cash provided by operating activities was $52.0 million compared to $75.6 million for the year ended December 31, 2023 and $61.0 million for the year ended December 31, 2022.

The increase of $14.6 million for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to an $8.6 million withdrawal of realized capital gains and earnings from our preneed funeral and cemetery trust investments and receiving a $6.0 million incentive payment from a vendor related to a strategic partnership agreement to market and sell prearranged funeral services.

The decrease of $23.2 million for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to the unfavorable working capital changes in accrued liabilities, which were partially offset by favorable changes in income tax receivables.

The decrease of $23.6 million for the year ended December 31, 2024 compared to the same period in 2023 was primarily due to the following non-recurring events, which occurred during 2023:

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

and ii) the receipt of a $6.0 million incentive payment from a vendor for entering into a strategic partnership agreement to market and sell prearranged funeral services in the future, as well as non-recurring events, which occurred during 2024:

i) executive severance payments of $3.5 million and ii) payments of $3.3 million related to the Company’s review of strategic alternatives.

The increase of $14.6 million for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to the non-recurring events occurring in 2023 mentioned above.

Investing Activities

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Acquisition and Divestiture Activity

During the year ended December 31, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business for $44.0 million and real estate for $3.1 million of which $0.5 million was paid in cash and the remainder financed over fifteen years.

In addition, we sold two funeral homes and two cemeteries for an aggregate of $1.1 million and real estate for $3.1 million.

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

Additionally, we sold real property for $1.1 million.

During the year ended December 31, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business for $44.0 million and real property for $3.1 million of which $0.5 million was paid in cash and the remainder financed over fifteen years.

In addition, we sold two funeral homes and two cemeteries for an aggregate of $1.1 million and real property for $3.1 million.

We also received proceeds of $1.4 million from our property insurance policy for the reimbursement of renovation costs for certain of our funeral businesses damaged by Hurricane Ian that occurred during the third quarter of 2022 and a fire that occurred during the first quarter of 2023.

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We also received proceeds of $2.4 million from our property insurance policy for the reimbursement of renovation costs for our funeral and cemetery businesses that were damaged by Hurricane Ida.

During the year ended December 31, 2021, we sold two funeral homes and one cemetery for $2.5 million, sold real estate for $5.2 million and purchased real estate for $3.3 million.

We also received proceeds of $7.8 million from our property insurance policy for the reimbursement of renovation costs for our funeral and cemetery businesses that were damaged by Hurricane Ida.

Capital Expenditures

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1,701 1,504 5,048

Crematory projects 495 788 1,206

Cemetery projects — 1,206 788

Other 78 110 782

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During the year ended December 31, 2022, we spent $2.4 million for renovations on two businesses that were affected by Hurricane Ida, all of which was reimbursed by our property insurance.

During the year ended December 31, 2021, we spent $1.6 million for renovations on four businesses that were affected by Hurricane Ida, all of which was reimbursed by our property insurance.

Years Ended December 31,

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Paving roads and parking lots 577 424 1,157

Information technology infrastructure improvements 230 524 —

Other — — 524

Total Maintenance $ 7,312 $ 8,076 $ 11,784

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For the year ended December 31, 2024, we had net payments on our Credit Facility, acquisition debt and finance leases of $43.2 million and paid dividends of $6.8 million.

For the year ended December 31, 2023, we had net payments on our Credit Facility, acquisition debt and finance leases of $12.8 million and paid dividends of $6.7 million.

For the year ended December 31, 2022, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $34.4 million, offset by the following payments:

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ii) $6.8 million in dividends;

and iii) $0.9 million for debt issuance and transactions costs related to our Credit Facility.

For the year ended December 31, 2021, we had net borrowings on our Credit Facility, acquisition debt and finance leases of $106.9 million, offset by the following payments:

i) $19.9 million for the call premium to redeem our 6.625% senior notes due 2026;

ii) $140.0 million for the purchase of treasury stock;

iii) $2.2 million for debt issuance and transactions costs related to our 4.25% senior notes due 2029 and Credit Facility;

iv) $4.0 million for the conversions and maturity of our 2.75% convertible subordinated notes;

and v) $7.3 million in dividends.

and iii) $0.9 million for debt issuance and transition costs related to our Credit Facility.

