Carriage Services(CSV) - 2022 Q1 - Quarterly Report

PART I – FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements and management's discussion and analysis for the quarter ended March 31, 2022, along with market risk and control disclosures Item 1. Financial Statements This section presents the unaudited consolidated financial statements of Carriage Services, Inc. for the quarter ended March 31, 2022, including the balance sheet, statements of operations, cash flows, changes in stockholders' equity, and detailed condensed notes explaining significant accounting policies, recent accounting standards, and specific financial line items Unaudited Consolidated Balance Sheet The consolidated balance sheet shows the company's financial position as of December 31, 2021, and March 31, 2022, detailing assets, liabilities, and stockholders' equity. Total assets slightly increased, while total liabilities also rose, leading to a decrease in total stockholders' equity | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total Assets | $1,178,631 | $1,180,349 | +$1,718 | | Total Liabilities | $1,050,616 | $1,060,328 | +$9,712 | | Total Stockholders' Equity | $128,015 (derived) | $120,021 | -$7,994 | Unaudited Consolidated Statements of Operations For the three months ended March 31, 2022, the company reported an increase in net income to $16.402 million, up from $12.933 million in the prior year, driven by higher revenue and a significant decrease in interest expense, despite a slight dip in gross profit. Basic EPS increased to $1.07 from $0.72 | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Revenue | $96,637 | $98,161 | +$1,524 | | Gross Profit | $35,061 | $34,478 | -$583 | | Operating Income | $26,246 | $25,151 | -$1,095 | | Interest Expense | $(7,584) | $(5,542) | +$2,042 | | Net Income | $12,933 | $16,402 | +$3,469 | | Basic EPS | $0.72 | $1.07 | +$0.35 | | Diluted EPS | $0.71 | $1.00 | +$0.29 | | Dividends Declared per Common Share | $0.100 | $0.1125 | +$0.0125 | Unaudited Consolidated Statements of Cash Flows Net cash provided by operating activities decreased significantly to $15.801 million in Q1 2022 from $26.811 million in Q1 2021, primarily due to unfavorable working capital changes. Investing activities saw a larger net cash outflow, while financing activities also resulted in a net outflow, albeit smaller than the prior year, largely due to treasury stock purchases | Cash Flow Activity | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----------------- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Net cash provided by operating activities | $26,811 | $15,801 | -$11,010 | | Net cash used in investing activities | $(1,897) | $(7,756) | -$5,859 | | Net cash used in financing activities | $(25,397) | $(8,306) | +$17,091 | | Net decrease in cash and cash equivalents | $(483) | $(261) | +$222 | | Cash and cash equivalents at end of period | $406 | $887 | +$481 | Unaudited Consolidated Statements of Changes in Stockholders' Equity Stockholders' equity decreased from $128.015 million at December 31, 2021, to $120.021 million at March 31, 2022, primarily due to significant treasury stock acquisitions totaling $26.010 million, partially offset by net income and stock-based compensation | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Total Stockholders' Equity | $128,015 | $120,021 | -$7,994 | | Net Income | N/A | $16,402 | N/A | | Treasury Stock Acquired | N/A | $(26,010) | N/A | | Dividends on Common Stock | N/A | $(1,725) | N/A | | Stock-based Compensation Expense | N/A | $1,460 | N/A | Condensed Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures for the unaudited consolidated financial statements, covering significant accounting policies, recent accounting pronouncements, and specific financial line items such as goodwill, divestitures, receivables, trust investments, debt, leases, equity, and segment reporting 1. Basis of Presentation and Summary of Significant Accounting Policies This note outlines the company's business segments (Funeral Home Operations ~70% revenue, Cemetery Operations ~30% revenue), principles of consolidation, use of estimates, and key accounting policies for cash, receivables, inventory, business combinations, divestitures, goodwill, intangible assets, trust funds, fair value measurements, capitalized commissions, property, leases, equity plans, revenue recognition, income taxes, and EPS computation - Carriage Services, Inc. operates in two segments: Funeral Home Operations (approx. 70% of revenue) and Cemetery Operations (approx. 