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, 2024

☐ 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 July 26, 2024 was 15,208,587.

CARRIAGE SERVICES, INC.

INDEX


			Page
PART I – FINANCIAL INFORMATION

Item 1. Financial Statements			3

Unaudited Consolidated Balance Sheet as of June 30, 2024 and December 31, 2023			3

Unaudited Consolidated Statements of Operations for the Three and Six Months ended June 30, 2024 and 2023			4

Unaudited Consolidated Statements of Cash Flows for the Six Months ended June 30, 2024 and 2023			5

Unaudited Consolidated Statements of Changes in Stockholders' Equity for the Three and Six Months ended June 30, 2024 and 2023			6

Condensed Notes to Consolidated Financial Statements			8

Cautionary Statement on Forward–Looking Statements			35

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37

Item 3. Quantitative and Qualitative Disclosures About Market Risk			50

Item 4. Controls and Procedures			51

PART II – OTHER INFORMATION

Item 1. Legal Proceedings			52

Item 1A. Risk Factors			52

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			52

Item 3. Defaults Upon Senior Securities			52

Item 4. Mine Safety Disclosures			52

Item 5. Other Information			52

Item 6. Exhibits			52

SIGNATURE			53

INDEX OF EXHIBITS			54

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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)


	June 30, 2024		December 31, 2023
ASSETS
Current assets:
Cash and cash equivalents	$	1,503	$	1,523
Accounts receivable, net	29,398		27,060
Inventories	8,257		8,347
Prepaid and other current assets	3,965		4,791
Total current assets	43,123		41,721
Preneed cemetery trust investments	100,285		96,374
Preneed funeral trust investments	109,701		107,842
Preneed cemetery receivables, net	45,569		35,575
Receivables from preneed funeral trusts, net	22,074		21,530
Property, plant and equipment, net	280,355		287,484
Cemetery property, net	113,327		114,580
Goodwill	414,895		423,643
Intangible and other non-current assets, net	39,099		37,677
Operating lease right-of-use assets	16,058		16,295
Cemetery perpetual care trust investments	84,780		85,331
Total assets	$	1,269,266	$	1,268,052
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current portion of debt and lease obligations	$	3,924	$	3,842
Accounts payable	16,180		11,866
Accrued and other liabilities	30,655		35,362

Total current liabilities	50,759		51,070
Acquisition debt, net of current portion	5,388		5,461
Credit facility	153,970		177,794

Senior notes	396,247		395,905
Obligations under finance leases, net of current portion	5,304		5,831
Obligations under operating leases, net of current portion	15,263		15,797
Deferred preneed cemetery revenue	65,375		61,048
Deferred preneed funeral revenue	40,386		39,537
Deferred tax liability	50,650		52,127
Other long-term liabilities	1,857		1,855
Deferred preneed cemetery receipts held in trust	100,285		96,374
Deferred preneed funeral receipts held in trust	109,701		107,842
Care trusts’ corpus	86,194		84,351
Total liabilities	1,081,379		1,094,992
Commitments and contingencies:
Stockholders’ equity:
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,864,187 and 26,627,319 shares issued, respectively and 15,236,369 and 14,999,501 shares outstanding, respectively	269		266
Additional paid-in capital	242,883		241,291
Retained earnings	223,488		210,256
Treasury stock, at cost; 11,627,818 shares	(278,753)		(278,753)
Total stockholders’ equity	187,887		173,060
Total liabilities and stockholders’ equity	$	1,269,266	$	1,268,052

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,
	2024		2023		2024		2023
Revenue:
Service revenue	$	44,433	$	44,522	$	94,132	$	92,729
Property and merchandise revenue	49,590		45,630		95,092		85,641
Other revenue	8,295		7,526		16,587		14,822
	102,318		97,678		205,811		193,192
Field costs and expenses:
Cost of service	21,672		23,075		45,380		46,552
Cost of merchandise	31,981		32,219		63,931		61,953
Cemetery property amortization	2,560		1,892		4,316		3,093
Field depreciation expense	3,405		3,555		6,872		6,912
Regional and unallocated funeral and cemetery costs	4,245		4,131		8,087		9,568
Other expenses	1,462		1,604		2,970		2,857
	65,325		66,476		131,556		130,935
Gross profit	36,993		31,202		74,255		62,257
Corporate costs and expenses:
General, administrative and other	18,601		10,199		34,841		20,379

