UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM
~~FORM~~ 10-Q

(Mark One)


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

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

For the quarterly period ended March 31, ~~2020~~2021


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

☐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~~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~~

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 x☒ No o☐

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 x☒ No o☐

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	o☐	Accelerated filer	x☒
Non-accelerated filer	o☐ (Do not check if a smaller reporting company)	Smaller reporting company	o☐
		Emerging growth company	o☐

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. o☐

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

The number of shares of the registrant’s Common Stock, $.01 par value per share, outstanding as of ~~May 22, 2020~~April 30, 2021 was ~~17,908,764.~~

18,048,354.

~~EXPLANATORY NOTE~~

As previously disclosed in the Current Report on Form 8-K filed by Carriage Services, Inc. (the “Company”) on April 29, 2020, the Company expected that the filing of this Quarterly Report on Form 10-Q for the quarter ended March 31, 2020 (the “Quarterly Report”), originally due on May 11, 2020, would be delayed due to disruptions caused by the COVID-19 pandemic. In particular, the Company’s day-to-day operations and business have experienced disruptions due to the unprecedented conditions surrounding the COVID-19 pandemic, along with the various measures that federal, state, and local jurisdictions have taken in response to the crisis. These disruptions include, but are not limited to, requirements that the Company’s corporate support staff work remotely from home, along with reduced staffing at our business locations. These conditions impacted the Company’s normal processes and interactions with its corporate support staff and others responsible for the preparation and timely filing of its Quarterly Report.

The Company relied on the 45-day extension provided by an order issued by the Securities and Exchange Commission under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies, dated March 25, 2020 (Release No. 34-88465) to delay the filing of this Quarterly Report.

CARRIAGE SERVICES, INC.

INDEX


		Page
PART I – FINANCIAL INFORMATION

		~~Page~~
~~PART I – FINANCIAL INFORMATION~~

Item 1. Financial Statements	3

Consolidated Balance Sheet as of December 31, ~~2019~~2020 and March 31, ~~2020~~2021		3

Consolidated Statements of Operations for the Three Months ended March 31, ~~2019~~2020 and ~~2020~~2021		4

Consolidated Statements of Cash Flows for the Three Months ended March 31, ~~2019~~2020 and ~~2020~~2021		5

Consolidated Statements of Changes in Stockholders' Equity for the Three Months ended March 31, ~~2019~~2020 and ~~2020~~2021		6

Condensed Notes to Consolidated Financial Statements		7

Cautionary Statement on Forward–Looking Statements		3540

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		3642

Item 3. Quantitative and Qualitative Disclosures About Market Risk		5057

Item 4. Controls and Procedures		5158

PART II – OTHER INFORMATION

Item 1. Legal Proceedings		5259

Item 1A. Risk Factors		5259

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		5460

Item 3. Defaults Upon Senior Securities		5460

Item 4. Mine Safety Disclosures		5460

Item 5. Other Information		5460

Item 6. Exhibits		5460

SIGNATURE		5561

INDEX OF EXHIBITS		5662

- 2 -

PART I – FINANCIAL INFORMATION


~~Item 1.~~	~~Financial Statements.~~

Item 1.Financial Statements.

CARRIAGE SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(in thousands, except share data)


				(unaudited)						(unaudited)
	December 31, 2019			March 31, 2020				December 31, 2020		March 31, 2021
ASSETS							ASSETS
Current assets:							Current assets:
Cash and cash equivalents	$	716		$	11,920		Cash and cash equivalents	$	889	$	406
Accounts receivable, net	21,478			20,845			Accounts receivable, net	25,103		25,585
Inventories	6,989			7,188			Inventories	7,259		7,386
Prepaid and other current assets	10,667			14,447			Prepaid and other current assets	2,076		2,076
Total current assets	39,850			54,400			Total current assets	35,327		35,453
Preneed cemetery trust investments	72,382			60,776			Preneed cemetery trust investments	86,604		92,363
Preneed funeral trust investments	96,335			81,377			Preneed funeral trust investments	101,235		105,201
Preneed cemetery receivables, net	20,173			20,402			Preneed cemetery receivables, net	21,081		21,533
Receivables from preneed trusts	18,024			18,089
Receivables from preneed trusts, net							Receivables from preneed trusts, net	16,844		16,976
Property, plant and equipment, net	279,200			278,995			Property, plant and equipment, net	269,051		267,055
Cemetery property, net	87,032			101,797			Cemetery property, net	101,134		101,109
Goodwill	398,292			396,696			Goodwill	392,978		391,972
Intangible and other non-current assets, net	32,116			33,457			Intangible and other non-current assets, net	29,542		29,502
Operating lease right-of-use assets	22,304			21,891			Operating lease right-of-use assets	21,201		20,747
Cemetery perpetual care trust investments	64,047			52,677			Cemetery perpetual care trust investments	70,828		75,815
Total assets	$	1,129,755		$	1,120,557		Total assets	$	1,145,825	$	1,157,726
LIABILITIES AND STOCKHOLDERS�� EQUITY
LIABILITIES AND STOCKHOLDERS’ EQUITY							LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:							Current liabilities:
Current portion of debt and lease obligations	$	3,150		$	3,219		Current portion of debt and lease obligations	$	3,432	$	3,301
Accounts payable	8,413			6,425			Accounts payable	11,259		9,543
Accrued and other liabilities	24,026			23,788			Accrued and other liabilities	31,138		39,599
Convertible subordinated notes due 2021	—			6,042			Convertible subordinated notes due 2021	2,538		0
Total current liabilities	35,589			39,474			Total current liabilities	48,367		52,443
Acquisition debt, net of current portion	5,658			5,462			Acquisition debt, net of current portion	4,482		4,442
Credit facility	82,182			112,509			Credit facility	46,064		27,282
Convertible subordinated notes due 2021	5,971			—

Senior notes due 2026	395,447			395,575			Senior notes due 2026	395,968		396,122
Obligations under finance leases, net of current portion	5,854			5,776			Obligations under finance leases, net of current portion	5,531		5,445
Obligations under operating leases, net of current portion	21,533			21,106			Obligations under operating leases, net of current portion	20,302		19,876
Deferred preneed cemetery revenue	46,569			46,980			Deferred preneed cemetery revenue	47,846		48,840
Deferred preneed funeral revenue	29,145			29,363			Deferred preneed funeral revenue	27,992		28,181
Deferred tax liability	41,368			45,491			Deferred tax liability	46,477		47,991
Other long-term liabilities	1,737			1,435			Other long-term liabilities	4,748		2,677
Deferred preneed cemetery receipts held in trust	72,382			60,776			Deferred preneed cemetery receipts held in trust	86,604		92,363
Deferred preneed funeral receipts held in trust	96,335			81,377			Deferred preneed funeral receipts held in trust	101,235		105,201
Care trusts’ corpus	63,416			52,774			Care trusts’ corpus	69,707		75,360
Total liabilities	903,186			898,098			Total liabilities	905,323		906,223
Commitments and contingencies:							Commitments and contingencies:	0		0
Stockholders’ equity:							Stockholders’ equity:
Common stock, $.01 par value; 80,000,000 shares authorized and 25,880,362 and 25,934,103 shares issued at December 31, 2019 and March 31, 2020, respectively	259			259
Common stock, $0.01 par value; 80,000,000 shares authorized and 26,020,494 and 26,073,693 shares issued, respectively and 17,995,155 and 18,048,354 shares outstanding, respectively							Common stock, $0.01 par value; 80,000,000 shares authorized and 26,020,494 and 26,073,693 shares issued, respectively and 17,995,155 and 18,048,354 shares outstanding, respectively	260		261
Additional paid-in capital	242,147			242,234			Additional paid-in capital	239,989		238,056
Retained earnings	86,213			82,016			Retained earnings	102,303		115,236
Treasury stock, at cost; 8,025,339 at both December 31, 2019 and March 31, 2020	(102,050		)	(102,050		)
Treasury stock, at cost; 8,025,339 at both December 31, 2020 and March 31, 2021							Treasury stock, at cost; 8,025,339 at both December 31, 2020 and March 31, 2021	(102,050)		(102,050)
Total stockholders’ equity	226,569			222,459			Total stockholders’ equity	240,502		251,503
Total liabilities and stockholders’ equity	$	1,129,755		$	1,120,557		Total liabilities and stockholders’ equity	$	1,145,825	$	1,157,726