30% of revenue). As of March 31, 2022, the company operated 168 funeral homes in 26 states and 31 cemeteries in 11 states[25] - The company did not acquire any businesses in the three months ended March 31, 2021 and 2022[33] - During the three months ended March 31, 2022, the company sold two funeral homes for an aggregate of $0.9 million[34] 2. Recently Issued Accounting Standards The company discusses three recently issued accounting standards: Reference Rate Reform (Topic 848), Business Combinations (Topic 805), and Credit Losses (Topic 326). It adopted Topic 848 in March 2020 and plans to adopt Topic 805 and Topic 326 for the fiscal year beginning January 1, 2023, with no expected impact on consolidated financial statements for Topic 326 - The company adopted ASU Topic 848 (Reference Rate Reform) in March 2020 and plans to apply amendments as agreements are modified or LIBOR is no longer used[59] - The company plans to adopt ASU Topic 805 (Business Combinations - Accounting for Contract Assets and Liabilities) for its fiscal year beginning January 1, 2023, and is still evaluating its impact[60] - The company plans to adopt ASU Topic 326 (Credit Losses - Vintage Disclosures) for its fiscal year beginning January 1, 2023, expecting no impact on consolidated financial statements[61] 3. Goodwill Goodwill decreased by $0.901 million from December 31, 2021, to March 31, 2022, primarily due to the allocation of goodwill to the sale of two funeral homes | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | Change (in thousands) | | :----- | :-------------------------- | :-------------------------- | :-------------------- | | Goodwill at period end | $391,972 | $391,071 | -$901 | | Decrease in goodwill related to divestitures | $(1,006) (Q1 2021) | $(901) (Q1 2022) | N/A | - During the three months ended March 31, 2022, $0.9 million of goodwill was allocated to the sale of two funeral homes, resulting in a loss recorded in Net (gain) loss on divestitures, disposals and impairments charges[63] 4. Divested Operations In Q1 2022, the company sold two funeral homes for $0.9 million, resulting in a net loss of $0.515 million from divested operations after tax. This contrasts with Q1 2021, where the sale of one funeral home and merger of another yielded a net income of $0.254 million | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Revenue from divested operations | $282 | $137 | | Operating income from divested operations | $60 | $2 | | Net income (loss) from divested operations, after tax | $254 | $(515) | - During the three months ended March 31, 2022, the company sold two funeral homes for an aggregate of $0.9 million[64] 5. Receivables Accounts receivable, net, slightly increased from $25.314 million at December 31, 2021, to $25.570 million at March 31, 2022. Preneed cemetery receivables, net, decreased from $23.150 million to $22.561 million over the same period. The allowance for credit losses for trade and financed receivables increased from $(990) thousand to $(978) thousand | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Accounts receivable, net | $25,314 | $25,570 | | Preneed cemetery receivables, net | $23,150 | $22,561 | | Total allowance for credit losses on Trade and financed receivables (Jan 1, 2022) | $(990) | N/A | | Total allowance for credit losses on Trade and financed receivables (Mar 31, 2022) | N/A | $(978) | 6. Trust Investments The company manages Preneed Cemetery, Preneed Funeral, and Cemetery Perpetual Care Trust Investments. These trusts hold diversified portfolios of fixed income securities, common stock, and mutual funds, measured at fair value. Changes in fair value are offset by changes in trust fund liabilities, with no immediate impact on earnings until services are performed or merchandise delivered - Trust investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk[70] - Changes in the fair value of trust fund assets are offset by changes in trust fund liabilities, with no impact on earnings until services are performed or merchandise delivered[70] | Trust Type | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :--------- | :-------------------------- | :-------------------------- | | Preneed Cemetery Trust Investments | $100,903 | $102,533 | | Preneed Funeral Trust Investments | $113,658 | $113,332 | | Cemetery Perpetual Care Trust Investments | $72,400 | $73,525 | 7. Receivables from Preneed Funeral Trusts Receivables from preneed funeral trusts, which are managed by third parties where the company does not have a controlling interest, increased slightly to $19.160 million at March 31, 2022, from $19.009 million at December 31, 2021. These investments are accounted for at cost | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Preneed funeral trust funds, at cost | $19,597 | $19,752 | | Less: allowance for contract cancellation | $(588) | $(592) | | Receivables from preneed funeral trusts, net | $19,009 | $19,160 | - These