Net loss on divestitures, disposals and impairments charges	23		265		1,568		506
Operating income	18,369		20,738		37,846		41,372

Interest expense	8,324		9,396		17,036		17,935


Net (gain) loss on property damage, net of insurance claims	(417)		(235)		(417)		36
Other, net	3		(125)		46		(647)
Income before income taxes	10,459		11,702		21,181		24,048
Expense for income taxes	3,513		3,273		7,032		6,841
Expense related to discrete income tax items	687		143		917		77
Total expense for income taxes	4,200		3,416		7,949		6,918
Net income	$	6,259	$	8,286	$	13,232	$	17,130

Basic earnings per common share:	$	0.41	$	0.55	$	0.87	$	1.14
Diluted earnings per common share:	$	0.40	$	0.53	$	0.85	$	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	14,965		14,793		14,920		14,776
Diluted	15,403		15,454		15,356		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,
	2024		2023
Cash flows from operating activities:
Net income	$	13,232	$	17,130
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	11,664		10,437
Provision for credit losses	1,447		1,344
Stock-based compensation expense	2,671		4,163
Deferred income tax (benefit) expense	(1,477)		7
Amortization of intangibles	669		647
Amortization of debt issuance costs	352		349
Amortization and accretion of debt	266		255


Net loss on divestitures, disposals and impairment charges	1,568		506
(Gain) loss on property damage, net of insurance claims	(417)		36
Gain on sale of excess land	—		(658)


Changes in operating assets and liabilities that provided (used) cash:
Accounts and preneed receivables	(13,939)		(1,694)
Inventories, prepaid and other current assets	1,224		1,011
Intangible and other non-current assets	(2,339)		(1,767)
Preneed funeral and cemetery trust investments	(9,523)		5,341
Accounts payable	3,084		(2,272)
Accrued and other liabilities	(3,999)		(3,328)
Incentive payment from vendor	—		6,000
Deferred preneed funeral and cemetery revenue	7,064		8,106
Deferred preneed funeral and cemetery receipts held in trust	10,313		(6,426)
Net cash provided by operating activities	21,860		39,187

Cash flows from investing activities:
Acquisitions of businesses	—		(44,000)

Proceeds from divestitures and sale of other assets	11,174		1,973
Proceeds from insurance claims	314		1,092
Capital expenditures	(7,096)		(8,960)
Net cash provided by (used in) investing activities	4,392		(49,895)

Cash flows from financing activities:
Borrowings from the credit facility	24,800		64,700
Payments against the credit facility	(48,900)		(51,400)





Payments on acquisition debt and obligations under finance leases	(305)		(256)

Proceeds from the exercise of stock options and employee stock purchase plan contributions	1,942		923
Taxes paid on restricted stock vestings and exercise of stock options	(419)		(119)
Dividends paid on common stock	(3,390)		(3,340)


Net cash (used in) provided by financing activities	(26,272)		10,508

Net decrease in cash and cash equivalents	(20)		(200)
Cash and cash equivalents at beginning of period	1,523		1,170
Cash and cash equivalents at end of period	$	1,503	$	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, 2024

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













Balance – March 31, 2024	15,165	$	268	$	240,811	$	217,229	$	(278,753)	$	179,555
Net income	—	—		—		6,259		—		6,259
Issuance of common stock from employee stock purchase plan	15	—		324		—		—		324
Issuance of common stock to directors and board advisor	6	—		151		—		—		151


Exercise of stock options	50	1		1,271		—		—		1,272
Cancellation and surrender of restricted common stock	—	—		(1)		—		—		(1)
Stock-based compensation expense	—	—		2,031		—		—		2,031
Dividends on common stock	—	—		(1,704)		—		—		(1,704)



