CARRIAGE SERVICES INC 10-Q

Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. OVERVIEW General We operate in two business segments: Funeral Home Operations, which currently accounts for approximately 70% of our total revenue and Cemetery Operations, which currently accounts for approximately 30% of our total revenue. At June 30, 2025, we operated 159 funeral homes in 25 states and 28 cemeteries in 10 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. COMPANY DEVELOPMENTS Divestitures During the six months ended June 30, 2025, we sold two funeral homes and three cemeteries for an aggregate of $15.8 million resulting in a gain of $5.9 million. Additionally, we sold real property for $3.0 million resulting in a gain of $2.0 million. On July 16, 2025, we sold three funeral homes and one cemetery that was included in held for sale at June 30, 2025, for an aggregate of $5.5 million. Macroeconomic, Inflationary, Borrowing Cost, and Volume Trends During the first half of 2025, consumer spending on discretionary items continued to reflect mixed trends. Based on various economic indicators, overall consumer spending remained strong, particularly among high-income earners, but it appears there was a shift towards more cautious spending, especially for middle and low-income households. We believe this caution was influenced by factors like rising inflation, additional tariffs, and a more uncertain economic outlook. Broad economic indicators have indicated that consumer confidence in the U.S. economy has been dropping or remained flat over the past several months and may continue to drop, which could further influence consumer spending and the demand for our products and services. Additionally, in April 2025, the U.S. announced a series of new and increased tariffs on countries and specific goods, subject to evolving exemptions and additional proposed revisions. Certain of these tariffs have been stayed or otherwise modified and, since April 2025, the U.S. has continued to announce new or revised tariffs. Those policies, along with retaliatory actions by some trading partners and ongoing negotiations around trade policy, have led to increased uncertainty regarding the ultimate effect of the tarrifs on economic conditions, volatility, and unpredictability for global trade. Given these uncertainties and the potential of rising tariffs, we evaluated, and continue to evaluate, our current vendor agreements for our major vendors to ensure, to the extent possible, we adequately addressed any associated risks. Two vendors are currently impacted because they source a higher number of imported products from countries which have higher tariff impacts. To mitigate this risk, these vendors have shifted the source of their products to countries that have a lower tariff impact. We also continue to monitor the impacts of inflationary costs to our business. While we are encouraged by the stabilization of inflationary costs that we have continued to experience in the first half of 2025 and 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 could change as a result of the impact of increased tariffs and remain unknown at this time. More broadly, the U.S. economy continues to experience the impact of several years of higher rates of inflation, which has impacted a wide variety of industries and sectors, with consumers facing rising prices. 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. 33 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. In addition, after giving effect to the Credit Facility Amendment, executed during the third quarter of 2024, we continue to experience lower variable interest rates under our Credit Facility, which resulted in lower borrowing costs in the first half of 2025 compared to the same period in the prior year. Further contributing to our lower borrowing costs was the pay down of $24 million on our revolving credit facility during the first half of 2025. During the first quarter of 2025, we experienced higher funeral volumes compared to the same period in the prior year, which we believe was partially related to a delay in the flu season, resulting in continued fluctuations in the death rate. 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 Overview 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. We also generate cash from earnings on our cemetery perpetual care trusts. 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, as needed, subject to its customary terms and conditions. For additional details related to our debt and lease obligations, including our Credit Facility, Acquisition Debt and Senior Notes, refer to Notes 9 and 10 to our unaudited Condensed Consolidated Financial Statements contained in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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, general corporate purposes and potential strategic growth acquisitions, 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, potential growth acquisitions 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. Further, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024. Cash Flows We began 2025 with $1.2 million in cash and ended the quarter with $1.4 million in cash. At June 30, 2025, we had borrowings of $112.9 million outstanding on our Credit Facility compared to $137.0 million at December 31, 2024. 