receivables represent assets in trusts controlled by third parties where the company does not have a controlling financial interest, and are accounted for at cost[87] 8. Fair Value Measurements The company measures certain financial assets, primarily trust investments, at fair value using a three-level hierarchy. As of March 31, 2022, the fair value of the Credit Facility approximated its carrying value of $174.2 million, and Senior Notes had a fair value of $373.4 million against a carrying value of $394.765 million. No assets had fair values determined by Level 3 inputs, and no liabilities were measured at fair value - The company's Credit Facility and Senior Notes are classified within Level 2 of the Fair Value Measurements hierarchy[88] | Metric | Carrying Value (Mar 31, 2022, in thousands) | Fair Value (Mar 31, 2022, in thousands) | | :----- | :------------------------------------------ | :-------------------------------------- | | Credit Facility | $174,200 | $174,200 (approx.) | | Acquisition Debt | $4,500 (approx.) | $4,500 (approx.) | | Senior Notes | $394,765 | $373,400 | - At March 31, 2022, the company did not have any assets with fair values determined by Level 3 inputs and no liabilities measured at fair value[88] 9. Intangible and Other Non-Current Assets Intangible and other non-current assets increased slightly to $29.617 million at March 31, 2022. This category includes tradenames (indefinite life, not amortized), prepaid agreements not-to-compete, and capitalized commissions on preneed contracts, both of which are amortized over their respective terms | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Tradenames | $23,565 | $23,565 | | Prepaid agreements not-to-compete, net | $2,247 | $2,156 | | Capitalized commissions on preneed contracts, net | $3,560 | $3,665 | | Intangible and other non-current assets, net | $29,378 | $29,617 | - Tradenames have indefinite lives and are not amortized[92] - Amortization expense for prepaid agreements not-to-compete was $148,000 in Q1 2022[93] - Amortization expense for capitalized commissions was $170,000 in Q1 2022[94] 10. Credit Facility and Acquisition Debt The company's Credit Facility increased to $172.746 million at March 31, 2022, with $23.5 million of availability. Acquisition debt remained stable at $3.935 million. The company was in compliance with all Credit Facility covenants | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Total Credit Facility | $153,857 | $172,746 | | Total acquisition debt, net of current portion | $3,979 | $3,935 | - At March 31, 2022, the company had $23.5 million of availability under the Credit Facility[98] - The weighted average interest rate on the Credit Facility decreased to 2.1% for Q1 2022 from 3.3% for Q1 2021[98] 11. Senior Notes The company's 4.25% Senior Notes due May 2029 had a carrying value of $394.765 million and a fair value of $373.4 million at March 31, 2022. Interest expense for these notes decreased to $4.250 million in Q1 2022 from $6.625 million in Q1 2021 | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Carrying value of the Senior Notes | $394,610 | $394,765 | | Fair value of the Senior Notes | N/A | $373,400 | | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Senior Notes interest expense | $6,625 | $4,250 | - The Senior Notes bear interest at 4.25% per year, payable semi-annually, and mature on May 15, 2029[103] 12. Leases Total lease cost decreased to $1.178 million in Q1 2022 from $1.278 million in Q1 2021. Operating lease right-of-use assets slightly decreased, while total lease liabilities also saw a minor reduction. The weighted-average remaining lease term for operating leases is 9.5 years with an 8.1% discount rate | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Total lease cost | $1,278 | $1,178 | | Metric | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----- | :-------------------------- | :-------------------------- | | Operating lease right-of-use assets | $17,881 | $17,622 | | Total lease liabilities | $25,965 | $25,576 | | Lease Type | Weighted-average remaining lease term (years) | Weighted-average discount rate | | :--------- | :-------------------------------------------- | :----------------------------- | | Operating leases | 9.5 | 8.1% | | Finance leases | 12.1 | 8.2% | 13. Commitments and Contingencies The company is involved in various legal proceedings, including a putative class action lawsuit (Chinchilla v. Carriage Services, Inc., et al.) regarding alleged wage and labor violations. A class settlement agreement for $1.0 million was preliminarily approved on March 29, 2022, with $1.1 million accrued for the expected settlement and legal fees at March 31, 2022 - A putative class action lawsuit (Chinchilla