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

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Share Repurchases

Subject to market conditions, normal trading restrictions and satisfying certain financial covenants in our Credit Facility, and in the Indenture governing our Senior Notes, we may make purchases in the open market or through privately negotiated transactions under our Board authorized share repurchase program, in accordance with Rule 10b-18 of the Securities Exchange Act, as amended (the “Exchange Act”).

On February 23, 2022, our Board authorized an increase in our share repurchase program to permit us to purchase up to an additional $75.0 million under our share repurchase program, in addition to amounts previously authorized and outstanding in accordance with Rule 10b-18 of the Exchange Act, which totaled up to $265.0 million in share repurchase authorizations.

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Number of Shares Repurchased — — 695,496

2,906,983 695,496 —

Average Price Paid Per Share $ — $ — $ 49.22

Dollar Value of Shares Repurchased $ — $ — $ 34,234

$ 142,469 $ 34,234 $ —

(1) These amounts may differ from the repurchases of common stock amounts in the consolidated statements of cash flows due to unsettled share repurchases at the end of a period.

In December 2021, we repurchased 37,408 shares for $2.4 million, the settlement of which occurred in January 2022.

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

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Credit Facility

At December 31, 2023, our senior secured revolving credit facility (the “Credit Facility”) was comprised of:

At December 31, 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.

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

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 13 to our Consolidated Financial Statements in Part II, Item 8, Financial Statements and Supplementary Data) and certain of our subsequently acquired or organized domestic subsidiaries (collectively, the “Subsidiary Guarantors”).

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

These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis.

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 December 31, 2024.

At December 31, 2024, we had outstanding borrowings under the Credit Facility of $137.0 million.

We also had one letter of credit for $2.3 million under the Credit Facility, which was increased to $2.6 million on July 7, 2023.

We also had one letter of credit for $2.2 million under the Credit Facility.

The letter of credit will expire on November 25, 2025, and is expected to automatically renew annually and secures our obligations under our various self-insured policies.

At December 31, 2024, we had $110.8 million of availability under the Credit Facility.

Outstanding borrowings under our Credit Facility bear interest at a prime rate or a BSBY rate, plus an applicable margin based on our leverage ratio.

At December 31, 2023, the prime rate margin was equivalent to 2.375% and the BSBY rate margin was 3.375%.

Outstanding borrowings under our Credit Facility bear interest at a prime rate or the SOFR rate, plus an applicable margin based on our leverage ratio.

At December 31, 2024, the prime rate margin was equivalent to 1.50% and the SOFR term margin was 2.50%.

The weighted average interest rate on our Credit Facility was 8.4% and 8.6% for the years ended December 31, 2024 and 2023, respectively.

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

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

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

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

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

Original maturities typically range from five to twenty years.

Original maturities typically range from nine to twenty years.

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

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See Part II, Item 8, Financial Statements and Supplementary Data, Note 12 to our Consolidated Financial Statements for further detail of our debt payments.

Convertible Subordinated Notes due 2021

During the year ended December 31, 2021, we converted $2.4 million in aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”) held by certain holders for $3.8 million in cash and recorded $1.4 million for the reacquisition of the equity component.

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

Therefore, no Convertible Notes remain outstanding at December 31, 2022 and 2023.

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

Years ended December 31,

2021 2022 2023

Convertible Notes interest expense $ 18 $ — $ —

Convertible Notes accretion of debt discount 20 — —

Convertible Notes amortization of debt issuance costs 1 — —

The effective interest rate on the unamortized debt discount and debt issuance costs for the year ended December 31, 2021 was 3.1%.

At December 31, 2024, we had $400.0 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “Senior Notes”) and related guarantees by the Subsidiary Guarantors, which were issued in a private offering under Rule 144A and Regulation S of the Securities Act.

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

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

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

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

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

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The fair value of the Senior Notes, which are Level 2 measurements, was $364.4 million at December 31, 2024.