34 The following table sets forth the elements of cash flow (in thousands): Six months ended June 30, 2025 2024 Cash and cash equivalents at beginning of period $ 1,165 $ 1,523 Net cash provided by operating activities 21,877 21,860 Proceeds from divestitures and sale of other assets 18,822 11,174 Proceeds from insurance claims — 314 Capital expenditures (6,009) (7,096) Net cash provided by investing activities 12,813 4,392 Net payments on our credit facility, acquisition debt, and finance lease obligations (24,321) (24,405) Net payments on employee equity plans (6,648) 1,523 Dividends paid on common stock (3,488) (3,390) Net cash used in financing activities (34,457) (26,272) Cash and cash equivalents at end of period $ 1,398 $ 1,503 Operating Activities For the six months ended June 30, 2025, cash provided by operating activities was $21.9 million compared to $21.9 million for the six months ended June 30, 2024. Investing Activities Our investing activities resulted in a net cash inflows of $12.8 million f or the six months ended June 30, 2025, compared to $4.4 million for the six months ended June 30, 2024, an increase of $8.4 million. Acquisition and Divestiture Activity During the six months ended June 30, 2025, we sold two funeral homes and three cemeteries for an aggregate of $15.8 million. Additionally, we sold real property for $3.0 million. During the six months ended June 30, 2024, we sold six funeral homes and one cemetery for an aggregate of $10.9 million. Additionally, we sold real property for $0.3 million. Insurance Proceeds During the six months ended June 30, 2024, we received proceeds of $0.3 million from our property insurance policy for the reimbursement of renovation costs for certain of our funeral businesses damaged by Hurricane Ian that occurred during the third quarter of 2022. Capital Expenditures For the six months ended June 30, 2025, our capital expenditures (comprised of growth and maintenance spend) totaled $6.0 million compared to $7.1 million for the year ended June 30, 2024, a decrease of $1.1 million. The following tables present our capital expenditures (in thousands): Six months ended June 30, 2025 2024 Growth $ 3,469 $ 4,432 Maintenance 2,540 2,664 Total Capital Expenditures $ 6,009 $ 7,096 Financing Activities Our financing activities resulted in a net cash outflow of $34.5 million for the six months ended June 30, 2025, compared to a net cash outflow of $26.3 million for the six months ended June 30, 2024, an increase of $8.2 million. During the six months ended June 30, 2025, we had net payments on our Credit Facility, acquisition debt, and finance leases of $24.3 million, net payments on our employee equity plans of $6.6 million, and paid dividends of $3.5 million. 35 During the six months ended June 30, 2024, we had net payments on our Credit Facility, acquisition debt, and finance leases of $24.4 million and paid dividends of $3.4 million. FINANCIAL HIGHLIGHTS Below are our financial highlights (in thousands except for volumes and averages): Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Total revenue $ 102,147 $ 102,318 $ 209,216 $ 205,811 Funeral contracts 10,589 10,679 22,761 22,770 Average revenue per funeral contract excluding preneed interest $ 5,626 $ 5,549 $ 5,671 $ 5,565 Preneed interment rights (property) sold 4,016 4,179 7,252 7,616 Average price per preneed interment right sold $ 5,871 $ 5,908 $ 5,669 $ 5,430 Gross profit $ 35,935 $ 36,993 $ 73,777 $ 74,255 Net income $ 11,739 $ 6,259 $ 32,665 $ 13,232 Revenue for the three months ended June 30, 2025, decreased $0.2 million compared to the three months ended June 30, 2024. We experienced a 0.6% decrease in the average price per interment right sold and a 3.9% decrease in the number of preneed interment rights (property) sold and a 0.8% decrease in funeral contract volume; partially offset by a 1.4% increase in the average revenue per funeral contract excluding preneed interest. Gross profit for the three months ended June 30, 2025, decreased $1.1 million compared to the three months ended June 30, 2024, primarily due to an increase in cost of revenue primarily from growth in salaries and benefits and promotional expenses during the second quarter of 2025 compared to the same period in 2024. Net income for the three months ended June 30, 2025, increased $5.5 million compared to the three months ended June 30, 2024. We experienced a $6.7 million decrease in general, administrative and other expenses, a $1.3 million decrease in interest expense; partially offset by a $1.1 million decrease in gross