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

- 3 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited and in thousands, except per share data)


	Three months ended March 31,							Three months ended March 31,
	2019			2020					2020		2021
Revenue:							Revenue:
Service revenue	$	36,652		$	40,732		Service revenue		$	40,732	$	47,757
Property and merchandise revenue	28,579			31,271			Property and merchandise revenue		31,271		41,896
Other revenue	3,850			5,487			Other revenue		5,487		6,984
	69,081			77,490					77,490		96,637
Field costs and expenses:							Field costs and expenses:
Cost of service	18,097			21,057			Cost of service		21,057		20,967
Cost of merchandise	22,261			25,063			Cost of merchandise		25,063		28,520
Cemetery property amortization	849			877			Cemetery property amortization		877		1,517
Field depreciation expense	3,085			3,290			Field depreciation expense		3,290		3,136
Regional and unallocated funeral and cemetery costs	2,789			2,756			Regional and unallocated funeral and cemetery costs		2,756		6,073
Other expenses	400			1,276			Other expenses		1,276		1,363
	47,481			54,319					54,319		61,576
Gross profit	21,600			23,171			Gross profit		23,171		35,061
Corporate costs and expenses:							Corporate costs and expenses:
General, administrative and other	5,612			5,946			General, administrative and other		5,946		8,834
Home office depreciation and amortization	389			382			Home office depreciation and amortization		382		289
Impairment of goodwill and other intangibles	—			(14,693		)
Net loss (gain) on divestitures and impairments charges							Net loss (gain) on divestitures and impairments charges		14,693		(308)
Operating income	15,599			2,150			Operating income		2,150		26,246

Interest expense	(6,328		)	(8,428		)	Interest expense		(8,428)		(7,584)
Accretion of discount on convertible subordinated notes	(57		)	(65		)	Accretion of discount on convertible subordinated notes		(65)		(20)
Other, net	(13		)	(4		)	Other, net		(4)		(68)
Income (loss) before income taxes	9,201			(6,347		)	Income (loss) before income taxes		(6,347)		18,574
Benefit (expense) for income taxes	(2,577		)	2,136			Benefit (expense) for income taxes		2,136		(5,758)
Tax adjustment related to discrete items	(99		)	14			Tax adjustment related to discrete items		14		117
Total benefit (expense) for income taxes	(2,676		)	2,150			Total benefit (expense) for income taxes		2,150		(5,641)
Net income (loss)	$	6,525		$	(4,197	)	Net income (loss)		$	(4,197)	$	12,933

Basic earnings (loss) per common share:	$	0.36		$	(0.23	)	Basic earnings (loss) per common share:		$	(0.23)	$	0.72
Diluted earnings (loss) per common share:	$	0.36		$	(0.23	)	Diluted earnings (loss) per common share:		$	(0.23)	$	0.71

Dividends declared per common share:	$	0.075		$	0.075		Dividends declared per common share:		$	0.075	$	0.1000

Weighted average number of common and common equivalent shares outstanding:							Weighted average number of common and common equivalent shares outstanding:
Basic	18,057			17,805			Basic		17,805		17,965
Diluted	18,097			17,805			Diluted		17,805		18,199

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

- 4 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited and in thousands)


	Three months ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Cash flows from operating activities:							Cash flows from operating activities:
Net income (loss)	$	6,525		$	(4,197	)	Net income (loss)	$	(4,197)	$	12,933
Adjustments to reconcile net income to net cash provided by operating activities:	��						Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	4,323			4,549			Depreciation and amortization	4,549		4,942
Provision for bad debt and credit losses	366			690			Provision for bad debt and credit losses	690		588
Stock-based compensation expense	585			831			Stock-based compensation expense	831		1,307
Deferred income tax expense	991			3,596			Deferred income tax expense	3,596		1,514
Amortization of deferred financing costs	94			200			Amortization of deferred financing costs	200		193
Amortization of capitalized commissions on preneed contracts	138			141
Amortization of capitalized commissions and non-compete agreements							Amortization of capitalized commissions and non-compete agreements	328		320
Accretion of discount on convertible subordinated notes	57			65			Accretion of discount on convertible subordinated notes	65		20
Accretion of debt discount, net of debt premium on senior notes	120			75			Accretion of debt discount, net of debt premium on senior notes	75		80
Net loss on sale of businesses and disposal of other assets	167			60
Goodwill and other impairments	—			14,693
Net loss (gain) on divestiture and impairment charges							Net loss (gain) on divestiture and impairment charges	14,693		(308)
Net loss on disposal of other assets							Net loss on disposal of other assets	60		329

Other	—			19			Other	19		0

Changes in operating assets and liabilities that provided (required) cash:							Changes in operating assets and liabilities that provided (required) cash:
Accounts and preneed receivables	630			2,179			Accounts and preneed receivables	2,179		(1,521)
Inventories, prepaid and other current assets	736			(8,748		)	Inventories, prepaid and other current assets	(8,748)		(153)
Intangible and other non-current assets	(24		)	(103		)	Intangible and other non-current assets	(290)		(291)
Preneed funeral and cemetery trust investments	(1,269		)	(2,890		)	Preneed funeral and cemetery trust investments	(2,890)		(2,952)
Accounts payable	(2,895		)	(2,133		)	Accounts payable	(2,133)		(1,712)
Accrued and other liabilities	(1,292		)	(114		)	Accrued and other liabilities	(114)		6,853
Deferred preneed funeral and cemetery revenue	117			1,080			Deferred preneed funeral and cemetery revenue	1,080		1,183
Deferred preneed funeral and cemetery receipts held in trust	1,625			3,553			Deferred preneed funeral and cemetery receipts held in trust	3,553		3,486
Net cash provided by operating activities	10,994			13,546			Net cash provided by operating activities	13,546		26,811

Cash flows from investing activities:							Cash flows from investing activities:
Acquisitions	—			(28,000		)
Net proceeds from the sale of other assets	100			78
Acquisition of businesses							Acquisition of businesses	(28,000)		0

Acquisition of real estate							Acquisition of real estate	—		(350)
Proceeds from divestitures and sale of other assets							Proceeds from divestitures and sale of other assets	78		2,800
Capital expenditures	(3,543		)	(2,738		)	Capital expenditures	(2,738)		(4,347)
Net cash used in investing activities	(3,443		)	(30,660		)	Net cash used in investing activities	(30,660)		(1,897)