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

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

Years Ended December 31,

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Senior Notes amortization of debt discount 539 515 493

Senior Notes amortization of debt premium 85 — —

Senior Notes amortization of debt issuance costs 153 147 140

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Payments for such agreements are generally not made in advance.

These agreements are generally for one to five years and provide for bi-weekly or monthly payments.

These agreements are generally for one to ten years and

provide for bi-weekly or monthly payments.

We have future payments on our consulting agreements of $2.5 million, with $1.3 million payable within 12 months.

Employment agreements - We have employment agreements with our executive officers.

These agreements are generally for three to six years and provide for participation in various incentive compensation arrangements.

These agreements are generally for two to five years and provide for participation in various incentive compensation arrangements.

These agreements generally renew automatically on an annual basis after their initial term has expired.

We have future payments on our employment agreements of $10.0 million, with $5.5 million payable within 12 months.

In connection with Mr.

Payne’s transition from Executive Chairman of the Board to serving as a special advisor to the Board, his employment agreement with the Company was terminated and he entered into a transition agreement, effective February 22, 2024.

For more information on this transition see Part II, Item 8, Financial Statements and Supplementary Data, Note 24 to our Consolidated Financial Statements.

Letter of credit - We have one letter of credit for $2.2 million under the Credit Facility, which secures our obligations under our various self-insurance policies in the event we are unable to meet the self-insurance portion of our claim payment obligations.

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Net income $ 32,953 $ 33,413 $ 41,381

Revenue in 2023 increased $12.3 million compared to 2022, primarily as a result of a 9.4% increase in the average price per preneed interment right sold, an 8.6% increase in the number of preneed interment rights (property) sold and a 0.9% increase in the average revenue per funeral contract, offset by a 2.4% decrease in the funeral contract volume.

Revenue in 2024 increased $21.7 million compared to 2023, primarily as a result of a 22.9% increase in preneed interment rights (property) sold and a 7.3% increase in the average price per preneed interment right sold.

Additionally, we experienced a 3.1% increase in the average revenue per funeral contract, which was offset by a 4.9% decrease in funeral contract volume.

Revenue in 2023 increased $12.3 million compared to 2022, primarily as a result of a 9.4% increase in the average price per interment right sold, an 8.6% increase in the number of preneed interment rights (property) sold and a 0.9% increase in average revenue per funeral contract, offset by a 2.4% decrease in funeral contract volume.

The funeral contract volume decrease is primarily a result of the lower impact of COVID-19 related deaths in the first quarter of 2023 as compared to the same period in 2022.

Revenue in 2022 decreased $5.7 million compared to 2021, primarily as a result of a 3.6% decrease in funeral contract volume, a 4.6% decrease in the number of preneed interment rights (property) sold and a 3.0% decrease in the average price per interment right sold, which were slightly offset by a 2.5% increase in average revenue per funeral contract.

The decrease in funeral contract volume and the number of interment rights sold correspond to the decline in COVID-19 related cases in 2022 compared to 2021, as deaths directly attributable from COVID-19 largely decreased during that period to have minimal impact on the overall death rate.

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

Gross profit in 2024 increased $19.1 million compared to 2023, primarily due to the increase in revenue from our cemetery segment, as well as lower operating expenses in both of our segments.

The overall decrease in operating expenses reflects the continued progress we have made successfully executing on our cost management initiatives in 2024.

Gross profit in 2023 increased $5.1 million compared to 2022, primarily due to the increase in revenue from our cemetery segment, offset by an increase in operating expenses in our cemetery segment.

Gross profit in 2022 decreased $10.3 million compared to 2021, due to the decrease in revenue, as well as increases in operating expenses, in both our funeral and cemetery segments.

These increases are partially due to higher costs from inflationary impacts concentrated in our full-time hourly base rates, utilities, funeral supplies, and merchandise costs.