profit and a $0.9 million increase in income tax expense. Revenue for the six months ended June 30, 2025, increased $3.4 million compared to the six months ended June 30, 2024. We experienced a 4.4% increase in the average price per interment right sold; partially offset by a 4.8% decrease in the number of preneed interment rights (property) sold. Additionally, we experienced a 1.9% increase in the average revenue per funeral contract. Gross profit for the six months ended June 30, 2025, decreased $0.5 million compared to the six months ended June 30, 2024, primarily due to an increase in cost of revenue primarily from growth in salaries and benefits and promotional expenses during the second quarter of 2025 compared to the same period in 2024. Net income for the six months ended June 30, 2025, increased $19.4 million compared to the six months ended June 30, 2024. We experienced a $10.9 million decrease in general, administrative and other expenses, as the prior year included one-time costs related to executive severance payments and our agreement to pay our financial advisor in connection with the Company's previously concluded review of strategic alternatives, a $9.4 million increase in (gain)/loss on sale of divestitures and real property and a $2.7 million decrease in interest expense; partially offset by a $2.5 million increase in income tax expense and a $0.5 million decrease in gross profit. Further discussion of revenue and the components of gross profit for our funeral home and cemetery segments is presented under “– Results of Operations.” Further discussion of general, administrative and other expenses, interest expense, income taxes and other components of income and expenses are presented under “– Other Financial Statement Items.” REPORTING AND NON-GAAP FINANCIAL MEASURES We also present our financial performance in our “Condensed Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the three months ended June 30, 2025, dated August 6, 2025, and discussed in the corresponding earnings conference call. This Trend Report is used as a supplemental financial statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Trend Report is a non-GAAP statement that also provides insight into underlying trends in our business. 36 Below is a reconciliation of gross profit (a GAAP financial measure) to adjusted operating profit (a non-GAAP financial measure) (in thousands): Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Gross profit $ 35,935 $ 36,993 $ 73,777 $ 74,255 Cemetery property amortization 2,241 2,560 4,069 4,316 Field depreciation expense 3,288 3,405 6,610 6,872 Regional and unallocated funeral and cemetery costs 3,260 4,245 8,495 8,087 Adjusted operating profit (1) $ 44,724 $ 47,203 $ 92,951 $ 93,530 (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 adjusted operating profit (a non-GAAP financial measure) by segment (in thousands): Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Funeral Home 26,250 26,267 $ 59,429 $ 56,869 Cemetery 18,474 20,936 33,522 36,661 Adjusted operating profit 44,724 47,203 $ 92,951 $ 93,530 Adjusted operating profit margin (1) 43.8% 46.1% 44.4% 45.4% (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.” RESULTS OF OPERATIONS The following is a discussion of our results of operations for the three and six months ended June 30, 2025 and 2024. 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 homes we sold during the six months ended June 30, 2025, and six funeral home we sold and one funeral home we merged with another business we owned in an existing market during the six months ended June 30, 2024. The term “divested” when discussed in the cemetery segment refers to three cemeteries we sold during the six months ended June 30, 2025, and one cemetery we sold during the six months ended June 30, 2024. 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 adjusted operating profit, a non-GAAP financial measure. Adding back these items will result in gross profit, a GAAP financial measure. 37 Funeral Home Segment The following table sets forth certain information regarding our revenue and adjusted operating profit for our funeral home operations (in thousands): Three months ended June 30, 2025 2024 Revenue: Operating $ 59,572 $ 58,753 Divested — 500 Ancillary 904 1,082 Other 4,771 3,260 Total $ 65,247 $ 63,595 Adjusted operating profit Operating $ 22,030 $ 23,220 Divested 13 82 Ancillary 32 193 Other 4,175 2,772 Total $ 26,250 $ 26,267 The following measures reflect significant metrics from continuing operations over the comparative period: Contract volume 10,589 10,533 Average revenue per contract, excluding preneed funeral trust earnings $ 5,626 $ 5,578 Average revenue per contract, including preneed funeral trust earnings $ 5,776 $ 5,739 Cremation rate 61.6% 59.9% Funeral home operating revenue increased $0.8 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The increase in operating revenue is primarily driven by a 0.9% increase in the average revenue per contract excluding preneed interest and a 0.5% increase in contract volume. Funeral home adjusted operating profit for the three months ended June 30, 2025, decreased $1.2 million when compared to the same period in 2024, primarily due to the increase in operating expense. The comparable operating profit margin decreased 250 basis points to 37.0%. Operating expenses as a percentage of revenue increased 2.5%, with the largest increases being in investment expense, facilities and grounds expense, other funeral costs, and general and administrative expense. Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses, decreased $0.2 million, while ancillary adjusted operating profit decreased $0.2 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024. The decrease in ancillary revenue is primarily due to a decision to cease the operations of a cremation focused business during the first quarter of 2024, which did not contribute materially to adjusted operating profit. Other revenue and other adjusted operating profit, which consists of preneed funeral insurance commissions and earnings from delivered preneed funeral trust and insurance contracts, increased $1.5 million and $1.4 million, respectively, for the three months ended June 30, 2025, compared to the same period in 2024. These increases are primarily due to an increase of $1.3 million in our general agency commission income for the second quarter of 2025 compared to the same period in 2024, which is a result of our continued focus on growth of our preneed funeral sales through our strategic partnership with a national insurance provider. 38 The following table sets forth certain information regarding our revenue and adjusted operating profit for our funeral home operations (in thousands): Six months ended June 30, 2025 2024 Revenue: Operating $ 128,662 $ 124,801 Divested 415 1,918 Ancillary 1,936 2,329 Other 8,853 6,378 Total $ 139,866 $ 135,426 Adjusted operating profit Operating $ 51,570 $ 50,569 Divested 133 359 Ancillary 220 366 Other 7,506 5,575 Total $ 59,429 $ 56,869 The following measures reflect significant metrics from continuing operations over the comparative period: Contract volume 22,644 22,306 Average revenue per contract, excluding preneed funeral trust earnings $ 5,682 $ 5,595 Average revenue per contract, including preneed funeral trust earnings $ 5,836 $ 5,763 Cremation rate 61.0% 59.6% Funeral home operating revenue increased $3.9 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The increase in operating revenue was primarily driven by a 1.6% increase in the average revenue per contract excluding preneed interest while contract volume remained up. The increase in revenue is driven by our success in implementing our enhanced pricing strategy through 2024, which contributed to the increase in average revenue per funeral contract. Funeral home adjusted operating profit for the six months ended June 30, 2025, increased $1.0 million when compared to the same period in 2024, reflecting our ongoing focus on cost efficiency and operational improvements. The comparable adjusted operating profit margin decreased 40 basis points to 40.1%, driven by a 0.4% increase in operating expenses as a percentage of revenue. Key expense increases include facilities and grounds expense, general and administrative expense, and investment expense. These decreases were partially offset by a decrease in salaries and benefits. Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business and online cremation businesses decreased $0.4 million, while ancillary adjusted operating profit decreased $0.1 million for the six months ended June 30, 2025 compared to the six months ended June 30, 2024. The decrease in ancillary revenue is primarily due to a decision to cease the operations of a cremation focused business during the first quarter of 2024, 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 $2.5 million and $1.9 million, respectively, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. 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. 39 Cemetery Segment The following table sets forth certain information regarding our revenue and adjusted operating profit for our cemetery operations (in thousands): Three months ended June 30, 2025 2024 Revenue: Operating $ 33,450 $ 33,644 Divested 1 1,126 Other 3,449 3,953 Total $ 36,900 $ 38,723 Adjusted operating profit Operating $ 15,003 $ 16,712 Divested 34 356 Other 3,437 3,868 Total $ 18,474 $ 20,936 The following measures reflect the significant metrics from continuing operations over this comparative period: Preneed revenue as a percentage of operating revenue 70.2% 72.5% Preneed revenue (in thousands) $ 23,492 $ 24,381 Atneed revenue (in thousands) $ 9,958 $ 9,263 Number of preneed interment rights sold 4,016 4,025 Average price per interment right sold $ 5,871 $ 6,013 Cemetery operating revenue decreased $0.2 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, as