SEC Filing - Carriage Services, Inc.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM			10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________


Commission File Number:			1-11961

CARRIAGE SERVICES, INC.

(Exact name of registrant as specified in its charter)


Delaware			76-0423828
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

3040 Post Oak Boulevard, Suite 300

Houston, Texas, 77056

(Address of principal executive offices)

(713) 332-8400

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $.01 per share	CSV	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Securities Exchange Act of 1934.

Large accelerated filer

☐

Accelerated filer

☒

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of August 1, 2023 was 14,965,754.

CARRIAGE SERVICES, INC.

INDEX


			Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements			3

Unaudited Consolidated Balance Sheet as of December 31, 2022 and June 30, 2023			3

Unaudited Consolidated Statements of Operations for the Three and Six Months ended June 30, 2022 and 2023			4

Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2022 and 2023			5

Unaudited Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months ended June 30, 2022 and 2023			6

Condensed Notes to Consolidated Financial Statements			8

Cautionary Statement on Forward–Looking Statements			33

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			35

Item 3. Quantitative and Qualitative Disclosures About Market Risk			49

Item 4. Controls and Procedures			50

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			51

Item 1A. Risk Factors			51

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			53

Item 3. Defaults Upon Senior Securities			53

Item 4. Mine Safety Disclosures			53

Item 5. Other Information			53

Item 6. Exhibits			53

SIGNATURE			54

INDEX OF EXHIBITS			55

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PART I – FINANCIAL INFORMATION

Item 1.Financial Statements.

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(unaudited and in thousands, except share data)


	December 31, 2022		June 30, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,170	$	970
Accounts receivable, net	24,458		24,639
Inventories	7,613		8,448
Prepaid and other current assets	4,733		3,610
Total current assets	37,974		37,667
Preneed cemetery trust investments	95,065		89,874
Preneed funeral trust investments	104,553		103,317
Preneed cemetery receivables, net	26,672		33,274
Receivables from preneed funeral trusts, net	19,976		21,080
Property, plant and equipment, net	278,106		287,582
Cemetery property, net	104,170		112,830
Goodwill	410,137		423,643
Intangible and other non-current assets, net	32,930		37,333
Operating lease right-of-use assets	17,060		17,123
Cemetery perpetual care trust investments	66,307		78,363
Total assets	$	1,192,950	$	1,242,086
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and lease obligations	$	3,172	$	3,568
Accounts payable	11,675		9,402
Accrued and other liabilities	30,621		29,564

Total current liabilities	45,468		42,534
Acquisition debt, net of current portion	3,438		3,370
Credit facility	188,836		202,418

Senior notes	395,243		395,571
Obligations under finance leases, net of current portion	4,743		4,537
Obligations under operating leases, net of current portion	17,315		16,860
Deferred preneed cemetery revenue	51,746		59,941
Deferred preneed funeral revenue	32,029		39,782
Deferred tax liability	48,820		48,827
Other long-term liabilities	3,065		1,299
Deferred preneed cemetery receipts held in trust	95,065		89,874
Deferred preneed funeral receipts held in trust	104,553		103,317
Care trusts’ corpus	65,495		77,589
Total liabilities	1,055,816		1,085,919
Commitments and contingencies:
Stockholders’ equity:
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,359,876 and 26,585,341 shares issued, respectively and 14,732,058 and 14,957,523 shares outstanding, respectively	264		266
Additional paid-in capital	238,780		240,681
Retained earnings	176,843		193,973
Treasury stock, at cost; 11,627,818 shares	(278,753)		(278,753)
Total stockholders’ equity	137,134		156,167
Total liabilities and stockholders’ equity	$	1,192,950	$	1,242,086

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

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CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