Cash flows from financing activities:							Cash flows from financing activities:
Borrowings from the credit facility	10,100			63,200			Borrowings from the credit facility	63,200		15,168
Payments against the credit facility	(16,200		)	(33,000		)	Payments against the credit facility	(33,000)		(34,068)
Payments of debt issuance costs related to the 6.625% senior notes	—			(14		)

Conversions and maturity of the convertible subordinated notes due 2021							Conversions and maturity of the convertible subordinated notes due 2021	0		(3,980)

Payments of debt issuance costs and transaction costs							Payments of debt issuance costs and transaction costs	(14)		(7)
Payments on acquisition debt and obligations under finance leases	(471		)	(487		)	Payments on acquisition debt and obligations under finance leases	(487)		(233)
Payments on contingent consideration recorded at acquisition date	(162		)	(169		)	Payments on contingent consideration recorded at acquisition date	(169)		(461)
Proceeds from the exercise of stock options and employee stock purchase plan contributions	746			361
Taxes paid on restricted stock vestings and exercise of non-qualified options	(174		)	(234		)
Proceeds from the exercise of stock options and employee stock purchase plan							Proceeds from the exercise of stock options and employee stock purchase plan	361		625
Taxes paid on restricted stock vestings and exercise of stock options							Taxes paid on restricted stock vestings and exercise of stock options	(234)		(642)
Dividends paid on common stock	(1,360		)	(1,339		)	Dividends paid on common stock	(1,339)		(1,799)

Net cash provided by (used in) financing activities	(7,521		)	28,318			Net cash provided by (used in) financing activities	28,318		(25,397)

Net increase in cash and cash equivalents	30			11,204
Net increase (decrease) in cash and cash equivalents							Net increase (decrease) in cash and cash equivalents	11,204		(483)
Cash and cash equivalents at beginning of period	644			716			Cash and cash equivalents at beginning of period	716		889
Cash and cash equivalents at end of period	$	674		$	11,920		Cash and cash equivalents at end of period	$	11,920	$	406

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

- 5 -

CARRIAGE SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(unaudited and in thousands)



	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – December 31, 2019	17,855	$	259	$	242,147	$	86,213	$	(102,050)	$	226,569
Net loss - 2020	—	—		—		(4,197)		—		(4,197)
Issuance of common stock from employee stock purchase plan	27	0		361		—		—		361
Issuance of common stock to directors	9	—		142		—		—		142
Issuance of restricted common stock	10	0		0		—		—		0

Cancellation and surrender of restricted common stock	(10)	0		(234)		—		—		(234)
Stock-based compensation expense	—	—		689		—		—		689
Dividends on common stock	—	—		(1,339)		—		—		(1,339)


Other	18	—		468		—		—		468

Balance – March 31, 2020	17,909	$	259	$	242,234	$	82,016	$	(102,050)	$	222,459

Shares
Outstanding

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock
Total
Balance – December 31, 2018 18,078
$ 257
$ 243,849
$ 71,680
$ (94,294 ) $ 221,492
Net income —
—
—
6,525
—
6,525
Issuance of common stock 23
—
275
—
—
275
Exercise of stock options 71
1
471
—
—
472
Issuance of restricted common stock 25
—
—
—
—
—
Cancellation and retirement of restricted common stock and stock options (9 ) —
(174 ) —
—
(174 )
Stock-based compensation expense —
—
585
—
—
585
Dividends on common stock —
—
(1,360 ) —
—
(1,360 )
Other 15
—
294
—
—
294
Balance – March 31, 2019 18,203
$ 258
$ 243,940
$ 78,205
$ (94,294 ) $ 228,109

Shares
Outstanding

Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Treasury
Stock
Total
Balance – December 31, 2019 17,855
$ 259
$ 242,147
$ 86,213
$ (102,050 ) $ 226,569
Net loss —
—
—
(4,197 ) —
(4,197 )
Issuance of common stock 36
—
361
—
—
361
Issuance of restricted common stock 10
—
—
—
—
—
Cancellation and retirement of restricted common stock and stock options (10 ) —
(234 ) —
—
(234 )
Stock-based compensation expense —
—
831
—
—
831
Dividends on common stock —
—
(1,339 ) —
—
(1,339 )
Other 18
—
468
—
—
468
Balance – March 31, 2020 17,909
$ 259
$ 242,234
$ 82,016
$ (102,050 ) $ 222,459



	Shares Outstanding	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Total
Balance – December 31, 2020	17,995	$	260	$	239,989	$	102,303	$	(102,050)	$	240,502
Net income - 2021	—	—		—		12,933		—		12,933
Issuance of common stock from employee stock purchase plan	18	1		478		—		—		479
Issuance of common stock to directors	5	—		177		—		—		177
Issuance of restricted common stock	9	0		0		—		—		0
Exercise of stock options	30	—		(148)		—		—		(148)
Cancellation and surrender of restricted common stock	(9)	0		(347)		—		—		(347)
Stock-based compensation expense	—	—		1,130		—		—		1,130
Dividends on common stock	—	—		(1,799)		—		—		(1,799)
Convertible notes conversions	—	—		(1,424)		—		—		(1,424)


Balance – March 31, 2021	18,048	$	261	$	238,056	$	115,236	$	(102,050)	$	251,503

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

- 6 -

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. As of March 31, ~~2020,~~2021, we operated ~~186~~173 funeral homes in 2926 states and 32 cemeteries in 1112 states. Our operations are reported in ~~two~~2 business segments: Funeral Home Operations, which currently account for approximately ~~80%~~75% of our revenue and Cemetery Operations, which currently account for approximately ~~20%~~25% of our revenue.

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 use of funeral home facilities for visitation and ~~remembrance~~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 ~~memorial markers~~ and ~~floral placements)~~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. 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, ~~2019~~2020 unless otherwise disclosed herein, and should be read in conjunction therewith.

On March 11, 2020, the World Health Organization declared the 2019 novel coronavirus disease (“COVID-19”), to be a pandemic, which has spread across the globe and is impacting worldwide economic activity. In light of recent developments relating to COVID-19, the Company has evaluated the impact of COVID-19 on our Consolidated Financial Statements and related disclosures.

Reclassifications

Certain reclassifications have been made to prior period amounts on our ~~statement~~Consolidated Statements of ~~cash flows~~Cash Flows related to the amortization of non-compete agreements and ~~consolidated financial position~~on our Statement of Changes in Stockholders Equity related to the issuance of common stock to conform to the current period financial statement presentation with no ~~impact~~effect on our previously reported ~~results~~Consolidated Statements of ~~operations, total assets~~Operations and ~~total liabilities or operating cash flows.~~

~~Cash and Cash Equivalents~~

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

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 estimates and judgments, ~~including~~which include those related to ~~revenue recognition,~~the realization of our accounts receivable, valuation of goodwill, intangible assets, ~~property and equipment and~~ deferred tax assets and ~~liabilities.~~liabilities and depreciation of property and equipment. We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities. 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, as there can be no assurance that our results of operations will be consistent from year to year.

Cash and Cash Equivalents

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

0Funeral and Cemetery Receivables

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 recorded in Accounts receivable, net. Preneed cemetery receivables with payments expected to

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be received beyond one year from the balance sheet date are recorded in Preneed cemetery receivables, net. Our cemetery receivables generally consist of preneed sales of cemetery interment rights and related products and services, which are typically financed through interest-bearing installment sales contracts, generally with terms of up to five years, with such interest income reflected as Other revenue. In substantially all cases, we receive an initial down payment at the time the contract is signed.