v. Carriage Services, Inc., et al.) was filed on May 19, 2021, alleging various wage and labor violations[110] - A class settlement agreement for $1.0 million was preliminarily approved on March 29, 2022[110] - At March 31, 2022, the company accrued $1.1 million for the expected settlement amount and associated legal fees related to the class action lawsuit[110] 14. Stockholders' Equity This section details activity in restricted stock, stock options, performance awards, the Employee Stock Purchase Plan (ESPP), and non-employee director compensation. Stock-based compensation expense for Q1 2022 totaled $1.460 million across these plans. The Board authorized an additional $75.0 million for the share repurchase program on February 23, 2022, with $57.1 million remaining available at March 31, 2022 | Equity Plan | Stock-based Compensation Expense (3 Months Ended Mar 31, 2021, in thousands) | Stock-based Compensation Expense (3 Months Ended Mar 31, 2022, in thousands) | | :---------- | :--------------------------------------------------------------------------- | :--------------------------------------------------------------------------- | | Restricted Stock | $121 | $57 | | Stock Options | $560 | $638 | | Performance Awards | $237 | $566 | | ESPP | $206 | $199 | | Non-Employee Director and Board Advisor Compensation | $236 | $201 | | Total | $1,360 | $1,661 | - On February 23, 2022, the Board authorized an additional $75.0 million for the share repurchase program[124] - At March 31, 2022, $57.1 million remained authorized for repurchases under the share repurchase program[124] | Metric | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2022 | | :----- | :-------------------------- | :-------------------------- | | Dividends Declared per Common Share | $0.1000 | $0.1125 | | Dollar Value of Dividends | $1,799 (in thousands) | $1,725 (in thousands) | 15. Earnings Per Share Basic earnings per common share increased to $1.07 in Q1 2022 from $0.72 in Q1 2021, and diluted EPS increased to $1.00 from $0.71. This improvement is primarily due to higher net income and a lower weighted average number of common shares outstanding | Metric | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2022 | | :----- | :-------------------------- | :-------------------------- | | Net income attributable to common stockholders | $12,906 (in thousands) | $16,387 (in thousands) | | Basic earnings per common share | $0.72 | $1.07 | | Diluted earnings per common share | $0.71 | $1.00 | | Weighted average basic shares outstanding | 17,965 (in thousands) | 15,244 (in thousands) | | Weighted average diluted shares outstanding | 18,199 (in thousands) | 16,369 (in thousands) | - Performance awards were included in the computation of diluted earnings per share as certain performance criteria were satisfied[127] 16. Segment Reporting The company reports revenue and operating profit for its Funeral Home and Cemetery segments. In Q1 2022, Funeral Home revenue increased to $74.355 million, while Cemetery revenue decreased to $23.806 million. Consolidated operating income decreased slightly to $25.151 million | Segment | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :------ | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Funeral Home Revenue | $71,774 | $74,355 | +$2,581 | | Cemetery Revenue | $24,863 | $23,806 | -$1,057 | | Total Revenue | $96,637 | $98,161 | +$1,524 | | Segment | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :------ | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Funeral Operating Income | $25,876 | $25,463 | -$413 | | Cemetery Operating Income | $9,493 | $8,218 | -$1,275 | | Corporate Operating Loss | $(9,123) | $(8,530) | +$593 | | Consolidated Operating Income | $26,246 | $25,151 | -$1,095 | 17. Supplementary Data This note provides supplementary balance sheet details, including a breakdown of prepaid and other current assets, current portion of debt and lease obligations, accrued and other liabilities, and other long-term liabilities. It also includes supplemental cash flow information for interest and taxes paid | Balance Sheet Item | Dec 31, 2021 (in thousands) | Mar 31, 2022 (in thousands) | | :----------------- | :-------------------------- | :-------------------------- | | Prepaid and other current assets | $6,404 | $4,005 | | Current portion of debt and lease obligations | $2,809 | $2,895 | | Accrued and other liabilities | $43,773 | $31,345 | | Other long-term liabilities | $1,419 | $1,309 | | Cash Flow Item | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :------------- | :----------------------------------------- | :----------------------------------------- | | Cash paid for interest | $616 | $9 | | Cash paid for taxes | $532 | $1,5 | Cautionary Statement