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

Net income in 2024 decreased $0.5 million compared to 2023, primarily due to a $16.9 million increase in general, administrative and other expenses, primarily comprised of one-time costs related to executive severance payments and the Company’s review of strategic alternatives, a $4.1 million increase in income tax expense and a $1.4 million increase in loss on divestitures, disposals and impairment charges.

These increases in expenses were offset by the $19.1 million increase in gross profit contribution from our businesses and a $4.2 million decrease in interest expense.

Net income in 2023 decreased $8.0 million compared to 2022, primarily due to the following:

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(2) a $4.7 million increase in general, administrative and other expenses;

and (3) a $1.0 million increase in divestitures, disposals, impairment charges and insurance reimbursements, offset by (4) the increase in gross profit of $5.1 million;

and (5) a $2.8 million decrease in tax expense.

Net income in 2022 increased $8.2 million compared to 2021, primarily due to the following:

(1) a $23.6 million loss on extinguishment of debt in 2021;

(2) a $3.5 million gain on insurance reimbursements in 2022, offset by (3) the decrease in gross profit of $10.3 million;

(4) a $4.7 million increase in tax expense;

(5) a $2.3 million increase in general, administrative and other expenses;

and (6) a $1.4 million decrease in net loss on divestitures, disposals and impairments charges.

and (3) a $1.0 million increase in divestitures, disposals, impairment charges and insurance reimbursements, offset by (4) the increase in gross profit of $5.1 million and (4) a $2.8 million decrease in tax expense.

Further discussion of general, administrative and other expenses, net loss on divestitures, disposals and impairment charges, interest expense, income taxes and other components of income and expenses are presented under “Other Financial Statement Items.”

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

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

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

Years Ended December 31,

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Regional and unallocated funeral and cemetery costs 15,364 16,576 22,960

Operating profit (1)

Adjusted operating profit (1)

$ 180,651 $ 161,076 $ 161,361

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

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

Our operations are reported in two business segments:

Funeral Home and Cemetery.

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

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

Years Ended December 31,

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Cemetery 72,661 56,079 49,890

Operating profit $ 174,641 $ 161,361 $ 161,076

Operating profit margin (1)

Adjusted operating profit $ 180,651 $ 161,076 $ 161,361

Adjusted operating profit margin (1)

44.7% 42.1% 43.6%

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

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

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

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

YEAR ENDED DECEMBER 31, 2024 COMPARED TO YEAR ENDED DECEMBER 31, 2023

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

The term “divested” when discussed in the Funeral Home segment, refers to two funeral home we sold during the year ended December 31, 2023 and two funeral homes we sold during the year ended December 31, 2022.

The term “divested” when discussed in the Cemetery segment, refers to two cemeteries we sold during the year ended December 31, 2023.

The term “divested” when discussed in the funeral home segment, refers to six funeral homes we sold and three funeral homes we merged with other businesses we own in existing markets during the year ended December 31, 2024 and two funeral homes we sold and one funeral home we merged with another business we own in an existing market during the year ended December 31, 2023.

The term “divested” when discussed in the cemetery segment, refers to one cemetery we sold during the year ended December 31, 2024 and two cemeteries we sold during the year ended December 31, 2023.

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

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

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

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

Funeral Home Segment

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

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

Years Ended December 31,

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Total $ 263,114 $ 264,776

Operating profit:

Adjusted operating profit

Operating $ 95,113 $ 93,766

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Total $ 107,990 $ 104,997

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

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

Contract volume 44,103 46,355

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Funeral home operating revenue decreased $1.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

The decrease in operating revenue is primarily driven by a 2.4% decrease in contract volume, which was partially offset by a 1.0% increase in the average revenue per contract excluding preneed interest.

The contract volume decrease is primarily a result of the significant decline in COVID-19 related deaths in the first quarter of 2023 as compared to the same period in 2022, as these deaths now have a minimal impact on the overall death rate.

The increase in average revenue per contract is primarily due to a combination of price increases and our continued focus on educating families on the many products and service options that are available with burials and cremations.

Funeral home operating profit for the year ended December 31, 2023 decreased $7.0 million when compared to the same period in 2022, primarily due to an increase in operating expenses as a percentage of revenue.