For our funeral and atneed cemetery receivables, we have a collections policy where statements are sent to the customer at 30 days past due. Past due notification letters are sent at 45 days and continue until payment is received or the contract is placed with a third-party collections agency. For our preneed cemetery receivables, we have a collections policy where past due notification letters are sent to the customer beginning at 15 days past due and periodically thereafter until payment is received or the contract is cancelled.

Our allowance for credit losses reflects our best estimate of expected credit losses over the term of both our funeral and cemetery receivables. Our policy is to write off receivables when we have determined they will no longer be collectible. Write-offs are applied as a reduction to the allowance for credit losses and any recoveries of previous write-offs are netted against bad debt expense in the period recovered.

We determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years. From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables. These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities. We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve.

See Note 5 to the Consolidated Financial Statements herein for additional information related to our funeral and cemetery receivables.

Inventory

Inventory consists primarily of caskets, outer burial containers and cemetery monuments and markers and is recorded at the lower of its cost basis ~~(determined by the specific identification method)~~ or net realizable value.

~~Revenue Recognition~~

~~Funeral and Cemetery Operations Revenue~~ Inventory is ~~recognized when control~~relieved using specific identification in fulfillment of the merchandise or services is transferred to the customer. Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. Sales taxes collected are recognized on a net basis in our consolidated financial statements. On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need.

Due to limitations on gatherings imposed to mitigate the spread of COVID-19, some customers have requested that we delay the memorial service until after the limitations have been lifted. Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products. All other performance obligations on ~~these contracts, including arrangement, removal, preparation, embalming, cremation, interment,~~our contracts.

Business Combinations

Tangible and ~~delivery~~intangible assets acquired and liabilities assumed are recorded at fair value and goodwill is recognized for any difference between the price of ~~urns~~the acquisition and ~~caskets~~fair value. We recognize the assets acquired, the liabilities assumed and ~~related memorialization merchandise are fulfilled~~any non-controlling interest in the acquiree at the ~~time~~acquisition date, measured at the fair value as of ~~need. Personalized marker merchandise and marker installation services sold on atneed contracts~~that date. Acquisition related costs are recognized ~~when control is transferred~~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 ~~customer, generally when~~closing date subsequently becomes available during the ~~marker is delivered and installed in~~allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the ~~cemetery.~~acquisition.

~~Ancillary funeral service revenue, which is recorded in~~ ~~Other revenue,~~ ~~represents revenue from our flower shop, pet cremation business and online cremation business in Texas~~.

~~The earnings from our preneed trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded in~~ ~~Other revenue. As of~~During the three months ended March 31, 2020, ~~CSV RIA provided investment management~~we acquired 1 funeral home and ~~advisory services~~cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid at closing in 2020. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.

Divested Operations

Prior to ~~approximately 73%~~divesting a funeral home or cemetery, we first determine whether the sale of ~~our trust~~the net assets ~~for~~and activities (together referred to as a ~~fee based on~~“set”) qualifies as a business. First, we perform a screen test to determine if the ~~market~~set is not a business. The principle of the screen is that if substantially all of the fair value of ~~trust assets. Under state trust laws,~~the gross assets sold resides in a single asset or group of similar assets, the set is not a business. If the screen is not met, we perform an assessment to determine if the set is a business by evaluating whether the set has both inputs and a substantive process that together significantly contribute to the ability to create outputs. When both inputs and a substantive process are ~~allowed to charge~~present then the ~~trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided.~~

~~Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce~~ ~~Deferred preneed funeral revenue~~ ~~on our Consolidated Balance Sheet of $8.9 million and $8.7 million at December 31, 2019 and March 31, 2020, respectively. As these performance obligations are~~set is determined to be ~~completed after~~a business and we apply the ~~date~~guidance in Accounting Standards Codification (“ASC”) Topic 350 – Intangibles – Goodwill and Other to determine the accounting treatment of ~~death, we cannot quantify the recognition~~goodwill for that set (see discussion of ~~revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.~~

~~Balances due from customers on delivered preneed cemetery contracts are included in~~ ~~Accounts receivable, net~~ ~~and~~ ~~Preneed cemetery receivables, net~~ ~~on our Consolidated Balance Sheet. Balances due on undelivered preneed cemetery contracts have been reclassified to reduce~~ ~~Deferred preneed cemetery revenue~~ ~~on our Consolidated Balance Sheet. The transaction price~~Goodwill below). Goodwill is only allocated to preneed merchandise and service performance obligations that were unfulfilled were $4.8 million and $5.8 million at December 31, 2019 and March 31, 2020, respectively. As these performance obligations arethe sale if the set is considered 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.~~a business.

See Notes 173 and 4 to the Consolidated Financial Statements herein for additional information related to ~~revenue.~~our divestitures.

~~Arrangements~~

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Goodwill

The excess of the purchase price over the fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative goodwill impairment test.

Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

When we divest a portion of a reporting unit that constitutes a business in accordance with ~~Multiple Performance Obligations~~

~~Some of our contracts with customers include multiple performance obligations. For these contracts,~~U.S. Generally Accepted Accounting Principles (“GAAP”), we allocate goodwill associated with that business to be included in the ~~transaction price to each performance obligation based~~gain or loss on ~~its relative standalone selling price, which~~divestiture. The goodwill allocated is based on ~~prices charged to customers per our general price list. Packages for service and ancillary items are offered to help~~ the ~~customer make decisions during emotional and stressful times. Package discounts are reflected net in~~ ~~Revenue. We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction~~relative fair values of the ~~corresponding performance obligation. Sales taxes collected~~business being divested and the portion of the reporting unit that will be retained. Additionally, after each divestiture, we will test the goodwill remaining in the portion of the reporting unit to be retained for impairment using a qualitative assessment unless we deem a quantitative assessment to be appropriate to ensure the fair value of our reporting units is greater than their carrying value.

See Note 3 to the Consolidated Financial Statements included herein for additional information related to our goodwill.

Intangible Assets

Our intangible assets include tradenames resulting from acquisitions and are ~~recognized~~included in Intangible and other non-current assets, net on ~~a net basis in~~ our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31st each year. Under current guidance, we are permitted to first assess qualitative factors to determine whether it is more-likely-than not that the fair value of the tradename is less than its carrying amount as a basis for determining whether it is necessary to perform a quantitative impairment test.

Our intent is to perform a quantitative impairment test at least once every three years and perform a qualitative assessment during the remaining two years. In addition to our annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

See Note 9 to the Consolidated Financial ~~Statements.~~Statements included herein for additional information related to our intangible assets.

Preneed ~~Funeral~~ and ~~Cemetery~~Perpetual Care Trust Funds

Preneed sales generally require deposits to a trust or purchase of a third-party insurance product. We have established a variety of trusts in connection with funeral home and cemetery operations as required under applicable state laws. Such trusts include (i) preneed funeral trusts; (ii) preneed cemetery merchandise and service trusts; and (iii) cemetery perpetual care trusts.

Our preneed and perpetual care trust funds are reported in accordance with the principles of consolidating Variable Interest Entities (“~~VIE’s”~~VIEs”). In the case of preneed trusts, the customers are the legal beneficiaries. In the case of perpetual care trusts, we do not have a right to access the corpus in the perpetual care trusts.