on Forward–Looking Statements This section warns investors that the report contains forward-looking statements subject to significant risks and uncertainties that could cause actual results to differ materially from projections. Key risk factors include the ability to retain skilled personnel, execute growth strategy, competition, changes in death rates and consumer preferences, investment performance of trust funds, interest rate fluctuations, and impacts of epidemics like COVID-19 - The report contains forward-looking statements identified by words like "may," "will," "estimate," and "intend," which are subject to significant risks and uncertainties[136] - Important factors that could cause actual results to differ include the ability to find and retain skilled personnel, execution of growth strategy, effects of competition, changes in death rates and consumer preferences, investment performance of trust funds, fluctuations in interest rates, and the impact of epidemics and pandemics like COVID-19[136] - Investors are cautioned not to place undue reliance on forward-looking statements, and the company undertakes no obligation to publicly update or revise them[138] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations for the three months ended March 31, 2022, discussing revenue drivers, segment performance, liquidity, capital resources, and critical accounting policies Overview Carriage Services, Inc. is a leading U.S. provider of funeral (70% revenue) and cemetery (30% revenue) services. The company's strategy focuses on local leadership, entrepreneurial principles, and three models: Standards Operating, 4E Leadership, and Strategic Acquisition, aiming for sustainable market share, revenue, and profitability growth. The company also discusses recent developments like share repurchases and divestitures, and the ongoing impact of COVID-19, noting a normalization of funeral contracts to pre-pandemic levels in Q1 2022 - Carriage Services operates 168 funeral homes in 26 states and 31 cemeteries in 11 states as of March 31, 2022[140] - The company's business strategy is built on three models: Standards Operating Model, 4E Leadership Model, and Strategic Acquisition Model, focused on local market share growth and sustainable profitability[150][151][152][153] - In Q1 2022, the company observed a decrease in COVID-19-related deaths and a normalization of funeral contracts to pre-COVID-19 levels, with broadly higher funeral contract revenue averages[145] Liquidity and Capital Resources The company's primary liquidity sources are internally generated cash flows and its Credit Facility. Cash provided by operating activities decreased by $11.0 million in Q1 2022 due to unfavorable working capital changes. Net cash used in investing activities increased by $5.9 million, while net cash used in financing activities decreased by $17.1 million, despite significant share repurchases. The company expects sufficient cash resources for the next 12 months - Primary sources of liquidity are internally generated cash flows from operating activities and availability under the Credit Facility[155] | Cash Flow Activity | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----------------- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Net cash provided by operating activities | $26,811 | $15,801 | -$11,010 | | Net cash used in investing activities | $(1,897) | $(7,756) | -$5,859 | | Net cash used in financing activities | $(25,390) | $(8,306) | +$17,084 | - The Board authorized an additional $75.0 million for the share repurchase program on February 23, 2022, with $57.1 million remaining available at March 31, 2022[163][165] Financial Highlights Revenue increased by $1.5 million (1.6%) in Q1 2022, driven by a 1.6% increase in funeral contract volume and a 2.3% increase in average revenue per funeral contract. Net income rose by $3.5 million, primarily due to decreased interest expense and an insurance reimbursement gain, despite a $0.6 million decrease in gross profit | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Revenue | $96,637 | $98,161 | +$1,524 | | Gross Profit | $35,061 | $34,478 | -$583 | | Net Income | $12,933 | $16,402 | +$3,469 | - Revenue increase was driven by a 1.6% increase in funeral contract volume and a 2.3% increase in average revenue per funeral contract[176] - Net income increased primarily due to a $2.0 million decrease in interest expense, a $1.9 million gain on insurance reimbursements, and a $0.6 million decrease in income tax expense[176] Reporting and Non-GAAP Financial Measures This section presents non-GAAP financial measures, including Adjusted Net Income and Operating Profit, which management uses to assess performance. Adjusted Net Income increased