	Three months ended June 30,				Six months ended June 30,
	2022		2023		2022		2023
Revenue:
Service revenue	$	42,550	$	44,522	$	92,287	$	92,729
Property and merchandise revenue	41,276		45,630		82,888		85,641
Other revenue	6,774		7,526		13,586		14,822
	90,600		97,678		188,761		193,192
Field costs and expenses:
Cost of service	21,389		23,075		43,488		46,552
Cost of merchandise	29,306		32,219		58,636		61,953
Cemetery property amortization	1,704		1,892		3,036		3,093
Field depreciation expense	3,253		3,555		6,550		6,912
Regional and unallocated funeral and cemetery costs	5,966		4,131		12,313		9,568
Other expenses	1,270		1,604		2,548		2,857
	62,888		66,476		126,571		130,935
Gross profit	27,712		31,202		62,190		62,257
Corporate costs and expenses:
General, administrative and other	9,180		10,199		17,740		20,379

Net (gain) loss on divestitures, disposals and impairments charges	(1,193)		265		(426)		506
Operating income	19,725		20,738		44,876		41,372

Interest expense	5,988		9,396		11,530		17,935


Net (gain) loss on property damage, net of insurance claims	(1,376)		(235)		(3,275)		36
Other, net	(7)		(125)		17		(647)
Income before income taxes	15,120		11,702		36,604		24,048
Expense for income taxes	4,234		3,273		9,938		6,841
Tax adjustment related to discrete items	(13)		143		(635)		77
Total expense for income taxes	4,221		3,416		9,303		6,918
Net income	$	10,899	$	8,286	$	27,301	$	17,130

Basic earnings per common share:	$	0.74	$	0.55	$	1.82	$	1.14
Diluted earnings per common share:	$	0.69	$	0.53	$	1.70	$	1.10

Dividends declared per common share:	$	0.1125	$	0.1125	$	0.2250	$	0.2250

Weighted average number of common and common equivalent shares outstanding:
Basic	14,798		14,793		15,020		14,776
Diluted	15,712		15,454		16,033		15,461

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

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CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Six months ended June 30,
	2022		2023
Cash flows from operating activities:
Net income	$	27,301	$	17,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	9,895		10,437
Provision for credit losses	1,657		1,344
Stock-based compensation expense	3,085		4,163
Deferred income tax expense	1,711		7
Amortization of intangibles	634		647
Amortization of debt issuance costs	253		349
Amortization and accretion of debt	243		255


Net (gain) loss on divestitures, disposals and impairment charges	(426)		506
Net (gain) loss on property damage, net of insurance claims	(3,275)		36
Gain on sale of real property	—		(658)
Other	(6)		—

Changes in operating assets and liabilities that provided (used) cash:
Accounts and preneed receivables	(3,200)		(1,694)
Inventories, prepaid and other current assets	2,967		1,011
Intangible and other non-current assets	(747)		(1,767)
Preneed funeral and cemetery trust investments	(11,100)		5,341
Accounts payable	(2,712)		(2,272)
Accrued and other liabilities	(10,242)		(3,328)
Incentive payment from vendor	—		6,000
Deferred preneed funeral and cemetery revenue	2,633		8,106
Deferred preneed funeral and cemetery receipts held in trust	11,506		(6,426)
Net cash provided by operating activities	30,177		39,187

Cash flows from investing activities:
Acquisitions of businesses and real property	(2,601)		(44,000)

Proceeds from divestitures and sale of other assets	3,720		1,973
Proceeds from insurance claims	2,167		1,092
Capital expenditures	(13,468)		(8,960)
Net cash used in investing activities	(10,182)		(49,895)

Cash flows from financing activities:
Borrowings from the credit facility	97,900		64,700
Payments against the credit facility	(78,100)		(51,400)
Payment of debt issuance costs for the credit facility and senior notes	(339)		—




Payments on acquisition debt and obligations under finance leases	(202)		(256)

Proceeds from the exercise of stock options and employee stock purchase plan contributions	1,060		923
Taxes paid on restricted stock vestings and exercise of stock options	(286)		(119)
Dividends paid on common stock	(3,455)		(3,340)
Purchase of treasury stock	(36,663)		—

Net cash provided by (used in) financing activities	(20,085)		10,508

Net decrease in cash and cash equivalents	(90)		(200)
Cash and cash equivalents at beginning of period	1,148		1,170
Cash and cash equivalents at end of period	$	1,058	$	970