Our trust fund assets are reflected in our financial statements as Preneed cemetery trust investments, Preneed funeral trust investments and Cemetery perpetual care trust investments. We have recognized financial interests of third parties in the trust funds in our financial statements as Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus.

The ~~investments~~fair value of ~~such~~our trust ~~funds~~fund assets are ~~classified~~accounted for as ~~available-for-sale~~Collateralized Financing Entities (“CFEs”) in ASC Topic 810. The accounting guidance for CFEs allows companies to elect to measure both the financial assets and financial liabilities using the more observable of the fair value of the financial assets or fair value of the financial liabilities. Pursuant to this guidance, we have determined the fair value of the financial assets of the trusts are ~~reported~~more observable and we first measure those financial assets at fair ~~market value; therefore,~~value. Our fair value of the ~~unrealized gains~~financial liabilities mirror the fair value of the financial assets, in accordance with the ASC. Any changes in fair value are recognized in earnings.

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In accordance with ASC Topic 326, we present our credit losses for fixed income securities as an allowance rather than as a write-down on the fixed income securities we do not intend to sell and ~~losses, as well as accumulated and undistributed income and realized gains and losses are recorded to~~ ~~Deferred preneed funeral and cemetery receipts held in trust~~ ~~and~~ ~~Care trusts’ corpus~~ ~~on our Consolidated Balance Sheet. Our future obligations to deliver merchandise and services are reported at estimated settlement amounts. Preneed funeral and cemetery trust investments~~

~~are reduced by the trust investment earnings~~it is likely that we ~~have been allowed~~will not be required to ~~withdraw in certain states~~sell prior to ~~maturity. These earnings, along with preneed contract collections not required to be placed in trust, are recorded in~~ ~~Deferred preneed funeral revenue~~ ~~and~~ ~~Deferred preneed cemetery revenue~~ ~~until the service is performed or the merchandise is delivered.~~their anticipated recovery.

In accordance with respective state laws, we are required to deposit a specified amount into perpetual and memorial care trust funds for each interment right and certain memorials sold. Income from the trust funds is distributed to us and used to provide for the care and maintenance of the cemeteries and mausoleums. Such trust fund income is recognized as revenue when realized by the trust and distributable to us. We are restricted from withdrawing any of the principal balances of these funds.

An enterprise is required to perform an analysis to determine whether the enterprise’s variable interest(s) give it a controlling financial interest in a VIE. This analysis identifies the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entity’s economic performance and the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE. Our analysis continues to support our position as the primary beneficiary in the majority of our funeral and cemetery trust funds.

See Notes 6 and 7 to the Consolidated Financial Statements herein for additional information related to our preneed and perpetual care trust funds.

Fair Value Measurements

We measure the securities held by our funeral merchandise and service, cemetery merchandise and service, and cemetery ~~trust funds.~~

~~Funeral and Cemetery Receivables~~

~~Our funeral receivables are recorded in~~ ~~Accounts Receivable, net~~ and primarily consist of amounts due for funeral services already performed. Our cemetery receivables generally consist of preneed sales of cemetery interment rights and related products and services, which are typically financed through interest-bearing installment sales contracts, generally with terms of up to five years, with such interest income reflected as ~~Other revenue. In substantially all cases, we receive an initial down payment~~perpetual care trusts at ~~the time the contract is signed. We do not accrue interest~~fair value on ~~preneed receivables if they are not paid~~a recurring basis in accordance with ASC Topic 820. This guidance defines fair value as the ~~contractual payment terms given~~price that would be received in the ~~nature~~sale of ~~our merchandise~~an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date for items that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually). The guidance establishes a three-level valuation hierarchy for disclosure of fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

We disclose the extent to which fair value is used to measure financial assets and ~~services,~~liabilities, the ~~nature of our contracts with customers~~inputs utilized in calculating valuation measurements, and the ~~timing~~effect of the ~~delivery~~measurement of ~~our services. Atneed cemetery receivables~~significant unobservable inputs on earnings, or changes in net assets, as of the measurement date. We currently do not have any assets that have fair values determined by Level 3 inputs and ~~preneed cemetery receivables with payments expected~~no liabilities measured at fair value. We have not elected to measure any additional financial instruments and certain other items at fair value that are not currently required to be ~~received within one year from the balance sheet date are 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.~~

~~For our funeral receivables, we have a collections policy where statements are sent to the customer~~measured at ~~30 days past due. Past due notification letters are sent at 45 days and continue until payment is received or the contract is placed with a third party collections agency.~~

For our preneed cemetery receivables, we have a collections policy where past due notification letters are sent to the customer beginning at 15 days past due and periodically thereafter until the contract is cancelled or payment is received.

For both funeral and cemetery receivables, we determine our allowance for credit losses by using a loss-rate methodology, in which we assess our historical write-off of receivables against our total receivables over several years. From this historical loss-rate approach, we also consider the current and forecasted economic conditions expected to be in place over the life of our receivables. These estimates are impacted by a number of factors, including changes in the economy, demographics and competition in our local communities. We monitor our ongoing credit exposure through an active review of our customers’ receivables balance against contract terms and due dates. Our activities include timely performance of our accounts receivable reconciliations, assessment of our aging of receivables, dispute resolution and payment confirmation. We will also monitor any change in our historical write-off of receivables utilized in our loss-rate methodology and assess forecasted changes in market conditions within our credit reserve. In the first quarter of 2020, we increased our allowance for credit losses on our receivables as a result of the economic impact of COVID-19.

~~In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”),~~ ~~Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments~~ and subsequent amendments collectively known as (“Topic 326”). Prior to adoption of Topic 326, we provided allowances for bad debt and contract cancellations on our receivables based on an analysis of historical trends of collection activity.fair value.

See Notes 26 and 58 to the Consolidated Financial Statements herein for additional ~~information related the adoption of Topic 326 on January 1, 2020 and the additional~~required disclosures ~~required.~~

~~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 allocation period, we may adjust goodwill, intangible assets, assets or liabilities associated with the acquisition.

~~See Note 3 to the Consolidated Financial Statements herein for further information~~ related to our ~~acquisitions.~~

~~Goodwill~~

~~The excess of the purchase price over the~~ fair value of identifiable net assets of funeral home businesses and cemeteries acquired is recorded as goodwill. Goodwill has an indefinite life and is not subject to amortization. As such, we test goodwill for impairment on an annual basis as of August 31^steach year. In addition to our annual test, we assess the impairment of goodwill whenever events or changes in circumstances indicate that the carrying value of a reporting unit may be greater than fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant negative industry or economic trends and significant adverse changes in the business climate, which may be indicated by a decline in our market capitalization or decline in operating results.

~~As a result of economic conditions caused by the response to COVID-19, we performed a quantitative assessment~~measurement of our goodwill at March 31, 2020. Based on the quantitative assessment conducted at March 31, 2020, we recorded an impairment for goodwill of $13.6 million during the quarter ended March 31, 2020, as the carrying amount of our funeral homes in the Eastern Reporting Unit exceeded the fair value. The discounted cash flow valuation uses projections of future cash flowsfinancial assets and ~~includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows.~~

~~See Note 4 to the Consolidated Financial Statements included herein for additional information related to our goodwill.~~

~~Intangible Assets~~

~~Our intangible assets include tradenames resulting from acquisitions and are included in~~ ~~Intangible and other non-current assets, net~~ on our Consolidated Balance Sheet. Our tradenames are considered to have an indefinite life and are not subject to amortization. As such, we test our intangible assets for impairment on an annual basis as of August 31^steach year. In addition to our annual test, we assess the impairment of intangible assets whenever certain events or changes in circumstances indicate that the carrying value of the intangible asset may be greater than the fair value. Factors that could trigger an interim impairment review include, but are not limited to, significant under-performance relative to historical or projected future operating results and significant negative industry or economic trends.