The comparable operating profit margin decreased 250 basis points to 38.1%.

Operating expenses as a percentage of revenue increased 2.4%, with the largest increases in salary and benefits expenses of 1.3%, general and administrative expenses of 0.4%, facilities and grounds expenses of 0.4% and other funeral costs of 0.3%.

The increase in operating expenses is primarily due to our Bakersfield, CA business acquired during the first quarter of 2023.

As we continue to integrate this business into our Standards Operating Model, we expect to see their operating expenses as a percentage of revenue become more consistent with our remaining portfolio of businesses.

Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses increased $0.4 million, while ancillary operating profit decreased $0.4 million for the year ended December 31, 2023 compared to the year ended December 31, 2022.

The increase in revenue is primarily due to our Bakersfield, CA business acquired during the first quarter of 2023, as it was not present in the comparative period of 2022.

Similarly, the decrease in operating profit is primarily due to this same business, as its operating profit margins were lower compared to our other ancillary businesses, particularly with regard to higher salaries and benefits expenses.

Other revenue and other operating profit, which consist of preneed funeral insurance commissions and preneed funeral trust earnings, both increased $1.0 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to the recognition of additional general agency commission revenue in 2023 as we entered into an exclusive partnership agreement with a national insurance provider to market and sell prearranged funeral services in the future.

The decline in operating revenue was primarily driven by a 4.9% decrease in contract volume, which was partially offset by a 3.1% increase in the average revenue per contract excluding preneed interest.

The decline in funeral contract volume was primarily influenced by the lingering impact of the COVID-19 related pull forward effect.

However, we continued to successfully implement our enhanced pricing strategy through 2024, which contributed to the increase in average revenue per funeral contract.

Funeral home adjusted operating profit for the year ended December 31, 2024 increased $1.3 million when compared to the same period in 2023, reflecting our ongoing focus on cost efficiency and operational improvements.

The comparable adjusted operating profit margin increased 70 basis points to 39.0%, driven by a 0.8% reduction in operating expenses as a percentage of revenue.

Key expense reductions include salary and benefits expenses which decreased 0.5%, cost of merchandise which decreased 0.4%, and other funeral costs which decreased 0.2%.

These decreases were partially offset by an increase in facilities and grounds expense of 0.6%.

The overall decrease in operating expenses reflects the continued progress we have made successfully executing on our cost management initiatives this year.

Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses decreased $0.3 million, while ancillary adjusted operating profit increased $0.2 million for the year ended December 31, 2024 compared to the year ended December 31, 2023.

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

Other revenue and other adjusted operating profit, which consists of preneed funeral insurance commissions and earnings from delivered preneed funeral trust and insurance contracts, increased $3.3 million and $2.6 million, respectively, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

These increases are primarily due to the increase in our general agency commission income earned on the sale of preneed insurance policies as we continue to focus on growth of our preneed funeral sales through our strategic partnership with a national insurance provider that began during the second quarter of 2023.

Cemetery Segment

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

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

Years Ended December 31,

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Total $ 141,084 $ 117,744

Operating profit (loss):

Adjusted operating profit (loss)

Operating $ 57,233 $ 40,899

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Total $ 72,661 $ 56,079

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

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

Preneed revenue as a percentage of operating revenue 69% 63%

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Average price per interment right sold $ 5,374 $ 5,007

Cemetery operating revenue increased $12.2 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily as a result of a 9.4% increase in the average price per preneed interment right sold, as well as an 8.6% increase in preneed interment rights sold.

Cemetery atneed revenue, which represents 37.0% of our total operating revenue, increased $3.6 million for the year ended December 31, 2023, compared to the same period of the prior year, primarily due to an increase in sales of merchandise and services from our newly acquired cemetery businesses, which were not present in the year ended 2022.

Cemetery operating profit increased $3.6 million for the year ended December 31, 2023, compared to the year ended December 31, 2022.

The increase in operating profit is primarily due to the increase in operating revenue, offset by an increase in operating expenses as a percentage of revenue.

The comparable operating profit margin decreased 150 basis point to 40.2%.