Balance – June 30, 2024	15,236	$	269	$	242,883	$	223,488	$	(278,753)	$	187,887


	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 restricted common 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, 2024

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













Balance – December 31, 2023	15,000	$	266	$	241,291	$	210,256	$	(278,753)	$	173,060
Net income	—	—		—		13,232		—		13,232
Issuance of common stock from employee stock purchase plan	31	—		671		—		—		671
Issuance of common stock to directors and board advisor	10	—		264		—		—		264
Issuance of common stock to former executive	—	—		—		—		—		—
Issuance of restricted common stock	157	2		(2)		—		—		—
Exercise of stock options	50	1		1,271		—		—		1,272
Cancellation and surrender of restricted common stock	(43)	—		(419)		—		—		(419)
Stock-based compensation expense	—	—		2,407		—		—		2,407
Dividends on common stock	—	—		(3,390)		—		—		(3,390)


Other	31	—		790		—		—		790
Balance – June 30, 2024	15,236	$	269	$	242,883	$	223,488	$	(278,753)	$	187,887


	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 common stock	142	2		(2)		—		—		—
Exercise of stock options	5	—		(41)		—		—		(41)
Cancellation and surrender of restricted common 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 65% of our total revenue, and Cemetery Operations, which currently accounts for approximately 35% of our total revenue. At June 30, 2024, we operated 164 funeral homes in 26 states and 31 cemeteries in 11 states.

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

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

Principles of Consolidation and Interim Condensed Disclosures

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

There have been no material changes in our accounting policies previously disclosed in Part II, Item 8 “Financial Statements and Supplementary Data” in Note 1 in our Annual Report on Form 10-K for the year ended December 31, 2023. In addition, our unaudited Consolidated Financial Statements have been prepared in a manner consistent with the accounting principles described in our Annual Report on Form 10-K for the year ended December 31, 2023 unless otherwise disclosed herein, and should be read in conjunction therewith.

Use of Estimates

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

Cash and Cash Equivalents

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

Inventory

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

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Contingent Liability

We recognize a contingent liability when both i) it is probable that a loss has been incurred and ii) the amount of the loss is reasonably estimable. In evaluating these two conditions, we consider all relevant information that is available as of the date the financial statements are issued. During the three and six months ended June 30, 2024, we recorded a $5.0 million contingent liability to reflect our agreement to pay our financial advisor in connection with the review of strategic alternatives.

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. We did not withdraw any realized capital gains and earnings from our preneed trust investments during the six months ended June 30, 2024. In certain states, we are allowed to make these withdrawals prior to the delivery of preneed merchandise and service contracts. The realized capital gains and earnings withdrawn increase our cash flow from operations, but are not recognized as revenue in our Consolidated Statements of Operations, however, they reduce our Preneed funeral trust investments and Preneed cemetery trust investments and increase our Deferred preneed funeral revenue and Deferred preneed cemetery revenue.

Additionally, during the 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 is subject to partial claw-back if certain preneed funeral sales volumes are not met within the ten-year term of the agreement. As such, we will recognize the incentive payment in proportion to our achieved preneed funeral sales volume per the agreement at each reporting period.

Property, Plant and Equipment

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


	June 30, 2024		December 31, 2023
Land	$	86,829	$	87,635
Buildings and improvements	262,353		263,522
Furniture, equipment and vehicles	73,139		74,372
Property, plant and equipment, at cost	422,321		425,529
Less: accumulated depreciation	(141,966)		(138,045)
Property, plant and equipment, net	$	280,355	$	287,484

During the six months ended June 30, 2024, we sold six funeral homes and one cemetery that had a carrying value of property, plant and equipment of $3.1 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations. Additionally, we sold real property for $0.3 million, with a carrying value of $0.3 million.

At June 30, 2024, we had $0.5 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 intend to divest within the next six months.