we experienced a 2.4% decrease in the average price per interment right sold and a 0.2% decrease in the number of preneed interment rights (property) sold. Cemetery atneed revenue, which represents approximately 29.8% of our total operating revenue, increased $0.7 million for the three months ended June 30, 2025, compared to the same period in 2024, primarily due to a 19.9% increase in property sold on atneed contracts across our cemetery portfolio. Cemetery adjusted operating profit decreased $1.7 million for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to an increase in operating expenses as a percentage of revenue. The comparable operating profit margin decreased 480 basis points to 44.9%. Operating expenses as a percentage of revenue increased 4.8%, with the largest increases in salaries and benefits expenses, allowance for credit losses, promotional expenses, facilities and grounds insurance expense, and general and administrative expense. Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, decreased $0.5 million and $0.4 million, respectively, for the three months ended June 30, 2025, compared to the three months ended June 30, 2024, primarily due to a decrease in expected earnings for the current year in our perpetual care trust fund compared to earnings in prior year. 40 The following table sets forth certain information regarding our revenue and adjusted operating profit for our cemetery operations (in thousands): Six months ended June 30, 2025 2024 Revenue: Operating $ 61,388 $ 60,049 Divested 1,154 2,456 Other 6,808 7,880 Total $ 69,350 $ 70,385 Adjusted operating profit Operating $ 26,368 $ 28,247 Divested 419 738 Other 6,735 7,676 Total $ 33,522 $ 36,661 The following measures reflect the significant metrics from continuing operations over this comparative period: Preneed revenue as a percentage of operating revenue 67.8% 66.8% Preneed revenue (in thousands) $ 42,426 $ 41,779 Atneed revenue (in thousands) $ 18,962 $ 18,270 Number of preneed interment rights sold 7,116 7,269 Average price per interment right sold $ 5,705 $ 5,554 Cemetery operating revenue increased $1.3 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily as a result of a 2.7% increase in the average price per preneed interment right sold; offset by a 2.1% decrease in the number of preneed interment rights sold. Cemetery atneed revenue, which represents approximately 32% of our total operating revenue, increased $0.7 million for the six months ended June 30, 2025, compared to the same period of the prior year, primarily due to a 12.9% increase in property sold on atneed contracts across our cemetery portfolio. Cemetery adjusted operating profit decreased $1.9 million for the six months ended June 30, 2025, compared to the six months ended June 30, 2024, primarily due to an increase in operating expenses as a percentage revenue. The comparable operating profit margin decreased 400 basis points to 43.0%. Operating expenses as a percentage of operating revenue increased 4.1%, driven by increases in key expenses such as promotional expenses, salaries and benefits, allowance for credit losses, and facilities and ground insurance. Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, decreased $1.1 million and $0.9 million, respectively, for the six months ended June 30, 2025, compared to the six months ended June 30, 2024. These decreases are primarily due to a decrease in expected earnings for the current year in our perpetual care trust fund compared to earnings in prior year. Cemetery property amortization. Cemetery property amortization totaled $2.2 million and $4.1 million for the three and six months ended June 30, 2025, respectively, a decrease of $0.3 million and $0.2 million compared to the three and six months ended June 30, 2024, respectively, primarily driven by the decrease in private mausoleums sold across our cemetery portfolio. Field depreciation. Depreciation expense for our field businesses totaled $3.3 million and $6.6 million for the three and six months ended June 30, 2025, respectively, a decrease of $0.1 million and $0.3 million compared to the three and six months ended June 30, 2024, respectively, primarily driven by our business decision to lease vehicles rather than purchase them. Regional and unallocated funeral and cemetery costs. Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure. Regional and unallocated funeral and cemetery costs totaled $3.3 million and $8.5 million for the three and six months ended June 30, 2025, respectively, a decrease of $1.0 million and an increase of $0.4 million compared to the three and six months ended June 30, 2024, respectively, primarily driven by a $1.4 million increase in leadership and development expenses. 