Carriage Services(CSV) - 2021 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Item 1. Financial Statements Presents the company's unaudited consolidated financial statements, including balance sheets, operations, and cash flows Consolidated Balance Sheet | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Total Assets | $1,145,825 | $1,163,975 | | Total Liabilities | $905,323 | $971,507 | | Total Stockholders' Equity | $240,502 | $192,468 | Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | $84,393 | $95,041 | $239,360 | $279,955 | | Gross Profit | $27,874 | $33,164 | $76,205 | $97,152 | | Operating Income | $16,494 | $23,265 | $36,910 | $70,435 | | Net Income | $5,525 | $13,046 | $7,725 | $19,812 | | Basic EPS | $0.31 | $0.74 | $0.43 | $1.11 | | Diluted EPS | $0.31 | $0.71 | $0.43 | $1.08 | | Dividends Declared per Common Share | $0.088 | $0.100 | $0.238 | $0.300 | Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Net Cash Provided by Operating Activities | $67,822 | $69,699 | | Net Cash Used in Investing Activities | $(30,532) | $(11,216) | | Net Cash Used in Financing Activities | $(37,281) | $(58,284) | | Net Increase in Cash and Cash Equivalents | $9 | $199 | | Cash and Cash Equivalents at End of Period | $725 | $1,088 | Consolidated Statements of Changes in Stockholders' Equity | Metric | Balance – Sep 30, 2020 (in thousands) | Balance – Sep 30, 2021 (in thousands) | | :----- | :------------------------------------ | :------------------------------------ | | Total Stockholders' Equity | $232,796 | $192,468 | | Common Stock | $260 | $262 | | Additional Paid-in Capital | $240,648 | $237,681 | | Retained Earnings | $93,938 | $122,115 | | Treasury Stock | $(102,050) | $(167,590) | Condensed Notes to Consolidated Financial Statements - The notes provide detailed explanations of the company's accounting policies, financial instruments, debt, equity, and segment reporting, crucial for understanding the reported financial figures[28] 1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Carriage Services, Inc. operates in two segments: Funeral Home Operations (approximately 70% of revenue) and Cemetery Operations (approximately 30% of revenue), providing at-need and pre-need services[29] - The company's unaudited consolidated financial statements include normal, recurring accruals and are prepared consistently with the 2020 Form 10-K[30] - Estimates are used in financial reporting for items such as receivables, goodwill, intangible assets, deferred taxes, and property depreciation, with actual results potentially differing from these estimates[32] 2. RECENTLY ISSUED ACCOUNTING STANDARDS - The company did not utilize the optional expedients and exceptions provided by ASU, Reference Rate Reform (Topic 848), during the nine months ended September 30, 2021[63] 3. GOODWILL | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Goodwill at period end | $392,978 | $391,972 | | Net increase in goodwill related to acquisitions | $14,054 | $0 | | Decrease in goodwill related to divestitures | $(5,736) | $(1,006) | | Decrease in goodwill related to impairments | $(13,632) | $0 | - The company allocated $1.0 million of goodwill to the sale of one funeral home during the nine months ended September 30, 2021, resulting in a loss recorded in Net loss on divestitures, disposals and impairment charges[64] 4. DIVESTED OPERATIONS - During the nine months ended September 30, 2021, the company sold three funeral homes for $3.5 million, compared to six funeral homes for $7.3 million in the same period of 2020[66] | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | $144 | $(10) | $1,829 | $338 | | Net income (loss) from divested operations, after tax | $(3,319) | $(29) | $(3,209) | $35 | 5. RECEIVABLES | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Accounts receivable, net | $25,103 | $26,213 | | Preneed cemetery receivables, net | $21,081 | $22,932 | - The total allowance for credit losses on trade and financed receivables was $(1,058) thousand at September 30, 2021, with a provision for credit losses of $(929) thousand for the nine months ended September 30, 2021[67] 6. TRUST INVESTMENTS - Preneed trust investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk, with changes in fair value offset by changes in trust fund liabilities[70][72] | Trust Type | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :--------- | :------------------------------- | :-------------------------------- | | Preneed Cemetery Trust Investments | $86,604 | $97,489 | | Preneed Funeral Trust Investments | $101,235 | $108,404 | | Cemetery Perpetual Care Trust Investments | $70,828 | $71,640 | - For the nine months ended September 30, 2021, net