As a result of economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our tradenames at March 31, 2020. Based on the quantitative assessment conducted at March 31, 2020, we recorded an impairment for certain of our tradenames of $1.1 million during the quarter ended March 31, 2020 as the carrying amount of these tradenames exceeded the fair value. In determining the fair value of the tradenames, we used the relief from royalty method whereby we determine the fair value of the assets by discounting the cash flows that represent a savings over having to pay a royalty fee for use of the tradenames. The discounted cash flow valuation uses projections of future cash flows and includes assumptions concerning future operating performance and economic conditions that may differ from actual future cash flows and the determination and application of an appropriate royalty rate and discount rate.

~~See Note 9 to the Consolidated Financial Statements included herein for additional information related to our intangible assets.~~liabilities.

Capitalized Commissions on Preneed Contracts

We capitalize sales commissions and other direct selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts as these costs are incremental and recoverable costs of obtaining a contract with a customer. Our capitalized commissions on preneed contracts are amortized on a straight-line basis over the average maturity period of ten years for our preneed funeral trust contracts and eight years for our preneed cemetery merchandise and services ~~contracts and preneed funeral trust contracts, of eight and ten years, respectively.~~contracts.

The selling costs related to the sales of cemetery interment rights, which include real property and other costs related to cemetery development activities, continue to be expensed using the specific identification method in the period in which the sale of the cemetery interment right is recognized as revenue. The selling costs related to preneed funeral insurance contracts continue to be expensed in the period incurred as these contracts are not included on our Consolidated Balance Sheet.

See Note 9 to the Consolidated Financial Statements herein for additional information related to our capitalized commissions on preneed contracts.

~~Leases~~

We have operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years. We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties. We do not have any material sublease arrangements. We determine if an arrangement is a lease at inception based on the facts and circumstances of the agreement. A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease.

~~Operating lease ROU assets are included in~~ ~~Operating lease right-of-use assets~~ ~~and operating lease liabilities are included in~~ ~~Current portion of operating lease obligations~~ ~~and~~ ~~Obligations under operating leases, net of current portion~~ ~~on our Consolidated Balance Sheet. Finance lease ROU assets are included in~~ ~~Property, plant and equipment, net~~ ~~and finance lease liabilities are included in~~ ~~Current portion of finance lease obligations~~ ~~and~~ ~~Obligations under finance leases, net of current portion~~ ~~on our Consolidated Balance Sheet.~~

In connection with the goodwill and intangible impairment tests performed at March 31, 2020, we also evaluated the operating and finance leases of our funeral homes in the Eastern Reporting Unit and concluded that there was no impairment to our operating and finance lease assets.

~~See Notes 13 to the Consolidated Financial Statements included herein for additional information related to our leases.~~

Property, Plant and Equipment

Property, plant and equipment (including equipment under finance leases) are stated at cost. The costs of ordinary maintenance and repairs are charged to operations as incurred, while renewals and major replacements that extend the useful economic life of the asset are capitalized. Depreciation of property, plant and equipment (including equipment under finance leases) is computed based on the straight-line method over the estimated useful lives of the assets.

~~Property, plant and equipment is comprised of the following at December 31, 2019 and March 31, 2020 (in thousands):~~

December 31, 2019
March 31, 2020
Land $ 84,608
$ 85,014
Buildings and improvements 242,641
243,582
Furniture, equipment and automobiles 88,046
89,638
Property, plant and equipment, at cost 415,295
418,234
Less: accumulated depreciation (136,095 ) (139,239 )
Property, plant and equipment, net $ 279,200
$ 278,995

During the three months ended March 31, 2020, we acquired $1.7 million of property, plant and equipment related to our acquisition described in Note 3 to the Consolidated Financial Statements included herein. We recorded depreciation expense of $3.5 million and $3.6 million for the three months ended March 31, 2019 and 2020, respectively.

Long-lived assets, such as property, plant and equipment subject to depreciation and amortization, are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable in accordance with ~~the~~ASC Topic 360 – Property, Plant and ~~Equipment topic~~Equipment.

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Property, plant and equipment is comprised of the ~~Accounting Standards Codification (“ASC”) 360. In connection with~~following (in thousands):


	December 31, 2020		March 31, 2021
Land	$	82,615	$	81,981
Buildings and improvements	240,567		240,988
Furniture, equipment and automobiles	91,302		91,481
Property, plant and equipment, at cost	414,484		414,450
Less: accumulated depreciation	(145,433)		(147,395)
Property, plant and equipment, net	$	269,051	$	267,055

During the ~~goodwill~~three months ended March 31, 2021, we acquired land for $0.4 million. We also divested 2 funeral homes that had a carrying value of property, plant and ~~intangible~~equipment of $1.5 million, which was included in the gain on sale of divestitures and recorded in Net loss (gain) on divestitures and impairment ~~tests performed at~~charges on our Consolidated Statements of Operations, described in Note 4 to the Consolidated Financial Statements included herein.

Our growth and maintenance capital expenditures totaled $2.7 million and $4.3 million for the three months ended March 31, 2020 and 2021, respectively, for property, plant, equipment and cemetery development. In addition, we ~~also evaluated~~recorded depreciation expense of $3.6 million and $3.4 million for the ~~long-lived assets of our funeral homes in the Eastern Reporting Unit~~three months ended March 31, 2020 and ~~concluded that there was no impairment to our long-lived assets.~~2021, respectively.

Cemetery Property

When we acquire a cemetery, we utilize an internal and external approach to determine the fair value of the cemetery property. From an external perspective, we obtain an accredited appraisal to provide reasonable assurance for property existence, property availability (unrestricted) for development, property lines, available spaces to sell, identifiable obstacles or easements and general valuation inclusive of known variables in that market. From an internal perspective, we conduct a detailed analysis of the acquired cemetery property using other cemeteries in our portfolio as a benchmark. This provides the added benefit of relevant ~~and accurate~~ data that is not available to third party appraisers. Through this thorough internal process, the Company is able to identify viable costs of property based on historical experience, particular markets and demographics, reasonable margins, practical retail prices and park infrastructure and condition.

Cemetery property was ~~$87.0~~$101.1 million at both December 31, 2020 and ~~$101.8 million,~~March 31, 2021, net of accumulated amortization of ~~$41.7~~$46.6 million and ~~$42.5~~$48.1 million, ~~at December 31, 2019 and March 31, 2020,~~ 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. We recorded amortization expense for cemetery interment rights of ~~$0.8~~$0.9 million and ~~$0.9~~$1.5 million for the three months ended March 31, ~~2019~~2020 and ~~2020.~~2021, respectively.

~~Fair Value Measurements~~Leases

~~In August 2018,~~We have operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the ~~FASB amended “Fair Value Measurements”~~leases for up to ~~modify~~26 years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years. We do not have lease agreements with residual value guarantees, sale-leaseback terms, material restrictive covenants or related parties. We do not have any material sublease arrangements.