41 Other Financial Statement Items General, administrative and other. General, administrative and other expenses, which include salaries and benefits and cash and equity incentive compensation for our Houston support office, totaled $11.9 million for the three months ended June 30, 2025, a decrease of $6.7 million compared to the same period in 2024, primarily driven by the following: i) a $5.4 million decrease in consulting fees related to the Company's previously concluded review of strategic alternatives, ii) a $0.9 million decrease in incentive compensation expense, and iii) a $0.8 million decrease in separation and severance expenses recorded in the prior year related to our former Chief Financial Officer pursuant to his Separation and Release Agreement dated June 6, 2024. These decreases were offset by a net $0.4 million increase in various other general and administrative expenses. General, administrative and other. General, administrative and other expenses, which include salaries and benefits and cash and equity incentive compensation for our Houston support office, totaled $24.0 million for the six months ended June 30, 2025, an decrease of $10.9 million compared to the six months ended June 30, 2024, primarily driven by the following: i) a $6.6 million decrease 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 recorded in the prior year, and ii) a $5.5 million decrease in other professional fees primarily related to the development of our digital transformation project. These decreases were offset by a $0.6 million increase in computer maintenance and licenses and a $0.6 million increase in various other general and administrative expenses. Net (gain) loss on divestitures, disposals, and impairment charges. The components of Net (gain) loss on divestitures, disposals, and impairment charges are as follows (in thousands): Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Impairment of goodwill, intangibles and PPE $ — $ — $ 117 $ — Net (gain) loss on divestitures (1) 8 (5,938) 1,509 Net loss on disposals of fixed assets — 15 50 59 Total $ (1) $ 23 $ (5,771) $ 1,568 During the six months ended June 30, 2025, we sold two funeral homes and three cemeteries for an aggregate gain of $5.9 million. We also recognized an impairment of $0.1 million on land held for sale during the six months ended June 30, 2025. During the six months ended June 30, 2024, we sold six funeral homes and one cemetery for a loss of $1.5 million. Interest expense . Interest expense related to its respective debt arrangement is as follows (in thousands): Three months ended June 30, Six months ended June 30, 2025 2024 2025 2024 Senior Notes $ 4,429 $ 4,422 $ 8,857 $ 8,842 Credit Facility 2,190 3,662 4,777 7,715 Finance leases 315 122 503 247 Acquisition debt 93 103 187 207 Other 7 15 8 25 Total $ 7,034 $ 8,324 $ 14,332 $ 17,036 Net (gain) loss on property damage, net of insurance claims. During the six months ended June 30, 2024, we recorded a $0.4 million gain, net of insurance proceeds, for damages from Hurricane Ian, which occurred during the third quarter of 2022. Other, net. During the six months ended June 30, 2025, we recorded a $2.0 million gain on the sale of other real property not used in business operations. We did not record any gain or loss activity during the six months ended June 30, 2024. Income taxes. Income tax expense totaled $5.1 million for the three months ended June 30, 2025, an increase of $0.9 million compared to the three months ended June 30, 2024. Our operating tax rate before discrete items was 31.2% and 33.6% for the six months ended June 30, 2025 and 2024, respectively. Income taxes. Income tax expense totaled $10.4 million for the six months ended June 30, 2025, an increase of $2.5 million compared to the six months ended June 30, 2024. Our operating tax rate before discrete items was 31.2% and 33.2% for the six months ended June 30, 2025 and 2024, respectively. 42 CRITICAL ACCOUNTING ESTIMATES The preparation of our Condensed Consolidated Financial Statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses. Understanding our accounting policies and the extent to which our management uses judgment, assumptions and estimates in applying these policies is integral to understanding our Condensed Consolidated Financial Statements. Our critical accounting policies are more fully described 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, 2024. We have identified Goodwill as an accounting policy that requires significant judgments, assumptions and estimates and has a significant impact on our financial condition and results of operations. This policy is considered critical because it 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. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as appropriate based on changing conditions. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. For quantitative and qualitative disclosures about market risk, see Part II, Item 7(a), “Quantitative and Qualitative Disclosures About Market Risk,” in our 2024 Annual Report on Form 10-K. Our exposure to market risk has not changed materially since December 31, 2024.