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

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CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)


	Three months ended June 30, 2022

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total













Balance – March 31, 2022	14,889	$	263	$	238,423	$	151,864	$	(270,529)	$	120,021
Net income	—	—		—		10,899		—		10,899
Issuance of common stock from employee stock purchase plan	12	—		398		—		—		398
Issuance of common stock to directors and board advisor	2	—		99		—		—		99


Cancellation and surrender of restricted stock	—	—		2		—		—		2
Stock-based compensation expense	—	—		1,379		—		—		1,379
Dividends on common stock	—	—		(1,730)		—		—		(1,730)
Treasury stock acquired	(205)	—		—		—		(8,224)		(8,224)

Balance – June 30, 2022	14,698	$	263	$	238,571	$	162,763	$	(278,753)	$	122,844


	Three months ended June 30, 2023

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – March 31, 2023	14,935	$	266	$	239,962	$	185,687	$	(278,753)	$	147,162
Net income	—	—		—		8,286		—		8,286
Issuance of common stock from employee stock purchase plan	16	—		397		—		—		397
Issuance of common stock to directors and board advisor	2	—		65		—		—		65

Exercise of stock options	4	—		(20)		—		—		(20)
Cancellation and surrender of common and restricted stock	1	—		(1)		—		—		(1)
Stock-based compensation expense	—	—		1,957		—		—		1,957
Dividends on common stock	—	—		(1,679)		—		—		(1,679)


Balance – June 30, 2023	14,958	$	266	$	240,681	$	193,973	$	(278,753)	$	156,167

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	Six months ended June 30, 2022

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total













Balance – December 31, 2021	15,332	$	263	$	236,809	$	135,462	$	(244,519)	$	128,015
Net income	—	—		—		27,301		—		27,301
Issuance of common stock from employee stock purchase plan	25	—		1,001		—		—		1,001
Issuance of common stock to directors and board advisor	5	—		246		—		—		246

Exercise of stock options	9	—		(22)		—		—		(22)
Cancellation and surrender of restricted stock	(5)	—		(205)		—		—		(205)
Stock-based compensation expense	—	—		2,839		—		—		2,839
Dividends on common stock	—	—		(3,455)		—		—		(3,455)

Treasury stock acquired	(695)	—		—		—		(34,234)		(34,234)
Other	27	—		1,358		—		—		1,358
Balance – June 30, 2022	14,698	$	263	$	238,571	$	162,763	$	(278,753)	$	122,844


	Six months ended June 30, 2023

	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – December 31, 2022	14,732	$	264	$	238,780	$	176,843	$	(278,753)	$	137,134
Net income	—	—		—		17,130		—		17,130
Issuance of common stock from employee stock purchase plan	38	—		923		—		—		923
Issuance of common stock to directors and board advisor	6	—		177		—		—		177
Issuance of common stock to former executive	30	—		826		—		—		826
Issuance of restricted stock	142	2		(2)		—		—		—
Exercise of stock options	5	—		(41)		—		—		(41)
Cancellation and surrender of common and restricted stock	(3)	—		(78)		—		—		(78)
Stock-based compensation expense	—	—		3,160		—		—		3,160
Dividends on common stock	—	—		(3,340)		—		—		(3,340)

Other	8	—		276		—		—		276
Balance – June 30, 2023	14,958	$	266	$	240,681	$	193,973	$	(278,753)	$	156,167

The accompanying condensed notes are an integral part of these Consolidated Financial Statements.

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CARRIAGE SERVICES, INC.

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1.BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company

Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) is a leading provider of funeral and cemetery services and merchandise in the United States. Our operations are reported in two business segments: Funeral Home operations, which currently accounts for approximately 70% of our total revenue and Cemetery operations, which currently accounts for approximately 30% of our total revenue. At June 30, 2023, we operated 172 funeral homes in 26 states and 32 cemeteries in 11 states.