to $15.114 million in Q1 2022 from $14.690 million in Q1 2021, after accounting for special items. Operating profit margin slightly decreased to 46.3% from 47.4% - The company uses non-GAAP measures like "Operating and Financial Trend Report" and Adjusted Net Income to supplement GAAP financial statements for management and investor comparison[177] | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Net income (GAAP) | $12,933 | $16,402 | | Sum of special items | $2,181 | $(1,561) | | Tax effect on special items | $424 | $(273) | | Adjusted net income (non-GAAP) | $14,690 | $15,114 | | Metric | 3 Months Ended Mar 31, 2021 | 3 Months Ended Mar 31, 2022 | | :----- | :-------------------------- | :-------------------------- | | Operating profit margin (non-GAAP) | 47.4% | 46.3% | Results of Operations This section provides a detailed discussion of the company's operating results for its Funeral Home and Cemetery segments, highlighting revenue and operating profit changes, contract volumes, average revenue per contract, and cremation rates Funeral Home Segment Funeral Home segment revenue increased to $74.355 million in Q1 2022, driven by a 3.3% increase in same-store contract volume and a 1.2% increase in average revenue per contract, despite a decrease in COVID-19 related contracts. Operating profit for the segment increased by $0.9 million for same-store operations but decreased in margin due to higher operating expenses | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Total Funeral Home Revenue | $71,774 | $74,355 | +$2,581 | | Same store operating revenue | $58,983 | $61,632 | +$2,649 | | Acquired operating revenue | $7,985 | $8,610 | +$625 | - Same-store contract volume increased by 3.3%, and average revenue per contract (excluding preneed funeral trust earnings) increased by 1.2% for same-store operations[189] - The percentage of cremation contracts with memorial service increased by 3.4% for same-store operations and 4.1% for acquired operations, reflecting a focus on educating families on cremation options[189] Cemetery Segment Cemetery segment revenue decreased to $23.806 million in Q1 2022, primarily due to a $0.4 million decrease in same-store preneed revenue and a $0.5 million decrease in acquired preneed revenue. Operating profit for the segment decreased by $0.4 million for same-store and $0.8 million for acquired businesses, with margins declining due to lower revenue and increased operating expenses | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | YoY Change (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | :------------------------ | | Total Cemetery Revenue | $24,863 | $23,806 | -$1,057 | | Same store operating revenue | $14,635 | $14,251 | -$384 | | Acquired operating revenue | $6,980 | $6,297 | -$683 | - Same-store preneed revenue decreased by $0.4 million, driven by a 6.2% decrease in interment rights sold and a 2.0% decrease in average price per interment right[191] - Acquired businesses experienced a $0.5 million decrease in preneed revenue and a $0.2 million decrease in atneed revenue, with a 20.4% decrease in interment rights sold[193] - Cemetery property amortization decreased by $0.2 million to $1.3 million in Q1 2022, primarily due to decreased property sales[193] Other Financial Statement Items General, administrative, and other expenses decreased by $0.6 million in Q1 2022, mainly due to lower separation expenses from prior year, partially offset by increased cash incentives, equity compensation, and marketing costs. The company recorded a net loss on divestitures, disposals, and impairment charges of $0.767 million and a $1.899 million gain on insurance reimbursements in Q1 2022. Income tax expense decreased to $5.1 million, with the operating tax rate before discrete items at 26.5% - General, administrative and other expenses decreased by $0.6 million in Q1 2022, primarily due to a $1.6 million decrease in separation expense from Q1 2021[194] | Metric | 3 Months Ended Mar 31, 2021 (in thousands) | 3 Months Ended Mar 31, 2022 (in thousands) | | :----- | :----------------------------------------- | :----------------------------------------- | | Net (gain) loss on divestitures and real property | $(308) | $703 | | Net loss on disposals of fixed assets | — | $64 | | Total Net (gain) loss on divestitures, disposals and impairment charges | $(308) | $767 | - A $1.899 million gain on insurance reimbursements was recorded in Q1 2022 for property damaged by Hurricane Ida[14][196] - Income tax expense decreased to $5.1 million in Q1 2022, with the operating tax rate before discrete items at 26.5% (down from 31.0% in Q1 2021)[196] Overview of Critical Accounting Policies and Estimates The company identifies Business Combinations and