Operating expenses as a percentage of operating revenue increased 1.5%, with the largest increases in salary and benefits expenses of 0.8% and promotional expenses, which includes sales commissions, of 0.8%.

Other revenue and other operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, both increased $2.5 million for the year ended December 31, 2023, compared to the year ended December 31, 2022, primarily due to a $2.1 million increase in perpetual care trust fund income and a $0.2 million increase in finance charges on preneed sales.

Cemetery operating revenue increased $23.9 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily as a result of a 22.9% increase in the number of preneed interment rights sold and a 7.3% increase in the average price per preneed interment right sold.

Cemetery atneed revenue, which represents 31% of our total operating revenue, increased $0.7 million for the year ended December 31, 2024, compared to the same period of the prior year, primarily due to an increase in delivered merchandise and services across our cemetery portfolio.

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

Cemetery adjusted operating profit increased $16.3 million for the year ended December 31, 2024, compared to the year ended December 31, 2023, primarily due to higher revenue and improved operational efficiencies.

The comparable operating profit margin increased 540 basis point to 45.8%.

Operating expenses as a percentage of operating revenue decreased 5.5%, driven by reductions in key expenses such as salaries and benefits which decreased 3.6%, merchandise costs which decreased 0.9%, and general and administrative expenses which decreased 0.3% These decreases reflect the continued progress we have made successfully executing on our cost management initiatives.

Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, increased $0.4 million and $0.5 million, respectively, for the year ended December 31, 2024, compared to the year ended December 31, 2023.

These increases are primarily due to a $0.2 million increase in finance charges on financed preneed contracts, as well as a $0.2 million increase in income earned on delivered merchandise and services and improved performance for our perpetual care trust fund.

Cemetery property amortization.

Cemetery property amortization totaled $6.0 million for the year ended December 31, 2023, an increase of $0.2 million compared to the year ended December 31, 2022, primarily due to the increase in property sold across our cemetery portfolio.

Cemetery property amortization totaled $8.2 million for the year ended December 31, 2024, an increase of $2.1 million compared to the year ended December 31, 2023, primarily driven by the increase in property sold across our cemetery portfolio.

Field depreciation.

Depreciation expense for our field businesses totaled $14.2 million for the year ended December 31, 2023, an increase of $0.9 million compared to the year ended December 31, 2022, primarily due to the business acquisitions made in the latter half of 2022 and the first quarter of 2023.

Depreciation expense for our field businesses totaled $13.7 million for the year ended December 31, 2024, a decrease of $0.4 million compared to the year ended December 31, 2023, primarily driven by our business decision in 2023 to lease vehicles rather than purchase them.

Regional and unallocated funeral and cemetery costs.

Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure.

Regional and unallocated funeral and cemetery costs totaled $16.6 million for the year ended December 31, 2023, a decrease of $6.4 million compared to the year ended December 31, 2022, primarily due to the following:

(1) a $4.6 million decrease in cash incentives and equity compensation;

(2) a $1.2 million decrease in incentive award trips and annual managing partner meetings;

(3) a $0.4 million decrease in health and safety expenses related to COVID-19;

and (4) a $0.2 million decrease in all other expenses.

Regional and unallocated funeral and cemetery costs totaled $15.4 million for the year ended December 31, 2024, a decrease of $1.2 million compared to the year ended December 31, 2023, primarily driven by the following:

i) an $0.7 million decrease in incentive compensation costs, ii) a $0.7 million decrease in leadership and development expenses, offset by iii) a $0.4 million increase in salaries and benefits expenses.

Other Financial Statement Items

General, administrative and other.

General, administrative and other expenses totaled $42.1 million for the year ended December 31, 2023, an increase of $4.7 million compared to the year ended December 31, 2022, primarily due to the following:

(1) a $3.7 million increase in salary and benefits expense and cash and equity incentive compensation, as a result of changes to our senior leadership team, including current year executive promotions;

and (2) a $2.2 million increase in consulting fees related to the Board’s review of strategic alternatives, offset by (3) a $0.6 million decrease in online marketing costs;

and (4) a $0.6 million decrease in all other expenses.