Our funeral home operations are principally service businesses that generate revenue from sales of burial and cremation services and related merchandise, such as caskets and urns. Funeral services include consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and memorial services and transportation services. We provide funeral services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

Our cemetery operations generate revenue primarily through sales of cemetery interment rights (primarily grave sites, lawn crypts, mausoleum spaces and niches), related cemetery merchandise (such as memorial markers, outer burial containers and monuments) and services (interments, inurnments and installation of cemetery merchandise). We provide cemetery services and products on both an atneed and preneed basis.

Principles of Consolidation and Interim Condensed Disclosures

Our unaudited consolidated financial statements include the Company and its subsidiaries. All intercompany balances and transactions have been eliminated. Our interim consolidated financial statements are unaudited but include all adjustments, which consist of normal, recurring accruals, that are necessary for a fair presentation of our financial position and results of operations as of and for the interim periods presented.

There have been no material changes in our accounting policies previously disclosed in Part II, Item 8 “Financial Statements and Supplementary Data” in Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2022. In addition, our unaudited consolidated financial statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2022 unless otherwise disclosed herein, and should be read in conjunction therewith.

Use of Estimates

The preparation of our Consolidated Financial Statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses. On an ongoing basis, we evaluate our critical estimates and judgments, which include those related to the impairment of goodwill and the fair value measurements used in business combinations. These policies are considered critical because they may result in fluctuations in our reported results from period to period due to the significant judgments, estimates and assumptions about complex and inherently uncertain matters and because the use of different judgments, assumptions or estimates could have a material impact on our financial condition or results of operations. Actual results may differ from these estimates and such estimates may change if the underlying conditions or assumptions change. Historical performance should not be viewed as indicative of future performance because there can be no assurance the margins, operating income and net earnings, as a percentage of revenue, will be consistent from period to period.

Cash and Cash Equivalents

We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

Inventory

Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis or net realizable value. Inventory is relieved using specific identification in fulfillment of performance obligations on our contracts.

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Held for Sale

At June 30, 2023, we had $0.3 million of assets classified as held for sale in Property, plant and equipment, net on our Consolidated Balance Sheet related to one funeral home that we divested on July 12, 2023. The carrying value of these assets held for sale exceeded their fair value and in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”), we recognized an impairment of $0.2 million for assets related to property, plant and equipment, which was recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

Deferred Revenue

During the six months ended June 30, 2023, we withdrew $8.6 million of realized capital gains and earnings from our preneed funeral and cemetery trust investments. In certain states, we are allowed to make these withdrawals prior to the delivery of preneed merchandise and service contracts. The realized capital gains and earnings withdrawn increase our cash flow from operations, but are not recognized as revenue in our Consolidated Statements of Operations, however, they reduce our Preneed funeral trust investments and Preneed cemetery trust investments and increase our Deferred preneed funeral revenue and Deferred preneed cemetery revenue.

Additionally, during the three and six months ended June 30, 2023, we received a $6.0 million incentive payment from a vendor for entering into a strategic partnership agreement to market and sell prearranged funeral services in the future, which increased our cash flow from operations and Deferred preneed funeral revenue. The incentive payment will be deferred until we complete our implementation of the program and begin selling prearranged funeral services.

Property, Plant and Equipment

Property, plant and equipment is comprised of the following (in thousands):


	December 31, 2022		June 30, 2023
Land	$	84,405	$	85,717
Buildings and improvements	251,778		261,514
Furniture, equipment and automobiles	70,522		75,025
Property, plant and equipment, at cost	406,705		422,256
Less: accumulated depreciation	(128,599)		(134,674)
Property, plant and equipment, net	$	278,106	$	287,582

During the six months ended June 30, 2023, we acquired $12.8 million of property, plant and equipment related to our 2023 business combination, described in Note 3 to the Consolidated Financial Statements. Additionally, we sold real property for $1.2 million, with a carrying value of $0.6 million, resulting in a gain on the sale of $0.6 million, which was recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

During the six months ended June 30, 2022, we acquired real property for $2.6 million. Additionally, we sold real property for $2.7 million, with a carrying value of $1.4 million, resulting in a gain on the sale of $1.3 million.We also divested two funeral homes that had a carrying value of property, plant and equipment of $0.7 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges.

