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 September 30, 2025, we operated 159 funeral homes in 24 states and 28 cemeteries in 9 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 Acquisitions During the nine months ended September 30, 2025, we acquired eight funeral homes, one cemetery, and one cremation focused business in Florida for an aggregate price of $56.5 million. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses. Divestitures During the nine months ended September 30, 2025, we sold nine funeral homes and four cemeteries for an aggregate of $33.8 million resulting in a gain of $0.8 million. Additionally, we sold real property for $4.1 million resulting in a gain of $1.1 million. Macroeconomic, Inflationary, and Borrowing Costs During 2025, consumer spending on discretionary items reflected mixed trends. Based on recent economic indicators, aggregate consumer spending continues to reflect minimal to modest growth, with higher-income consumers appearing more resilient, while many middle and lower-income consumers exhibit more cautious behavior, which could result in an overall reduction in consumer spending and demand for products and services. This consumer caution appears to be influenced by factors like elevated inflation, heightened tariff and trade-policy uncertainty, and a more cautious macroeconomic environment. Additionally, beginning in April 2025, the U.S. government announced 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, along with new trade agreements with certain trading partners. 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 tariffs 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. We also continue to monitor the impacts of inflationary costs to our business. While inflationary pressures appear to have moderated and stabilized, we are unable to forecast or predict with any certainty whether inflationary costs will remain stable and 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. Although such conditions have not materially impacted our business to date and we expect these trends to continue for the remainder of 2025 and into next year, 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. 36 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 and lower average debt outstanding under our Credit Facility, which resulted in lower borrowing costs in 2025 compared to the same period in the prior year. 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 10 and 11 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 $1.2 million in cash. At September 30, 2025, we had borrowings of $134.9 million outstanding on our Credit Facility compared to $137.0 million at December 31, 2024. 37 The following table sets forth the elements of cash flow (in thousands): Nine months ended September 30, 2025 2024 Cash and cash equivalents at beginning of period $ 1,165 $ 1,523 Net cash provided by operating activities 46,568 42,716 Acquisitions of businesses and real property (56,499) — Proceeds from divestitures and sale of other assets 37,310 12,015 Proceeds from insurance claims — 403 Capital expenditures (12,715) (11,710) Net cash (used in) provided by investing activities (31,904) 708 Net payments on our credit facility, acquisition debt, and finance lease obligations (2,527) (39,564) Payment of debt issuance costs for the credit facility — (782) Net payments on employee equity plans (6,800) 1,757 Dividends paid on common stock (5,254) (5,098) Net cash used in financing activities (14,581) (43,687) Cash and cash equivalents at end of period $ 1,248 $ 1,260 Operating Activities For the nine months ended September 30, 2025, cash provided by operating activities was $46.6 million compared to $42.7 million for the nine months ended September 30, 2024. Investing Activities Our investing activities resulted in a net cash outflows of $31.9 million f or the nine months ended September 30, 2025, compared to net cash inflows $0.7 million for the nine months ended September 30, 2024, a decrease of $32.6 million. Acquisition and Divestiture Activity During the nine months ended September 30, 2025, we acquired eight funeral home businesses, one cemetery and one cremation focused business for the aggregate purchase price of approximately $58.5 million. The purchase price for the businesses consisted of approximately (i) $56.5 million paid in cash at closing and (ii) $1.3 million, the net present value of future deferred payments totaling $2.0 million. During the nine months ended September 30, 2025, we sold nine funeral homes and four cemeteries for an aggregate of $33.8 million. Additionally, we sold real property for $4.1 million. During the nine months ended September 30, 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. Insurance Proceeds During the nine months ended September 30, 2024, we received proceeds of $0.4 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. Capital Expenditures For the nine months ended September 30, 2025, our capital expenditures (comprised of growth and maintenance spend) totaled $12.7 million compared to $11.7 million for the year ended September 30, 2024, an increase of $1.0 million. 