During the six months ended June 30, 2023, we acquired $12.8 million of property, plant and equipment related to our acquisition of a business located in Bakersfield, CA, as more fully 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 loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

Our growth and maintenance capital expenditures totaled $1.9 million and $2.6 million for the three months ended June 30, 2024 and 2023, respectively, and $3.5 million and $5.5 million for the six months ended June 30, 2024 and 2023, respectively. In addition, we recorded depreciation expense of $3.5 million and $3.7 million for the three months ended June 30, 2024 and 2023, respectively, and $7.2 million for both the six months ended June 30, 2024 and 2023.

Cemetery Property

Cemetery property was $113.3 million and $114.6 million, net of accumulated amortization of $68.7 million and $64.6 million at June 30, 2024 and December 31, 2023, respectively. When cemetery property is sold, the value of the cemetery property (interment right costs) is expensed as amortization using the specific identification method in the period in which the sale of the interment right is recognized as revenue. Our growth capital expenditures for cemetery property development totaled $1.6 million and $1.4 million for the three months ended June 30, 2024 and 2023, respectively, and $3.6 million and $3.5 million for the six months ended June 30, 2024 and 2023, respectively. We recorded amortization expense for cemetery

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interment rights of $2.6 million and $1.9 million for the three months ended June 30, 2024 and 2023, respectively, and $4.3 million and $3.1 million for the six months ended June 30, 2024 and 2023, respectively.

During the six months ended June 30, 2024, we sold one cemetery that had a carrying value of cemetery property of $0.8 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

During the six months ended June 30, 2023, we acquired cemetery property for $9.0 million related to our acquisition of a business located in Bakersfield, CA, as more fully described in Note 3 to the Consolidated Financial Statements. We also sold two cemeteries that had a carrying value of cemetery property of $0.8 million, which was included in the loss on sale and recorded in Net loss on divestitures, disposals and impairment charges on our Consolidated Statements of Operations.

Income Taxes

Income tax expense was $4.2 million and $3.4 million for the three months ended June 30, 2024 and 2023, respectively, and $7.9 million and $6.9 million for the six months ended June 30, 2024 and 2023, respectively. Our operating tax rate before discrete items was 33.6% and 28.0% for the three months ended June 30, 2024 and 2023, respectively, and 33.2% and 28.5% for the six months ended June 30, 2024 and 2023, respectively.

Subsequent Events

We have evaluated events and transactions during the period subsequent to June 30, 2024 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

Segment Reporting

In November 2023, the FASB issued ASU, Segment Reporting - Improvements to Reportable Segment Disclosures (“Topic 280”) to improve reportable segment disclosure requirements, primarily through enhanced disclosures about significant segment expenses. The amendments in this update require that a public entity disclose, on an annual and interim basis (1) significant segment expenses that are regularly provided to the chief operating decision maker (“CODM”) and included within each reported measure of segment profit or loss; and (2) an amount for other segment items, as described in the amendments, by reportable segment and a description of its composition. Additionally, the amendments require that a public entity disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources. The amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and therefore were effective for us for our fiscal year beginning January 1, 2024 and for interim periods within our fiscal year beginning January 1, 2025. We expect the adoption will have no impact on our Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

Income Taxes

In December 2023, the FASB issued ASU, Income Taxes - Improvements to Income Tax Disclosures (“Topic 740”) to enhance the transparency about income tax information through improvements to income tax disclosures primarily related to rate reconciliation and income taxes paid information. The amendments in this update require that public business entities on an annual basis (1) disclose specific categories in the rate reconciliation; and (2) provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than five percent of the amount computed by multiplying pretax income (loss) by the applicable statutory income tax rate). The amendments in this update also require that all entities disclose on an annual basis (1) the amount of net income taxes paid disaggregated by federal and state taxes; and (2) the amount of net income taxes paid disaggregated by individual jurisdictions in which net income taxes paid is equal to or greater than five percent of total net income taxes paid. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We plan to adopt the amendments of Topic 740 for our fiscal year beginning January 1, 2025. We expect the adoption will have no impact on our Consolidated Financial Statements.