Our growth and maintenance capital expenditures totaled $5.2 million and $2.6 million for the three months ended June 30, 2022 and 2023, respectively and $9.8 million and $5.5 million for the six months ended June 30, 2022 and 2023, respectively, for property, plant and equipment. In addition, we recorded depreciation expense of $3.4 million and $3.7 million for the three months ended June 30, 2022 and 2023, respectively and $6.7 million and $7.2 million for the six months ended June 30, 2022 and 2023, respectively.

Cemetery Property

Cemetery property was $104.2 million and $112.8 million, net of accumulated amortization of $59.0 million and $61.7 million at December 31, 2022 and June 30, 2023, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures for cemetery property development totaled $1.4 million for both the three months ended June 30, 2022 and 2023 and $3.7 million and $3.5 million for the six months ended June 30, 2022 and 2023, respectively. We recorded amortization expense for cemetery interment rights of $1.7 million and $1.9 million for the three months ended June 30, 2022 and 2023, respectively and $3.0 million and $3.1 million for the six months ended June 30, 2022 and 2023, respectively.

During the six months ended June 30, 2023, we acquired cemetery property for $9.0 million related to our 2023 business combination, described in Note 3 to the Consolidated Financial Statements. We also divested two cemeteries that had a carrying

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value of cemetery property of $0.8 million, which was included in the loss on the sale of divestitures and recorded in Net (gain) loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

Income Taxes

Income tax expense was $4.2 million and $3.4 million for the three months ended June 30, 2022 and 2023, respectively and $9.3 million and $6.9 million for the six months ended June 30, 2022 and 2023, respectively. Our operating tax rate before discrete items was 28.0% for both the three months ended June 30, 2022 and 2023 and 27.2% and 28.5% for the six months ended June 30, 2022 and 2023, respectively.

Subsequent Events

We have evaluated events and transactions during the period subsequent to June 30, 2023 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

Credit Losses - Vintage Disclosures

In March 2022, the FASB issued ASU, Financial Instruments - Credit Losses (“Topic 326”) to make the requirement to disclose gross write-offs by class of financing receivable and major security type consistent for all public business entities. The amendment in this update provides specific guidance on the disclosure for current period write-offs by year of origination for financing receivables. This amendment is effective for fiscal years beginning after December 15, 2022, and therefore was effective for us beginning January 1, 2023. Our adoption of these amendments had no impact on our consolidated financial statements.

3. BUSINESS COMBINATIONS

Tangible and intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of the acquisition and fair value. We recognize the assets acquired, the liabilities assumed and any non-controlling interest in the acquiree at the acquisition date, measured at the fair value as of that date. Acquisition related costs are recognized separately from the acquisition and are expensed as incurred. We customarily estimate related transaction costs known at closing. To the extent that information not available to us at the closing date subsequently becomes available during the measurement period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.

On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in the Bakersfield, California area for $44.0 million in cash. We acquired substantially all of the assets and assumed certain operating liabilities of this business.

The pro forma impact of this acquisition on prior periods is not presented, as the impact is not significant to our reported results. The results of the acquired business are reflected in our Consolidated Statements of Operations from the date of acquisition.

The measurement period to determine the fair values of acquired identifiable assets and assumed liabilities will end at the earlier of 12 months from the date of the acquisition or as soon as we receive the information we are seeking about facts and circumstances that existed as of the acquisition date. Subsequent to our initial purchase price allocation for this acquisition made during the first quarter of 2023, we have adjusted our purchase price allocation based on additional information which became available prior to June 30, 2023. Provisional estimates for cemetery property have been recorded for the acquisition as our valuation has not been finalized at June 30, 2023.