We determine if an arrangement is a lease at inception based on the ~~disclosure requirements related to fair value. The amendment removes requirements to disclose (1) the amount of~~facts and ~~reasons for transfers between Levels 1 and 2~~circumstances of the ~~fair~~agreement. A right-of-use (“ROU”) asset represents our right to use the underlying asset for the lease term and the lease liability represents our obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized on our Consolidated Balance Sheet at the lease commencement date based on the present value ~~hierarchy, (2)~~of lease payments over the lease term. As our ~~policy~~leases do not provide an implicit interest rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The lease terms used to calculate the ROU asset and related lease liability include options to extend the ~~timing~~lease when it is reasonably certain that we will exercise that option. Lease expense for operating leases is recognized on a straight-line basis over the lease term as an operating expense, while the expense for finance leases is recognized as depreciation expense and interest expense using the accelerated interest method of ~~transfers between levels, and (3)~~recognition. Variable lease payment amounts that cannot be determined at the ~~valuation processes used in Level 3 measurements. It clarifies that the narrative disclosure~~commencement of the ~~effect of changes~~lease such as increases in ~~Level 3 inputs should be~~lease payments based on changes in index rates or usage, are not included in the ROU assets or liabilities. These are expensed as incurred and recorded as variable lease expense. We have real estate lease agreements which require payments for lease and non-lease components and account for these as a single lease component. Leases with an initial term of 12 months or less, that ~~could occur at~~do not include an option to renew the reporting date. The amendment adds a requirement to disclose the range and weighted average of the significant unobservable inputs used in Level 3 measurements. We adopted the new standard as of January 1, 2020 and it had no impactunderlying asset, are not recorded on our ~~consolidated results~~Consolidated Balance Sheet and expense is recognized on a straight-line basis over the lease term.

Operating lease ROU assets are included in Operating lease right-of-use assets and operating lease liabilities are included in Current portion of ~~operations, consolidated financial position,~~operating lease obligations and ~~cash flows~~.Obligations under operating leases, net of current portion on our

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Consolidated Balance Sheet. Finance lease ROU assets are included in Property, plant and equipment, net and finance lease liabilities are included in Current portion of finance lease obligations and Obligations under finance leases, net of current portion on our Consolidated Balance Sheet.

See Notes ~~6 and 8~~13 to the Consolidated Financial Statements included herein for additional ~~required disclosures~~information related to our ~~fair value measurement of our financial assets and liabilities.~~leases.

~~Stock~~Equity Plans and Stock-Based Compensation

We have ~~stock-based~~equity-based employee and director compensation plans under which we ~~grant~~have granted stock ~~restricted stock,~~awards, stock options and performance awards. We also have an employee stock purchase plan ~~(“ESPP”~~(the “ESPP”). We recognize compensation expense in an amount equal to the fair value of the stock-based awards expected to vest or to be purchased over the requisite service period. We recognize the effect of forfeitures in compensation cost when they occur and any previously recognized compensation cost for an award is reversed in the period that the award is forfeited.

Fair value is determined on the date of the grant. The fair value of restricted stock is determined using the stock price on the grant date. The fair value of options or awards containing options is determined using the Black-Scholes valuation model or the Monte-Carlo simulation pricing model. The fair value of the performance awards related to market performance conditions is determined using a Monte-Carlo simulation pricing model. The fair value of the ESPP is determined based on the discount element offered to employees and the embedded option element, which is determined using an option calculation model.

We recognize all excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) as income tax benefit or expense in the income statement. We treat the tax effects of exercised or vested awards as discrete items in the reporting period in which they occur. Excess tax benefits or deficiencies related to share-based payments are included in operating cash flows on the Consolidated Statements of Cash Flows.

See Note 1514 to the Consolidated Financial Statements included herein for additional information related to our equity plans and stock-based ~~compensation plans.~~compensation.

Revenue Recognition

Funeral and Cemetery Operations Revenue is recognized when control of the merchandise or services is transferred to the customer. Our performance obligations include the delivery of funeral and cemetery merchandise and services and cemetery property interment rights. Control transfers when merchandise is delivered or services are performed. For cemetery property interment rights, control transfers to the customer when the property is developed and the interment right has been sold and can no longer be marketed or sold to another customer. Sales taxes collected are recognized on a net basis in our consolidated financial statements. On our atneed contracts, we generally deliver the merchandise and perform the services at the time of need.

Memorial services frequently include performance obligations to direct the service, provide facilities and motor vehicles, catering, flowers, and stationary products. All other performance obligations on these contracts, including arrangement, removal, preparation, embalming, cremation, interment, and delivery of urns and caskets and related memorialization merchandise are fulfilled at the time of need. Personalized marker merchandise and marker installation services sold on atneed contracts are recognized when control is transferred to the customer, generally when the marker is delivered and installed in the cemetery.

Some of our contracts with customers include multiple performance obligations. For these contracts, we allocate the transaction price to each performance obligation based on its relative standalone selling price, which is based on prices charged to customers per our general price list. Packages for service and ancillary items are offered to help the customer make decisions during emotional and stressful times. Package discounts are reflected net in Revenue. We recognize revenue when the merchandise is transferred or the service is performed, in satisfaction of the corresponding performance obligation. Sales taxes collected are recognized on a net basis in our Consolidated Financial Statements.

Ancillary funeral service revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation and online cremation businesses.

The earnings from our preneed trust investments, as well as trust management fees charged by our wholly-owned registered investment advisory firm (“CSV RIA”) are recorded in Other revenue. As of March 31, 2021, CSV RIA provided investment management and advisory services to approximately 80% of our trust assets, for a fee based on the market value of trust assets. Under state trust laws, we are allowed to charge the trust a fee for advising on the investment of the trust assets and these fees are recognized as income in the period in which services are provided.

Balances due on undelivered preneed funeral trust contracts have been reclassified to reduce Deferred preneed funeral revenue on our Consolidated Balance Sheet of $8.2 million and $8.1 million at December 31, 2020 and March 31, 2021, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of ten years for preneed funeral contracts.

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Balances due from customers on delivered preneed cemetery contracts are included in Accounts receivable, net and Preneed cemetery receivables, net on our Consolidated Balance Sheet. 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 $7.9 million and $8.5 million at December 31, 2020 and March 31, 2021, respectively. As these performance obligations are to be completed after the date of death, we cannot quantify the recognition of revenue in future periods. However, we estimate an average maturity period of eight years for preneed cemetery contracts.

See Note 16 to the Consolidated Financial Statements herein for additional information related to revenue.

Income Taxes

We and our subsidiaries file a consolidated U. S. federal income tax return, separate income tax returns in 15 states in which we operate and combined or unitary income tax returns in 14 states in which we operate. We record deferred taxes for temporary differences between the tax basis and financial reporting basis of assets and liabilities. We classify our deferred tax liabilities and assets as non-current on our Consolidated Balance Sheet.

We record a valuation allowance to reflect the estimated amount of deferred tax assets for which realization is uncertain. Management reviews the valuation allowance at the end of each quarter and makes adjustments if it is determined that it is more likely than not that the tax benefits will be realized.

We analyze tax benefits for uncertain tax positions and how they are to be recognized, measured, and derecognized in the financial statements; provide certain disclosures of uncertain tax matters; and specify how reserves for uncertain tax positions should be classified on our Consolidated Balance Sheet.

The ~~Company’s unrecognized~~Consolidated Appropriations Act was signed into law on December 27, 2020. This Act included several tax ~~benefits reserve~~provisions directly benefiting individual and corporate taxpayers. The primary benefit in this legislation is a temporary allowance for ~~uncertain tax positions primarily relates to pending accounting method changes~~full deduction for business meals paid or incurred between December 31, 2020 and January 1, 2023.