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3. BUSINESS COMBINATIONS

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

We did not acquire any businesses during the three and six months ended June 30, 2024. On March 22, 2023, we acquired a business consisting of three funeral homes, two cemeteries and one cremation focused business in the Bakersfield, CA 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 following table summarizes the breakdown of the purchase price allocation for our Bakersfield, CA business acquisition (in thousands):


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

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

The current assets relate to accounts receivable and inventory. The intangible and other non-current assets relate to the fair value of tradenames and right-of-use operating lease assets. The assumed liabilities relate to operating lease obligations and commissions payable. As of December 31, 2023, our accounting for this acquisition was complete.

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


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

4.GOODWILL

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


	June 30, 2024		December 31, 2023
Goodwill at the beginning of the period	$	423,643	$	410,137
Increase in goodwill related to acquisitions	—		13,506
Decrease in goodwill related to divestitures	(8,748)		—

Goodwill at the end of the period	$	414,895	$	423,643

During the six months ended June 30, 2024, we allocated $8.7 million of goodwill to the sale of six funeral homes and one cemetery for a loss recorded in Net loss on divestitures, disposals and impairments charges, of which $7.8 million was allocated to our funeral homes segment and $1.0 million was allocated to our cemetery segment.

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During the six months ended June 30, 2023, we recognized $13.5 million in goodwill related to our acquisition of a business located in Bakersfield, CA, of which $4.5 million was allocated to our cemetery segment and $9.0 million was allocated to our funeral home segment.

5.DIVESTED OPERATIONS

During the three months ended June 30, 2024, we merged one funeral home with another business we own in an existing market. During the six months ended June 30, 2024, we sold six funeral homes and one cemetery for an aggregate of $10.9 million and merged one funeral home with another business we own in an existing market.

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 .

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,
	2024		2023		2024		2023
Revenue	$	121	$	—	$	1,272	$	66

Operating income (loss)	33		(2)		151		24
Loss on divestitures(1)	(8)		—		(1,509)		(82)
Income tax (expense) benefit	(8)		1		451		17
Net gain (loss) from divested operations, after tax	$	17	$	(1)	$	(907)	$	(41)

(1)

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

6.RECEIVABLES

Accounts Receivable

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

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

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


	June 30, 2024
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	8,138	$	21,915	$	—	$	30,053
Other receivables	307		293		334		934
Allowance for credit losses	(355)		(1,234)		—		(1,589)
Accounts receivable, net	$	8,090	$	20,974	$	334	$	29,398


	December 31, 2023
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	8,822	$	18,459	$	—	$	27,281
Other receivables	404		595		286		1,285
Allowance for credit losses	(266)		(1,240)		—		(1,506)
Accounts receivable, net	$	8,960	$	17,814	$	286	$	27,060

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

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


	January 1, 2024		Provision for Credit Losses		Write Offs		Recoveries		June 30, 2024
Trade and financed receivables:
Funeral	$	(266)	$	(591)	$	975	$	(473)	$	(355)
Cemetery	(1,240)		(343)		349		—		(1,234)
Total allowance for credit losses on trade and financed receivables	$	(1,506)	$	(934)	$	1,324	$	(473)	$	(1,589)

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $10.8 million and $10.7 million at June 30, 2024 and December 31, 2023, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.

Cemetery Receivables

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


	June 30, 2024		December 31, 2023
Interment rights	$	71,864	$	60,863
Merchandise and services	12,516		11,223
Unearned finance charges	6,466		5,669
Cemetery receivables	$	90,846	$	77,755

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


	June 30, 2024		December 31, 2023
Cemetery receivables	$	90,846	$	77,755
Less: unearned finance charges	(6,466)		(5,669)
Cemetery receivables, at amortized cost	$	84,380	$	72,086
Less: allowance for credit losses	(3,491)		(3,495)
Less: balances due on undelivered cemetery preneed contracts	(14,639)		(15,797)
Less: amounts in accounts receivable	(20,681)		(17,219)
Preneed cemetery receivables, net	$	45,569	$	35,575

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


	January 1, 2024		Provision for Credit Losses		Write Offs		June 30, 2024
Total allowance for credit losses on Preneed cemetery receivables, net	$	(2,255)	$	(513)	$	511	$	(2,257)