General, administrative and other expenses, which include salaries and benefits and cash and equity incentive compensation for our Houston support office, totaled $59.0 million for the year ended December 31, 2024, an increase of $16.9 million compared to the year ended December 31, 2023, primarily driven by the following:

i) a $6.2 million increase in salary and benefits expenses and cash and equity incentive compensation costs, primarily driven by the termination expense of our founder and former Executive Chairman of the Board pursuant to his Transition Agreement and termination expense for our former Chief Financial Officer pursuant to his Separation and Release Agreement;

ii) a $4.6 million increase in other professional fees primarily related to the development of our digital transformation project;

iii) a $4.0 million increase primarily related to our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives;

iv) a $0.9 million increase in information technology expenses such as software license and support fees;

and v) a $1.2 million increase in various other general and administrative expenses.

Net loss on divestitures, disposals and impairment charges.

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Impairment of goodwill, intangibles and PPE $ 637 $ 454

Net (gain) loss on divestitures (543) 106

Net loss on divestitures 1,224 106

Net loss on disposals of fixed assets 719 631

Total $ 2,580 $ 1,191

During the year ended December 31, 2024, we sold six funeral homes and one cemetery for an aggregate loss of $1.2 million.

We also recognized an impairment of $0.6 million as a result of our 2024 qualitative assessment of tradenames and an impairment of $40 thousand related to property, plant and equipment for assets held for sale.

During the year ended December 31, 2023, we sold two funeral homes and two cemeteries for a loss of $0.1 million.

We also recognized an impairment of $0.2 million as a result of our 2023 qualitative assessment of tradenames and an impairment of $0.2 million related to property, plant and equipment for assets held for sale.

During the year ended December 31, 2022, we recognized impairments of $1.0 million related to property, plant and equipment, $0.9 million related to cemetery property and $0.4 million related to goodwill for assets held for sale .

In addition, we divested four funeral homes and sold real property for a net gain of $0.7 million, of which $0.2 million was recorded in Other, net .

We also disposed of damaged and obsolete property, plant and equipment that had a carrying value of $0.2 million.

We recognized impairments of $0.2 million as a result of our 2023 qualitative assessment of tradenames.

Interest expense .

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Acquisition debt 406 291

Other (389) 10

Total $ 32,075 $ 36,266

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Years Ended December 31,

Gain on property damaged by Hurricane Ida $ (3,455) $ (28)

Gain on property damaged by Hurricane Ian — (379)

(Gain) loss on other property damage (16) 64

Gain on property damage by Hurricane Ian $ (417) (379)

Gain on property damage by Hurricane Ida — $ (28)

Loss on other property damage — 64

Total $ (417) $ (343)

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Income taxes.

Income tax expense totaled $13.0 million for the year ended December 31, 2023, a decrease of $3.1 million compared to the year ended December 31, 2022.

Our operating tax rate before discrete items was 28.4% for both the years ended December 31, 2023 and 2022.

We recorded a net discrete tax benefit of $0.2 million for the year ended December 31, 2023, a decrease of $0.3 million compared to the year ended December 31, 2022.

The net discrete tax benefit for the year ended December 31, 2023, includes benefit related to equity compensation and other adjustments including return to provision analysis and state legislative changes.

Income tax expense totaled $17.1 million for the year ended December 31, 2024, an increase of $4.1 million compared to the year ended December 31, 2023.

Our operating tax rate before discrete items was 32.1% and 28.4% for the years ended December 31, 2024 and 2023, respectively.

We recorded a net discrete tax expense of $1.0 million for the year ended December 31, 2024, an increase of $1.2 million compared to the year ended December 31, 2023.

The net discrete tax expense for the year ended December 31, 2024, includes expense related to equity compensation and other adjustments including return to provision analysis and state legislative changes.

Our effective tax rate was 34.2% and 28.0% for years ended December 31, 2024 and 2023, respectively.

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

What changed 10-K

Item 7. Management’s Discussion and Analysis