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The following table summarizes the breakdown of the purchase price allocation for our 2023 acquisition (in thousands):


	Initial Purchase Price Allocation		Adjustments		Adjusted Purchase Price Allocation
Current assets	$	7,087	$	131	$	7,218
Preneed trust assets	—		11,428		11,428
Property, plant & equipment	12,577		245		12,822
Cemetery property	9,035		—		9,035
Goodwill	13,612		(106)		13,506
Intangible and other non-current assets	3,763		—		3,763
Assumed liabilities	(300)		(66)		(366)

Preneed trust liabilities	—		(11,428)		(11,428)
Deferred revenue	(1,774)		(204)		(1,978)
Purchase price	$	44,000	$	—	$	44,000

The current assets relate to accounts receivable and inventory. The intangible and other non-current assets relate to the fair value of tradenames and right-of-use operating lease assets. The assumed liabilities relate to operating lease obligations and commissions payable.

The following table summarizes the fair value of the assets acquired and liabilities assumed for this business (in thousands):


Acquisition Date	Type of Business	Market	Assets Acquired (Excluding Goodwill)		Goodwill Recorded		Liabilities and Debt Assumed
March 22, 2023	Three Funeral Homes, Two Cemeteries and One Cremation Focused Business	Bakersfield, CA	$	44,266	$	13,506	$	(13,772)

We did not acquire any businesses during the six months ended June 30, 2022.

4.GOODWILL

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet (in thousands):


	December 31, 2022		June 30, 2023
Goodwill at the beginning of the period	$	391,972	$	410,137
Increase in goodwill related to acquisitions	19,511		13,506
Decrease in goodwill related to divestitures	(901)		—
Decrease in goodwill related to assets held for sale	(445)		—
Goodwill at the end of the period	$	410,137	$	423,643

During the six months ended June 30, 2023, we recognized $13.5 million in goodwill related to our 2023 business combination; $4.5 million was allocated to our cemetery segment and $9.0 million was allocated to our funeral home segment.

5.DIVESTED OPERATIONS

During the three months ended June 30, 2023, we merged one funeral home with another business we own in an existing market. During the six months ended June 30, 2023, we sold one funeral home and two cemeteries for an aggregate of $0.8 million and merged one funeral home with another business we own in an existing market.

During the three months ended June 30, 2022, we merged one funeral home with another business we own in an existing market. During the six months ended June 30, 2022, we sold two funeral homes for an aggregate of $0.9 million and merged one funeral home with another business we own in an existing market.

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The operating results of these divested funeral homes and cemeteries are reflected on our Consolidated Statements of Operations as shown in the table below (in thousands):


	Three months ended June 30,				Six months ended June 30,
	2022		2023		2022		2023
Revenue	$	63	$	—	$	296	$	66

Operating income (loss)	(4)		(2)		25		24
Loss on divestitures(1)	—		—		(703)		(82)
Income tax benefit	1		1		184		17
Net loss from divested operations, after tax	$	(3)	$	(1)	$	(494)	$	(41)

(1)

Loss on divestitures is recorded in Net (gain) loss on divestitures, disposals and impairments charges on our Consolidated Statements of Operations.

6.RECEIVABLES

Accounts Receivable

Our funeral receivables are recorded in Accounts receivable, net and primarily consist of amounts due for funeral services already performed.

Atneed cemetery receivables and preneed cemetery receivables with payments expected to be received within one year from the balance sheet date are also recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net.

Accounts receivable is comprised of the following (in thousands):


	June 30, 2023
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	7,439	$	17,504	$	—	$	24,943
Other receivables	616		359		136		1,111
Allowance for credit losses	(284)		(1,131)		—		(1,415)
Accounts receivable, net	$	7,771	$	16,732	$	136	$	24,639


	December 31, 2022
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	9,518	$	14,429	$	—	$	23,947
Other receivables	643		833		48		1,524
Allowance for credit losses	(311)		(702)		—		(1,013)
Accounts receivable, net	$	9,850	$	14,560	$	48	$	24,458

Other receivables include supplier rebates, commissions due from third party insurance companies and perpetual care income receivables. We do not provide an allowance for credit losses for these receivables as we have historically not had any collectability issues nor do we expect any in the foreseeable future.