Goodwill as critical accounting policies requiring significant judgments, assumptions, and estimates due to their potential impact on financial condition and results of operations. These estimates are continuously evaluated and updated - Business Combinations and Goodwill are identified as critical accounting policies requiring significant judgments, assumptions, and estimates[197] - These policies are critical because they can cause fluctuations in reported results due to complex and uncertain matters, and different judgments could materially impact financial condition or operations[197] 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 - The death rate is generally higher during winter months due to increased incidences of influenza and pneumonia, which can affect the company's business[198] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk and changes in the values of securities held in preneed and perpetual care trusts. Management actively monitors these risks. A hypothetical 0.25% change in interest rates could cause an approximate 1.37% change in the value of fixed income securities, and a 100 basis point change in borrowing rates could impact income before taxes by $1.7 million - The company is primarily exposed to interest rate risk and changes in the values of securities associated with preneed and perpetual care trusts[200] - A 0.25% change in interest rates could cause an approximate 1.37% change in the value of fixed income securities[200] - A 100 basis point change in the Credit Facility's borrowing rate would result in a $1.7 million change in income before taxes, assuming the outstanding balance remains unchanged[200] Item 4. Controls and Procedures Management, including the principal executive and financial officers, evaluated the effectiveness of disclosure controls and procedures as of March 31, 2022, concluding they are effective. There were no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[202] - No material changes occurred in internal control over financial reporting during the fiscal quarter[203] PART II – OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, and exhibits, providing additional disclosures beyond the financial statements Item 1. Legal Proceedings The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect on its financial statements. The company self-insures against certain risks and maintains insurance coverage, believing its reserves and insurance provide reasonable coverage for known claims - The company is party to various legal proceedings arising in the ordinary course of business, which are not expected to materially affect financial statements[206] - The company self-insures against certain risks and carries insurance, believing its reserves and insurance provide reasonable coverage for claims[206] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021. Investors are advised to carefully consider those factors, as well as any additional unknown or immaterial risks, which could adversely affect the business - No material changes to risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2021[207] - Investors should carefully consider the factors discussed in the Annual Report on Form 10-K, as well as additional unknown or immaterial risks[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2022, the company repurchased 490,000 shares of common stock in March at an average price of $53.08, totaling $26.010 million. Additionally, 4,185 shares were surrendered by employees to pay taxes on restricted stock awards | Metric | Q1 2022 (Shares) | Average Price Paid Per Share | Dollar Value (in thousands) | | :----- | :--------------- | :--------------------------- | :-------------------------- | | Shares repurchased (March 2022) | 490,000 | $53.08 | $26,010 | | Shares surrendered by employees (Feb 2022) | 4,185 | $49.46 | N/A | - At March 31, 2022, $57.1 million remained authorized for repurchases under the share repurchase program[124][165] Item 3. Defaults Upon Senior Securities This item is not applicable to the company for the reported period Item 4. Mine Safety Disclosures This item is not applicable to the company for the reported period Item 5. Other Information This item is not applicable to the company for the reported period Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including certifications of periodic financial reports (Sarbanes-Oxley Act Sections 302 and 906) and XBRL-related documents - Exhibits include certifications of periodic financial reports by Melvin C. Payne and C. Benjamin Brink in satisfaction of Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[218] - XBRL Instance Document and Taxonomy Extension Schema, Calculation, Label, Presentation, and Definition Linkbase Documents are filed[218]