realized gains from preneed cemetery trust investments were $16,315 thousand, and from preneed funeral trust investments were $15,331 thousand[77][82] 7. RECEIVABLES FROM PRENEED FUNERAL TRUSTS | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Preneed trust funeral funds, at cost | $17,365 | $19,243 | | Receivables from preneed funeral trusts, net | $16,844 | $18,665 | - These receivables represent assets in third-party controlled trusts where the company does not have a controlling financial interest, accounted for at cost[90] 8. FAIR VALUE MEASUREMENTS - The company's financial assets and liabilities are evaluated for fair value, with cash, accounts receivable, and accounts payable approximating fair value due to their short-term nature[93] - At September 30, 2021, the fair value of New Senior Notes was approximately $403.2 million, and the carrying value of acquisition debt was $5.1 million, approximating its fair value[93] 9. INTANGIBLE AND OTHER NON-CURRENT ASSETS | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Intangible and other non-current assets, net | $29,542 | $29,437 | | Tradenames | $23,565 | $23,565 | | Capitalized commissions on preneed contracts, net | $3,141 | $3,505 | - Tradenames have indefinite lives and are not amortized, while prepaid agreements not-to-compete and capitalized commissions on preneed contracts are amortized over their respective terms (1-10 years and 8-10 years)[95][96][98] 10. CREDIT FACILITY AND ACQUISITION DEBT - On May 13, 2021, the company entered into a new $150.0 million senior secured revolving credit facility, maturing on May 13, 2026, replacing the former facility and repaying outstanding balances[99][100] | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Total Credit Facility | $46,064 | $85,418 | | Total acquisition debt, net of current portion | $4,482 | $4,359 | - At September 30, 2021, outstanding borrowings under the New Credit Facility were $86.9 million, with $60.8 million of availability, and the company was in compliance with all covenants[101][102] 11. SENIOR NOTES - On May 13, 2021, the company issued $400.0 million in 4.25% Senior Notes due 2029, using proceeds to redeem the outstanding 6.625% senior notes due 2026, incurring a $23.7 million net loss on extinguishment of debt[105][107][180] | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Carrying value of the Senior Notes | $395,968 | $394,456 | - The New Senior Notes are unsecured, senior obligations, fully guaranteed by subsidiary guarantors, and bear interest semi-annually at 4.25% per year[107] 12. LEASES | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total lease cost | $1,213 | $1,257 | $3,689 | $3,800 | | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Operating lease right-of-use assets | $21,201 | $18,307 | | Finance lease right-of-use assets, net | $4,765 | $4,437 | | Total lease liabilities | $28,238 | $26,520 | - The company leases office facilities, funeral homes, and equipment under operating and finance leases, with weighted-average remaining lease terms of 10.1 years for operating leases and 12.5 years for finance leases at September 30, 2021[112][113] 13. COMMITMENTS AND CONTINGENCIES - The company is a party to legal proceedings in the ordinary course of business, including a putative class action lawsuit filed on May 19, 2021, for which the possible loss cannot be reasonably estimated[114] 14. STOCKHOLDERS' EQUITY - The company has equity-based compensation plans including restricted stock, stock options, performance awards, and an employee stock purchase plan (ESPP)[116][118][122][123] | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Stock-based compensation expense (Restricted Stock) | $551 | $308 | | Stock-based compensation expense (Stock Options) | $502 | $1,507 | | Stock-based compensation expense (Performance Awards) | $589 | $1,064 | | Stock-based compensation expense (ESPP) | $339 | $458 | - The Board authorized increases in the share repurchase program, totaling $50.0 million, with approximately $10.1 million remaining available at September 30, 2021[127][128] | Dividend Date | Per Share (2020) | Dollar Value (2020, in thousands) | Per Share (2021) | Dollar Value (2021, in thousands) | | :------------ | :--------------- | :-------------------------------- | :--------------- | :-------------------------------- | | March 1st | $0.0750 | $1,339 | $0.1000 | $1,799 | | June 1st | $0.0750 | $1,343 | $0.1000 | $1,808 | | September 1st | $0.0875 | $1,569 | $0.1000 | $1,783 | 15. EARNINGS PER SHARE | Metric | 3 Months Ended Sep 30, 2020 | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Basic EPS | $0.31 | $0.74 | $0.43 | $1.11 | | Diluted EPS | $0.31 | $0.71 | $0.43 | $1.08 | - Diluted EPS computation includes contingently issuable performance awards for which certain performance criteria were satisfied as of September 30, 2021[131] 16. SEGMENT REPORTING | Segment | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Funeral Home Revenue | $61,434 | $68,897 | $182,297 | $200,503 | | Cemetery Revenue | $22,959 | $26,144 | $57,063 | $79,452 | | Total Revenue | $84,393 | $95,041 | $239,360 | $279,955 | | Funeral Home Operating Income | $13,975 | $22,924 | $38,155 | $65,404 | | Cemetery Operating Income | $8,982 | $9,471 | $18,440 | $30,462 | - The company operates in two reportable segments: Funeral Home Operations and Cemetery Operations, with detailed revenue and operating income breakdowns provided for comparative periods[132][135] 17. SUPPLEMENTARY DATA | Metric | December 31, 2020 (in thousands) | September 30, 2021 (in thousands) | | :----- | :------------------------------- | :-------------------------------- | | Total prepaid and other current assets | $2,076 | $2,191 | | Total current portion of debt and lease obligations | $3,432 | $3,041 | | Total accrued and other liabilities | $31,138 | $43,147 | | Total other long-term liabilities | $4,748 | $3,045 | | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Cash paid for interest | $16,960 | $14,800 | | Cash paid (refunded) for taxes | $(6,817) | $9,900 | 18. SUBSEQUENT EVENTS - On October 21, 2021, the company sold real property for $1.4 million[139] - On October 27, 2021, the Board authorized an additional $75 million for the share repurchase program, increasing total authorization to approximately $85.1 million[139] - On October 27, 2021, the Board approved a $0.05 per share increase to its annual cash dividend, declaring a quarterly dividend of $0.1125 per share payable on December 1, 2021[139] Cautionary Statement on Forward–Looking Statements - The report contains forward-looking statements subject to significant risks and uncertainties, including the ability to retain skilled personnel, effects of compensation plans, competition, changes in death rates, consumer preferences, and investment performance of trust funds[142] - Investors are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to publicly update or revise any forward-looking statements after the date they are made[144] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of financial condition and results of operations, including key drivers and liquidity OVERVIEW - Carriage Services, Inc. is a leading U.S. provider of funeral (approximately 70% revenue) and cemetery (approximately 30% revenue) services, operating 171 funeral homes and 32 cemeteries across 26 and 12 states, respectively[146] - During the nine months ended September 30, 2021, the company sold three funeral homes and real property for a total net loss of $0.2 million[147] - The COVID-19 pandemic led to increased funeral volumes and services in Q3 2021, with the company adapting to changing conditions while maintaining liquidity and capital access[148][150] - The company's business strategy is built on strong local leadership, entrepreneurial principles, and three models: Standards Operating, 4E Leadership, and Strategic Acquisition, aiming for sustainable long-term growth[153][157] LIQUIDITY AND CAPITAL RESOURCES - Primary liquidity sources are internally generated cash flows from operating activities and availability under the New Credit Facility, with no anticipated significant liquidity constraints in the foreseeable future[159] - The company plans to use cash on hand and borrowings under its New Credit Facility primarily for general corporate purposes, payment of dividends and debt obligations, strategic acquisitions, internal growth capital expenditures, share repurchases, dividend increases, and further debt repayments[159] | Metric | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | | Net cash provided by operating activities | $67,822 | $69,699 | | Net cash used in investing activities | $(30,532) | $(11,216) | | Net cash used in financing activities | $(37,281) | $(58,284) | | Cash at end of the period | $725 | $1,088 | - Operating cash flow increased by $1.9 million for the nine months ended September 30, 2021, primarily due to higher operating income, offset by unfavorable working capital changes in accounts receivable, income tax receivables, and accounts payable[161][162] - Investing activities resulted in a net cash outflow of $11.2 million for the nine months ended September 30, 2021, a $19.3 million decrease in outflow compared to the prior year, driven by lower acquisition spending and higher insurance reimbursements[163][164] | Capital Expenditure Type | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----------------------- | :--------------------------------------- | :--------------------------------------- | | Total Growth Capital Expenditures | $4,640 | $6,292 | | Total Maintenance Capital Expenditures | $5,394 | $8,960 | | Total Capital Expenditures | $10,034 | $15,252 | - Financing activities resulted in a net cash outflow of $58.3 million for the nine months ended September 30, 2021, an increase of $21.0 million in outflow, primarily due to treasury stock purchases and debt redemption costs[166] | Metric | 3 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2021 | | :----- | :-------------------------- | :-------------------------- | | Number of Shares Repurchased | 1,203,493 | 1,528,197 | | Dollar Value of Shares Repurchased | $53,239 | $65,540 | | Debt Type | September 30, 2021 (in thousands) | | :-------- | :-------------------------------- | | Credit Facility | $86,900 | | Finance leases | $5,615 | | Operating leases | $20,905 | | Acquisition debt | $5,089 | | Total | $118,509 | FINANCIAL HIGHLIGHTS | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | $84,393 | $95,041 | $239,360 | $279,955 | | Funeral contracts | 11,512 | 12,566 | 34,742 | 36,704 | | Average revenue per funeral contract | $5,194 | $5,358 | $5,110 | $5,336 | | Preneed interment rights (property) sold | 2,655 | 2,841 | 6,861 | 8,775 | | Average price per preneed interment right sold | $3,662 | $4,763 | $3,805 | $4,635 | | Gross profit | $27,874 | $33,164 | $76,205 | $97,152 | | Net income | $5,525 | $13,046 | $7,725 | $19,812 | - Revenue increased by $10.6 million (QoQ) and $40.6 million (YoY) primarily due to increased preneed interment rights sales, higher average prices, and increased funeral contract volumes, partly driven by the Delta COVID-19 variant[183][185] - Net income increased by $7.5 million (QoQ) and $12.1 million (YoY), driven by higher gross profit, decreased interest expense, and reduced net loss on divestitures, partially offset by increased general, administrative, and other expenses and tax expense[185] REPORTING AND NON-GAAP FINANCIAL MEASURES - The company uses an 'Operating and Financial Trend Report' as a supplemental non-GAAP financial statement to monitor performance and compare results, not as a substitute for GAAP[186] | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $5,525 | $13,046 | $7,725 | $19,812 | | Sum of special items | $5,374 | $2,804 | $22,780 | $30,476 | | Adjusted net income | $9,144 | $15,112 | $23,262 | $41,669 | | Segment | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :------ | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Funeral Home Operating profit | $25,636 | $31,355 | $75,462 | $88,445 | | Cemetery Operating profit | $11,673 | $13,296 | $25,162 | $42,007 | | Total Operating profit | $37,309 | $44,651 | $100,624 | $130,452 | | Operating profit margin | 44.2% | 47.0% | 42.0% | 46.6% | RESULTS OF OPERATIONS - The company categorizes operations into 'same store' (acquired prior to January 1, 2017), 'acquired' (purchased after December 31, 2016), 'divested,' and 'planned divested' for performance analysis[193] Funeral Home Segment | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Revenue | $61,434 | $68,897 | $182,297 | $200,503 | | Total Operating profit | $25,636 | $31,355 | $75,462 | $88,445 | | Same store contract volume (3 months) | 9,442 | 10,664 | N/A | N/A | | Same store average revenue per contract (3 months, excl. preneed interest) | $5,069 | $5,205 | N/A | N/A | | Acquired contract volume (3 months) | 1,619 | 1,739 | N/A | N/A | | Acquired average revenue per contract (3 months, excl. preneed interest) | $5,068 | $5,379 | N/A | N/A | - Funeral home same store operating revenue increased by $7.6 million (QoQ) and $20.6 million (YoY), driven by a 12.9% (QoQ) and 11.6% (YoY) increase in contract volume and higher average revenue per contract, partly due to the Delta COVID-19 variant[195][197][199] - Funeral home acquired operating revenue increased by $1.1 million (QoQ) and $1.9 million (YoY), primarily due to increased contract volume and higher average revenue per contract, reflecting adaptation to cremation services[197][199] Cemetery Segment | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total Revenue | $22,959 | $26,144 | $57,063 | $79,452 | | Total Operating profit | $11,673 | $13,296 | $25,162 | $42,007 | | Same store preneed revenue (3 months) | $8,771 | $9,909 | N/A | N/A | | Same store number of preneed interment rights sold (3 months) | 1,897 | 2,223 | N/A | N/A | | Acquired preneed revenue (3 months) | $3,642 | $4,195 | N/A | N/A | | Acquired number of preneed interment rights sold (3 months) | 748 | 606 | N/A | N/A | - Cemetery same store preneed revenue increased by $1.1 million (QoQ) and $6.9 million (YoY), driven by a 17.2% (QoQ) and 21.8% (YoY) increase in interment rights sold and higher average prices, supported by sales strategy execution[201][205] - Cemetery acquired operating profit increased by $1.2 million (QoQ) and $7.8 million (YoY), with operating profit margin increasing by 1,110 basis points (QoQ) and 1,950 basis points (YoY), due to increased revenue and disciplined expense management[203][205] Cemetery property amortization - Cemetery property amortization totaled $1.5 million and $5.2 million for the three and nine months ended September 30, 2021, respectively, increases of $0.1 million and $1.8 million, respectively, compared to the same periods in prior year primarily due to the increase in property sold across the cemetery portfolio[207] Field depreciation - Field depreciation expense totaled $3.2 million and $9.4 million for the three and nine months ended September 30, 2021, respectively, decreases of $0.1 million and $0.3 million, respectively, compared to the same periods in prior year primarily due to building structures and older vehicles becoming fully depreciated without any newly acquired building structures and vehicles to offset the decreases[207] Regional and unallocated funeral and cemetery costs - Regional and unallocated funeral and cemetery costs totaled $6.8 million for the three months ended September 30, 2021 (an increase of $2.1 million QoQ) and $18.7 million for the nine months ended September 30, 2021 (an increase of $7.5 million YoY), driven by higher cash incentives, equity compensation, general administrative costs, and natural disaster costs[207] Other Financial Statement Items This section details changes in general, administrative, and other expenses, home office depreciation, net loss on divestitures, interest expense, and income taxes[208] General, administrative and other - General, administrative, and other expenses totaled $8.8 million for the three months ended September 30, 2021 (an increase of $2.6 million QoQ) and $24.5 million for the nine months ended September 30, 2021 (an increase of $5.9 million YoY), primarily due to higher insurance claims, incentive compensation, and marketing costs[208] Home office depreciation and amortization - Home office depreciation and amortization expense totaled $0.3 million and $0.8 million for the three and nine months ended September 30, 2021, respectively, decreases of $0.1 million and $0.3 million, respectively, compared to the same periods in prior year as equipment and software became fully depreciated[208] Net loss on divestitures, disposals and impairment charges | Metric | 3 Months Ended Sep 30, 2020 (in thousands) | 3 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | | :----- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Total | $4,917 | $858 | $19,610 | $1,377 | - For the nine months ended September 30, 2021, the company reported a total net loss of $1.4 million, including $0.2 million from divested funeral homes and real property, $0.7 million from fixed asset disposals, and $0.5 million impairment loss on assets held for sale[210] Interest expense - Interest expense totaled $5.1 million and $20.1 million for the three and nine months ended September 30, 2021, respectively, decreases of $2.9 million and $4.6 million, respectively, compared to the same periods in prior year, primarily due to decreased borrowings and lower interest rates on the Credit Facility and New Senior Notes[210] Income taxes - Income tax expense totaled $5.1 million and $6.6 million for the three and nine months ended September 30, 2021, respectively, increases of $2.3 million and $2.4 million, respectively, with operating tax rates of 28.2% (QoQ) and 28.3% (YoY) before discrete items[210] - The company has a $3.7 million reserve for uncertain tax positions related to a carryback refund claim under the CARES Act, pending IRS discussions[210] OVERVIEW OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES - The preparation of the Consolidated Financial Statements requires the company to make estimates and judgments that affect the amounts reported, with actual results potentially differing from these estimates[211] SEASONALITY - The company's business can be affected by seasonal fluctuations in the death rate, which is generally higher during winter months due to increased incidences of influenza and pneumonia[213] Item 3. Quantitative and Qualitative Disclosures About Market Risk Details the company's exposure to market risks, primarily interest rate risk and changes in trust security values - The company is exposed to interest rate