The following table summarizes the activity in our allowance for credit losses by segment (in thousands):


	January 1, 2023		Provision for Credit Losses		Write Offs		Recoveries		June 30, 2023
Trade and financed receivables:
Funeral	$	(311)	$	(562)	$	1,183	$	(594)	$	(284)
Cemetery	(702)		(295)		(134)		—		(1,131)
Total allowance for credit losses on trade and financed receivables	$	(1,013)	$	(857)	$	1,049	$	(594)	$	(1,415)

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.9 million and $10.3 million at December 31, 2022 and June 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.

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Preneed Cemetery Receivables

Our preneed cemetery receivables are comprised of the following (in thousands):


	December 31, 2022		June 30, 2023
Interment rights	$	45,351	$	56,781
Merchandise and services	8,585		10,242
Unearned finance charges	4,894		5,316
Preneed cemetery receivables	$	58,830	$	72,339

The components of our preneed cemetery receivables are as follows (in thousands):


	December 31, 2022		June 30, 2023
Preneed cemetery receivables	$	58,830	$	72,339
Less: unearned finance charges	(4,894)		(5,316)
Preneed cemetery receivables, at amortized cost	$	53,936	$	67,023
Less: allowance for credit losses	(1,985)		(3,172)
Less: balances due on undelivered cemetery preneed contracts	(11,552)		(14,204)
Less: amounts in accounts receivable	(13,727)		(16,373)
Preneed cemetery receivables, net	$	26,672	$	33,274

The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net (in thousands):


	January 1, 2023		Provision for Credit Losses		Write Offs		June 30, 2023
Total allowance for credit losses on Preneed cemetery receivables, net	$	(1,283)	$	(487)	$	(271)	$	(2,041)

The amortized cost basis of our preneed cemetery receivables by year of origination at June 30, 2023 is as follows (in thousands):


	2023		2022		2021		2020		2019		Prior		Total
Total preneed cemetery receivables, at amortized cost	$	20,254	$	23,893	$	12,418	$	6,082	$	2,563	$	1,813	$	67,023

The aging of past due preneed cemetery receivables at June 30, 2023 is as follows (in thousands):


	31-60 Past Due		61-90 Past Due		91-120 Past Due		>120 Past Due		Total Past Due		Current		Total
Recognized revenue	$	1,376	$	700	$	273	$	3,304	$	5,653	$	47,166	$	52,819
Deferred revenue	361		224		95		1,150		1,830		17,690		19,520
Total contracts	$	1,737	$	924	$	368	$	4,454	$	7,483	$	64,856	$	72,339

Balances due on undelivered preneed cemetery contracts have been reclassified to reduce Deferred preneed cemetery revenue on our Consolidated Balance Sheet. The transaction price allocated to preneed merchandise and service performance obligations that were unfulfilled were $11.6 million and $14.2 million at December 31, 2022 and June 30, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.

7.FAIR VALUE MEASUREMENTS

We evaluated our financial assets and liabilities for those that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, accounts receivable and accounts payable approximate the fair values of those instruments due to the short-term nature of the instruments. The fair values of our receivables on preneed cemetery contracts are impracticable to estimate because of the lack of a trading market and the diverse number of individual contracts with varying terms. Our acquisition debt and Credit Facility (as defined in Note 11) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.

At June 30, 2023, the carrying value and fair value of our Credit Facility was $204.0 million. We believe that our Credit Facility bears interest at a rate that approximates prevailing market rates for instruments with similar characteristics and therefore, the carrying value of our Credit Facility approximates fair value. We estimate the fair value of our acquisition debt utilizing an income approach, which uses a present value calculation to discount payments based on current market rates as

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of the reporting date. At June 30, 2023, the carrying value of our acquisition debt was $3.9 million, which approximated its fair value. The fair value of our Senior Notes was $343.1 million at June 30, 2023 based on the last traded or broker quoted price.