38 The following tables present our capital expenditures (in thousands): Nine months ended September 30, 2025 2024 Growth $ 8,440 $ 6,697 Maintenance 4,275 5,013 Total Capital Expenditures $ 12,715 $ 11,710 Financing Activities Our financing activities resulted in a net cash outflow of $14.6 million for the nine months ended September 30, 2025, compared to a net cash outflow of $43.7 million for the nine months ended September 30, 2024, a decrease of $29.1 million. During the nine months ended September 30, 2025, we had net payments on our Credit Facility, acquisition debt, and finance leases of $2.5 million, net payments on our employee equity plans of $6.8 million, and paid dividends of $5.3 million. During the nine months ended September 30, 2024, we had net payments on our Credit Facility, acquisition debt, and finance leases of $39.6 million and paid dividends of $5.1 million. FINANCIAL HIGHLIGHTS Below are our consolidated financial highlights (in thousands except for volumes and averages): Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Total revenue $ 102,742 $ 100,687 $ 311,958 $ 306,498 Funeral contracts 10,124 10,713 32,885 33,483 Average revenue per funeral contract excluding preneed interest $ 5,651 $ 5,540 $ 5,665 $ 5,557 Preneed interment rights (property) sold 3,569 3,511 10,821 11,127 Average price per preneed interment right sold $ 6,257 $ 5,360 $ 5,863 $ 5,408 Gross profit $ 36,243 $ 35,490 $ 110,020 $ 109,745 Net income $ 6,570 $ 9,866 $ 39,235 $ 23,098 Revenue for the three months ended September 30, 2025 increased $2.1 million compared to the three months ended September 30, 2024. We experienced a 5.5% decrease in funeral contract volume; partially offset by a 2.0% increase in the average revenue per funeral contract excluding preneed interest. Additionally, we experienced a 1.7% increase in the number of preneed interment rights (property) sold and a 16.7% increase in the average price per interment right sold. Gross profit for the three months ended September 30, 2025 increased $0.8 million compared to the three months ended September 30, 2024, primarily due to the growth in revenue described above. Net income for the three months ended September 30, 2025 decreased $3.3 million compared to the three months ended September 30, 2024. We experienced a $6.2 million increase in net loss on divestitures and impairment charges; partially offset by a $1.8 million decrease in income tax expense, a $1.1 million decrease in interest expense, and a $0.8 million increase in gross profit contribution from our businesses. Revenue for the nine months ended September 30, 2025 increased $5.5 million compared to the nine months ended September 30, 2024. We experienced a 1.8% decrease in funeral contract volume which was partially offset by a 1.9% increase in the average revenue per funeral contract. Additionally, we experienced a 2.8% decrease in the number of preneed interment rights (property) sold partially offset by an 8.4% increase in the average price per interment right sold. Gross profit for the nine months ended September 30, 2025 increased $0.3 million compared to the nine months ended September 30, 2024, primarily due to the growth in revenue described above. Net income for the nine months ended September 30, 2025 increased $16.1 million compared to the nine months ended September 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 $1.2 million decrease in the loss on divestitures and impairment charges, a $3.8 million decrease in interest expense, and a $0.3 million increase in gross profit contributions from our businesses; partially offset by a $0.7 million increase in income tax expense and a $0.4 million decrease in net gain on property damage, net of insurance claims. 39 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 September 30, 2025, dated November 5, 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 GAAP. 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 adjusted operating profit (a non-GAAP financial measure) (in thousands): Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Gross profit $ 36,243 $ 35,490 $ 110,020 $ 109,745 Cemetery property amortization 2,755 1,957 6,824 6,273 Field depreciation expense 3,226 3,411 9,836 10,283 Regional and unallocated funeral and cemetery costs 4,095 4,085 12,590 12,172 Adjusted operating profit (1) $ 46,319 $ 44,943 $ 139,270 $ 138,473 (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 September 30, Nine months ended September 30, 2025 2024 2025 2024 Funeral Home 24,908 25,097 $ 84,337 $ 81,966 Cemetery 21,411 19,846 54,933 56,507 Adjusted operating profit 46,319 44,943 $ 139,270 $ 138,473 Adjusted operating profit margin (1) 45.1% 44.6% 44.6% 45.2% (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 nine months ended September 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 nine funeral homes we sold during the nine months ended September 30, 2025, and six funeral homes we sold and three funeral homes we merged with other businesses we owned in existing markets during the nine months ended September 30, 2024. The term “divested” when discussed in the cemetery segment refers to four cemeteries we sold during the nine months ended September 30, 2025, and one cemetery we sold during the nine months ended September 30, 2024. 40 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. 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 September 30, 2025 2024 Revenue: Operating $ 55,853 $ 56,606 Divested 1,352 2,741 Ancillary 860 1,046 Other 4,713 3,309 Total $ 62,778 $ 63,702 Adjusted operating profit Operating $ 20,558 $ 21,590 Divested 254 634 Ancillary 174 156 Other 3,922 2,717 Total $ 24,908 $ 25,097 The following measures reflect significant metrics from continuing operations over the comparative period: Contract volume 9,779 9,986 Average revenue per contract, excluding preneed funeral trust earnings $ 5,712 $ 5,669 Average revenue per contract, including preneed funeral trust earnings $ 5,888 $ 5,825 Cremation rate 61.0% 60.4% Funeral home operating revenue decreased $0.8 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The decline in operating revenue is primarily driven by a 2.1% decrease in contract volume; partially offset by a 0.8% increase in the average revenue per contract excluding preneed interest. Funeral home adjusted operating profit for the three months ended September 30, 2025 decreased $1.0 million when compared to the same period in 2024, primarily due to the decrease in operating expense. The comparable operating profit margin decreased 130 basis points to 36.8%. Operating expenses as a percentage of revenue increased 1.3%, with the largest increases being in salaries and benefits expenses, facilities and grounds expenses, promotional expenses, 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 increased $18.0 thousand for the three months ended September 30, 2025, compared to the three months ended September 30, 2024. The decrease in ancillary revenue is primarily due to a decline in our online cremation business. 