risk and changes in the values of securities associated with preneed and perpetual care trusts, with management actively monitoring and utilizing appropriate risk management techniques[214] - A 0.25% change in interest rates causes an approximate 1.26% change in the value of fixed income securities, and a 100 basis point change in the New Credit Facility borrowing rate would result in a $0.9 million change in income before taxes[214] - The New Senior Notes bear a fixed annual interest rate of 4.25%, and increases in market interest rates would not affect the company's interest costs on these notes[214] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and procedures with no material changes in internal controls - Management concluded that disclosure controls and procedures were effective as of September 30, 2021, ensuring timely and accurate financial reporting[216] - There were no material changes in the company's internal control over financial reporting during the fiscal quarter ended September 30, 2021[217] PART II – OTHER INFORMATION Item 1. Legal Proceedings Details legal proceedings from the ordinary course of business, which are not expected to be materially adverse - The company is party to a number of legal proceedings that arise from time to time in the ordinary course of business, but does not expect these matters to have a material adverse effect on its financial statements[220] - The company self-insures against certain risks and carries insurance, believing its reserves and coverage provide reasonable protection for known asserted and unasserted claims[220] Item 1A. Risk Factors Updates risk factors, highlighting potential share dilution from the 'Good To Great II' incentive program - The 'Good To Great II' incentive program, tied to future company performance and share price targets, could result in significant dilution to shareholders if the highest performance tier ($77.34 per share) is achieved, potentially awarding 1,081,287 shares[221] - Investors should refer to the complete set of Risk Factors discussed in Part I, Item 1A 'Risk Factors' in the 2020 Form 10-K, as additional unknown or immaterial risks may also materially adversely affect the business[221] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds Details common stock repurchase activity during the quarter ended September 30, 2021 | Period | Total Number of Shares (1) Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Program | Dollar Value of Shares That May Yet Be Purchased Under the Program | | :----- | :----------------------------------- | :--------------------------- | :------------------------------------------------------------------- | :----------------------------------------------------------------- | | July 1, 2021 - July 31, 2021 | — | — | — | $63,300,533 | | August 1, 2021 - August 31, 2021 | 711 | $38.87 | 402,600 | $46,656,948 | | September 1, 2021 - September 30, 2021 | — | — | 800,893 | $10,061,552 | | Total for quarter ended September 30, 2021 | 711 | N/A | 1,203,493 | N/A | - Shares purchased pursuant to the repurchase program were acquired in the open market at times and in amounts as management determined appropriate and are currently held as treasury shares[128] Item 3. Defaults Upon Senior Securities This item is marked as 'Not applicable,' indicating no defaults upon senior securities during the reporting period - This item is not applicable for the reporting period[224] Item 4. Mine Safety Disclosures This item is marked as 'Not applicable,' indicating no mine safety disclosures are required for the reporting period - This item is not applicable for the reporting period[225] Item 5. Other Information This item is marked as 'Not applicable,' indicating no other information requiring disclosure - This item is not applicable for the reporting period[226] Item 6. Exhibits States that the required exhibits are set forth in the accompanying Exhibit Index and are incorporated by reference - The exhibits required to be filed pursuant to the requirements of Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Quarterly Report on Form 10-Q and are incorporated herein by reference[227] SIGNATURE The report is duly signed by the company's Executive Vice President, Chief Financial Officer, and Treasurer - The report is signed by C. Benjamin Brink, Executive Vice President, Chief Financial Officer and Treasurer, on November 3, 2021[230] INDEX OF EXHIBITS Lists all exhibits filed with the Quarterly Report on Form 10-Q, including certifications and XBRL documents - The index lists certifications (31.1, 31.2, 32) and XBRL-related documents (101.INS, 101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF, 104) as exhibits[232]