We identified investments in fixed income securities, common stock and mutual funds presented within the preneed and perpetual care trust investments categories on our Consolidated Balance Sheet as having met the criteria for fair value measurement. Where quoted prices are available in an active market, investments held by the trusts are classified as Level 1 investments pursuant to the three-level valuation hierarchy. Our Level 1 investments include cash, U.S. treasury debt, common stock and equity mutual funds. Where quoted market prices are not available for the specific security, then fair values are estimated by using quoted prices of similar securities in active markets or inputs other than quoted prices that can corroborate observable market data. These investments are fixed income securities, including U.S. agency obligations, foreign debt, corporate debt, preferred stocks, certificates of deposit and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy.

In addition, we have an investment in a limited partnership fund, whose fair value has been estimated using the net asset value per share practical expedient described in ASC 820-10-35-59, Fair Value Measurement of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and therefore, has not been classified in the fair value hierarchy. The value of the investments in this fund cannot be redeemed because the investments include restrictions that do not allow for redemption within the first 12 months after acquisition. Our unfunded commitment for this investment at June 30, 2023 is $10.0 million.

Our receivables from preneed funeral trusts represent assets in trusts which are controlled and operated by third parties in which we do not have a controlling financial interest (less than 50%) in the trust assets. We account for these investments at cost. See Notes 8 and 9 to our Consolidated Financial Statements for the fair value hierarchy levels of our trust investments.

8.TRUST INVESTMENTS

Preneed trust investments represent trust fund assets that we are generally permitted to withdraw as the services and merchandise are provided to customers. Preneed funeral and cemetery contracts are secured by payments from customers, less amounts not required by law to be deposited into trust. These earnings are recognized in Other revenue on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights that we are required by various state laws to deposit into perpetual care trust funds. The income earned from these perpetual care trusts offsets maintenance expenses for cemetery property and memorials. This trust fund income is recognized in Other revenue.

Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations and the gain or loss is allocated to the contract.

We rely on our trust investments to provide funding for the various contractual obligations that arise upon maturity of the underlying preneed contracts. Because of the long-term relationship between the establishment of trust investments and the required performance of the underlying contractual obligations, the impact of current market conditions that may exist at any given time is not necessarily indicative of our ability to generate profit on our future performance obligations.

Preneed Cemetery Trust Investments

The components of Preneed cemetery trust investments on our Consolidated Balance Sheet are as follows (in thousands):


	December 31, 2022		June 30, 2023
Preneed cemetery trust investments, at market value	$	98,269	$	92,898
Less: allowance for contract cancellation	(3,204)		(3,024)
Preneed cemetery trust investments	$	95,065	$	89,874

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The cost and market values associated with preneed cemetery trust investments at June 30, 2023 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	8,330	$	—	$	—	$	8,330
Fixed income securities:

U.S. agency obligations	2	803		—		(65)		738
Foreign debt	2	10,978		1,028		(421)		11,585
Corporate debt	2	14,593		180		(4,625)		10,148
Preferred stock	2	11,553		449		(1,521)		10,481
Certificates of deposit	2	79		—		(9)		70
Common stock	1	38,955		6,335		(7,183)		38,107
Limited partnership fund		3,579		—		(1)		3,578
Mutual funds:
Equity	1	554		—		(52)		502
Fixed income	2	11,379		17		(2,846)		8,550
Trust securities		$	100,803	$	8,009	$	(16,723)	$	92,089
Accrued investment income		$	809					$	809
Preneed cemetery trust investments								$	92,898
Market value as a percentage of cost								91.4%

The estimated maturities of the fixed income securities (excluding mutual funds) included above are as follows (in thousands):


Due in one year or less	$	137
Due in one to five years	9,043
Due in five to ten years	4,782
Thereafter	19,060
Total fixed income securities	$	33,022

The cost and market values associated with preneed cemetery trust investments at December 31, 2022 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	10,434	$	—	$	—	$	10,434
Fixed income securities:
U.S. agency obligations	2	803		—