The amortized cost basis of our cemetery receivables by year of origination at June 30, 2024 is as follows (in thousands):


	2024		2023		2022		2021		2020		Prior		Total
Total preneed cemetery receivables, at amortized cost	$	27,655	$	27,698	$	16,244	$	7,837	$	3,062	$	1,884	$	84,380

The aging of past due cemetery receivables at June 30, 2024 is as follows (in thousands):


	31-60 Past Due		61-90 Past Due		91-120 Past Due		>120 Past Due		Total Past Due		Current		Total
Recognized revenue	$	2,379	$	782	$	277	$	3,339	$	6,777	$	62,964	$	69,741
Deferred revenue	582		179		76		1,197		2,034		19,071		21,105
Total contracts	$	2,961	$	961	$	353	$	4,536	$	8,811	$	82,035	$	90,846

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 $14.6 million and $15.8 million at June 30, 2024 and December 31, 2023, respectively.

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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, 2024, the carrying value and fair value of our Credit Facility was $155.0 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 of the reporting date. At June 30, 2024, the carrying value of our acquisition debt was $6.0 million, which approximated its fair value. The fair value of our Senior Notes was $357.0 million at June 30, 2024 based on the last traded or broker quoted price.

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

In addition, we have an investment in a limited partnership fund, whose fair value has been estimated using the net asset value per share practical expedient described in ASC 820-10-35-59, Fair Value Measurement of Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) and therefore, has not been classified in the fair value hierarchy. The investment strategy of this fund is to generate attractive, risk-adjusted returns over a multi-year performance period through the construction of a concentrated portfolio of investments possessing certain distinct business attributes that suggest the potential for long-term value creation. Beginning March 31, 2024, the agreement permits us to withdraw a percentage of the value of the investments in this fund through quarterly withdrawals with the intention to permit withdrawal of the entire investment over twelve successive withdrawal dates. Our unfunded commitment for this investment at June 30, 2024 was $10.0 million.

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

8.TRUST INVESTMENTS

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

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

Changes in the fair value of our trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value of our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus) and reflected in Other, net. There is no impact on earnings until such time the services are performed or the

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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):


	June 30, 2024		December 31, 2023
Preneed cemetery trust investments, at market value	$	103,516	$	99,461
Less: allowance for contract cancellation	(3,231)		(3,087)
Preneed cemetery trust investments	$	100,285	$	96,374

The cost and market values associated with preneed cemetery trust investments at June 30, 2024 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	20,809	$	—	$	—	$	20,809
Fixed income securities:

U.S. agency obligations	2	665		—		(55)		610
Foreign debt	2	8,914		1,464		(11)		10,367
Corporate debt	2	14,280		210		(2,897)		11,593
Preferred stock	2	11,477		503		(1,788)		10,192
Certificates of deposit	2	79		—		(7)		72
Common stock	1	32,774		2,868		(3,265)		32,377
Limited partnership fund		3,675		410		—		4,085
Mutual funds:
Equity	1	944		71		(5)		1,010
Fixed income	2	14,079		56		(2,490)		11,645
Trust securities		$	107,696	$	5,582	$	(10,518)	$	102,760
Accrued investment income		$	756					$	756
Preneed cemetery trust investments								$	103,516
Market value as a percentage of cost								95.4%

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	13,451
Due in five to ten years	939
Thereafter	18,307
Total fixed income securities	$	32,834

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The cost and market values associated with preneed cemetery trust investments at December 31, 2023 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	9,643	$	—	$	—	$	9,643
Fixed income securities:
U.S. agency obligations	2	803		1		(51)		753
Foreign debt	2	7,764		1,371		(17)		9,118
Corporate debt	2	15,071		342		(3,657)		11,756
Preferred stock	2	10,965		473		(1,572)		9,866
Certificate of deposit	2	79		—		(7)		72

Common stock	1	43,057		9,466		(7,935)		44,588
Limited partnership fund		3,575		—		(3)		3,572