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 $1.4 million and $1.2 million, respectively, for the three months ended September 30, 2025, compared to the same period in 2024. This change is primarily due to growth of $1.0 million in general agency commission income for the third 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. 41 The following table sets forth certain information regarding our revenue and adjusted operating profit for our funeral home operations (in thousands): Nine months ended September 30, 2025 2024 Revenue: Operating $ 179,962 $ 176,650 Divested 6,320 9,416 Ancillary 2,794 3,375 Other 13,568 9,687 Total $ 202,644 $ 199,128 Adjusted operating profit Operating $ 71,021 $ 70,953 Divested 1,494 2,199 Ancillary 394 522 Other 11,428 8,292 Total $ 84,337 $ 81,966 The following measures reflect significant metrics from continuing operations over the comparative period: Contract volume 31,264 31,039 Average revenue per contract, excluding preneed funeral trust earnings $ 5,756 $ 5,691 Average revenue per contract, including preneed funeral trust earnings $ 5,922 $ 5,862 Cremation rate 60.7% 59.5% Funeral home operating revenue increased $3.3 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. The increase in operating revenue was primarily driven by a 1.1% 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 2025, which contributed to the increase in average revenue per funeral contract. Funeral home adjusted operating profit for the nine months ended September 30, 2025 increased $0.1 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 70 basis points to 39.5%, driven by a 0.7% increase in operating expenses as a percentage of revenue. Key expense increases include facilities and grounds expense, other funeral costs, general and administrative expenses, and investment expense. These increases were partially offset by a decrease in salaries and benefits and transportation expenses. Ancillary revenue, which represents revenue from our flower shop, monument business, pet cremation business, and online cremation businesses decreased $0.6 million, while ancillary adjusted operating profit decreased $0.1 million for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. The decrease in ancillary revenue is primarily due to a decline in our online cremation business. 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 $3.9 million and $3.1 million, respectively, for the nine months ended September 30, 2025, compared to the nine months ended September 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. 42 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 September 30, 2025 2024 Revenue: Operating $ 35,586 $ 31,604 Divested 46 1,384 Other 4,332 3,997 Total $ 39,964 $ 36,985 Adjusted operating profit Operating $ 17,242 $ 15,490 Divested 13 390 Other 4,156 3,966 Total $ 21,411 $ 19,846 The following measures reflect the significant metrics from continuing operations over this comparative period: Preneed revenue as a percentage of operating revenue 73.1% 71.7% Preneed revenue (in thousands) $ 26,018 $ 22,662 Atneed revenue (in thousands) $ 9,568 $ 8,942 Number of preneed interment rights sold 3,567 3,410 Average price per interment right sold $ 6,261 $ 5,439 Cemetery operating revenue increased $4.0 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, as we experienced a 15.1% increase in the average price per interment right sold and a 4.6% increase in the number of preneed interment rights (property) sold. Cemetery atneed revenue, which represents approximately 26.9% of our total operating revenue, increased $0.6 million for the three months ended September 30, 2025, compared to the same period in 2024, as we experienced a 7% increase in sales to atneed customers primarily driven by an increase in average revenue per contract. Cemetery adjusted operating profit increased $1.8 million for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily due to an increase in property sales and deliveries of merchandise and service items both to preneed and atneed customers while keeping costs relatively steady. The comparable operating profit margin decreased 50 basis points to 48.5%. Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, increased $0.3 million and $0.2 million, respectively, for the three months ended September 30, 2025, compared to the three months ended September 30, 2024, primarily due to a refund received from overpayment of 2024 perpetual care taxes. 43 The following table sets forth certain information regarding our revenue and adjusted operating profit for our cemetery operations (in thousands): Nine months ended September 30, 2025 2024 Revenue: Operating $ 96,790 $ 91,481 Divested 1,384 4,012 Other 11,140 11,877 Total $ 109,314 $ 107,370 Adjusted operating profit Operating $ 43,608 $ 43,777 Divested 434 1,088 Other 10,891 11,642 Total $ 54,933 $ 56,507 The following measures reflect the significant metrics from continuing operations over this comparative period: Preneed revenue as a percentage of operating revenue 70.7% 70.4% Preneed revenue (in thousands) $ 68,385 $ 64,387 Atneed revenue (in thousands) $ 28,405 $ 27,094 Number of preneed interment rights sold 10,655 10,665 Average price per interment right sold $ 5,904 $ 5,524 Cemetery operating revenue increased $5.3 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily as a result of a 6.9% increase in the average price per preneed interment right sold; offset by a 0.1% decrease in the number of preneed interment rights sold. Cemetery atneed revenue, which represents approximately 29% of our total operating revenue, increased $1.3 million for the nine months ended September 30, 2025, compared to the same period of the prior year, primarily due to an 11.6% increase in atneed property sold driven by an increase in average revenue per contract. Cemetery adjusted operating profit decreased $0.2 million for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024, primarily due to an increase in operating expenses as a percentage of revenue. The comparable operating profit margin decreased 280 basis points to 45.1%. Operating expenses as a percentage of operating revenue increased 2.8%, driven by increases in key expenses such as promotional expenses, salaries and benefits, and allowance for credit losses. Other revenue and other adjusted operating profit, which consist of preneed cemetery trust revenue and preneed cemetery finance charges, decreased $0.7 million and $0.8 million, respectively, for the nine months ended September 30, 2025, compared to the nine months ended September 30, 2024. These decreases are primarily due to realized capital gains in the third quarter of 2024 in our perpetual care trust fund. There were no capital gain withdrawals in the third quarter of 2025. Cemetery property amortization. Cemetery property amortization totaled $2.8 million and $6.8 million for the three and nine months ended September 30, 2025, respectively, an increase of $0.8 million and $0.6 million compared to the three and nine months ended September 30, 2024, respectively, primarily driven by the increase in property sold across our cemetery portfolio. Field depreciation. Depreciation expense for our field businesses totaled $3.2 million and $9.8 million for the three and nine months ended September 30, 2025, respectively, a decrease of $0.2 million and $0.4 million compared to the three and nine months ended September 30, 2024, respectively, primarily driven by our business decision to lease vehicles rather than purchase them. 44 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 $4.1 million for the three months ended September 30, 2025, which is flat compared to the same period in 2024. For the nine months ended September 30, 2025, Regional and unallocated funeral and cemetery costs were $12.6 million, an increase of $0.4 million compared to the nine months ended September 30, 2024, primarily driven by an increase in leadership and development expenses. 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 $12.2 million for the three months ended September 30, 2025, which is flat compared to the same period in 2024. 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 $36.2 million for the nine months ended September 30, 2025, an decrease of $10.9 million compared to the nine months ended September 30, 2024, primarily driven by 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 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 loss on divestitures and impairment charges. The components of Net loss on divestitures and impairment charges are as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Impairment of goodwill, intangibles, and PPE $ 1,644 $ 637 $ 1,761 $ 637 Net loss (gain) on divestitures 4,962 (295) (976) 1,214 Net (gain) loss on disposals of fixed assets (47) 45 3 104 Total $ 6,559 $ 387 $ 788 $ 1,955 During the nine months ended September 30, 2025, we sold nine funeral homes and four cemeteries for an aggregate gain of $1.0 million. We also recognized an impairment of $1.8 million on assets held for sale during the nine months ended September 30, 2025. During the nine months ended September 30, 2024, we sold six funeral homes and one cemetery for a 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. Interest expense . Interest expense related to its respective debt arrangement is as follows (in thousands): Three months ended September 30, Nine months ended September 30, 2025 2024 2025 2024 Senior Notes $ 4,432 $ 4,424 $ 13,289 $ 13,266 Credit Facility 2,178 3,335 6,955 11,050 Finance leases 243 119 746 366 Acquisition debt 93 102 280 309 Other — 55 8 80 Total $ 6,946 $ 8,035 $ 21,278 $ 25,071 Net gain on property damage, net of insurance claims. During the nine months ended September 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 nine months ended September 30, 2025, we recorded a $1.1 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 nine months ended September 30, 2024. Income taxes. Income tax expense totaled $3.1 million for the three months ended September 30, 2025, a decrease of $1.8 million compared to the three months ended September 30, 2024. Our operating tax rate before discrete items was 35.3% and 33.2% for the nine months ended September 30, 2025 and 2024, respectively. 45 Income taxes. Income tax expense totaled $13.6 million for the nine months ended September 30, 2025, an increase of $0.7 million compared to the nine months ended September 30, 2024. Our operating tax rate before discrete items was 32.0% and 33.2% for the nine months ended September 30, 2025 and 2024, respectively. 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.