We filed carryback refund claims for the 2018 and 2019 tax ~~year ended December 31, 2018. During 2020,~~years as allowed by the ~~Company plans to modify the proposed accounting method filed to exclude the tax position that resulted~~legislative changes included in the ~~need for an uncertain tax position reserve.~~

~~The recently passed~~ Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) ~~has certain provisions that are applicable to the Company as follows:~~

~~(i) allowing net operating losses (“NOLs”) arising~~, which was enacted March 27, 2020. As a result of requesting a tax refund in ~~2018, 2019~~excess of $5 million, we must receive Joint Committee approval and ~~2020 to be carried back five years;~~

~~(ii) increasing the taxable income threshold on the interest deduction from 30% to 50% for tax years beginning in 2019 and 2020;~~

~~(iii) suspending payment requirements~~undergo an audit for the ~~6.2% employer portion~~tax year ending December 31, 2018. This audit is currently in progress. In 2020, the 2018 tax return was amended to take full advantage of ~~Social Security taxes from the date of enactment through the end of 2020, with half the balance due by the end of 2021, and the other half due by the end of 2022; and~~

~~(iv) our ability to receive employee retention credits up to $5,000 for paying wages to employees who are unable to work, while business operations are suspended.~~

~~Although~~ the CARES Act ~~allows for a~~legislative benefits resulting in additional losses that increase the amount of our carryback refund claim. The majority of the net operating losses generated in 2018 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and ~~2019, due~~merchandise and services sales. Due to ~~uncertainty in~~ the ~~timing~~uncertainty of receiving Internal Revenue Service (“IRS”) approval ~~for~~regarding our non-automatic accounting method changes, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses ~~generated; therefore, for the three months ended~~generated. At both December 31, 2020 and March 31, ~~2020,~~2021, the reserve for uncertain tax positions was ~~$2.9~~$3.7 million. ~~There is no reserve recorded at March 31, 2019.~~

Income tax expense ~~(benefit)~~ during interim periods is based on our forecasted annual effective tax rate plus any discrete items, which are recorded in the period in which they occur. Discrete items include, but are not limited to, such events as changes in estimates due to finalization of income tax returns, tax audit settlements, tax effects of exercised or vested stock-based awards and increases or decreases in valuation allowances on deferred tax assets.

Our income tax benefit was $2.2 million for the three months ended March 31, 2020 compared to an income tax expense of ~~$2.7~~$5.6 million ~~which includes a $0.1 million of discrete tax expense~~ for the three months ended March 31, ~~2019.~~2021. Our operating tax rate before discrete items was ~~28.0%~~33.6% and ~~33.6%~~31.0% for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively. We recorded $0.7 million of additional tax expense in the three months ended March 31, 2020 related to the impairment of goodwill and other intangibles for businesses that were previously acquired as a stock acquisition, which caused an increase of 3.6% in our operating tax rate.

Computation of Earnings ~~(Loss)~~ Per Common Share

Basic earnings ~~(loss)~~ per share is computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed using the weighted average number of common and dilutive common equivalent shares outstanding during the period. Dilutive common equivalent shares consist of stock options.

Share-based awards that contain non-forfeitable rights to dividends or dividend equivalents, whether paid or unpaid, are recognized as participating securities and included in the computation of both basic and diluted earnings per share. Our grants of restricted stock awards to our employees and directors are considered participating securities, and we have prepared our earnings per share calculations attributable to common stockholders to exclude outstanding unvested restricted stock awards, using the two-class method, in both the basic and diluted weighted average shares outstanding calculation.

See Note 1615 to the Consolidated Financial Statements included herein ~~for the additional information~~ related to the computation of earnings per share.

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Subsequent Events

We have evaluated events and transactions during the period subsequent to March 31, ~~2020~~2021 through the date the financial statements were issued for potential recognition or disclosure in the accompanying financial statements covered by this report.

See Note 1918 to the Consolidated Financial Statements included herein for additional information related to our subsequent events.

2.RECENTLY ISSUED ACCOUNTING STANDARDS

~~Financial Instruments - Credit Losses~~

Topic 326 applies to all entities holding financial assets measured at amortized cost, including loans, trade and financed receivables and other financial instruments. The guidance introduces a new credit reserving model known as Current Expected Credit Loss (“CECL”), which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL model requires all expected credit losses to be measured based on historical experience, current conditions and reasonable and supportable forecasts about collectability. In addition, Topic 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities management does not intend to sell or believes that it is more likely than not will be required to sell.

On January 1, 2020, we adopted Topic 326 using the modified retrospective method and the impact was not material to our Consolidated Financial Statements. See Notes 5 and 6 to the Consolidated Financial Statements herein for additional disclosures required by Topic 326.

~~Income Taxes~~

~~In December 2019, the FASB issued ASU,~~ ~~Income Taxes~~ (“Topic 740”), to simplify the accounting for income taxes. The amendments in this update are effective for fiscal years beginning after December 15, 2020, with early adoption permitted. On January 1, 2020, we early adopted the provisions of this ASU using the prospective method and the impact was not material to our Consolidated Financial Statements.

Accounting Pronouncements Not Yet Adopted

Reference Rate Reform

In March 2020, the FASB issued ASU, Reference Rate Reform (“Topic 848”) to provide optional guidance for a limited time to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying ~~U.S. Generally Accepted Accounting Principles (“GAAP”)~~GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts and hedging relationships that reference London InterBank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. These amendments are effective immediately and may be applied prospectively to contract modifications made and hedging relationships entered into or evaluated on or before December 31, 2022. ~~We are currently evaluating our contracts and~~The Company did not utilize the optional expedients and exceptions provided by ~~the new standard.~~

~~3. ACQUISITIONS~~

On January 3, 2020, we acquired one funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid in 2020. We acquired substantially all of the assets and assumed certain operating liabilities of these businesses.

~~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 is reflected in our Consolidated Statements of Operations from the date of acquisition.

~~The following table summarizes the breakdown of the purchase price allocation for the businesses described above (in thousands):~~

Purchase Price Allocation
Current assets $ 2,662
Preneed trust assets 9,089
Property, plant & equipment 1,720
Cemetery property 14,753
Goodwill 12,916
Intangible and other non-current assets 2,506
Assumed liabilities (489 )
Deferred tax liability (527 )
Preneed trust liabilities (9,089 )
Deferred revenue (541 )
Purchase price $ 33,000

The current assets primarily relate to preneed cemetery receivables. The intangible and other non-current assets relate to the fair value of tradenames. The assumed liabilities primarily relate to the obligations associated with delivered preneed merchandise that was not paid for prior to acquisition. As of March 31, 2020, our accounting for this acquisition was not complete.

~~We recorded adjustments to the purchase price allocation for our 2019 acquisitions~~ASU during the three months ended March 31, 2020. The following table summarizes the breakdown of the purchase price allocation for these businesses and the subsequent adjustments made based on additional information which became available prior to March 31, 2020 (in thousands):2021.

Initial Purchase Price Allocation Adjustments Adjusted Purchase Price Allocation
Current assets $ 1,482
$ 33
$ 1,515
Preneed trust assets 15,891
—
15,891
Property, plant & equipment 21,680
—
21,680
Cemetery property 11,994
—
11,994
Goodwill 99,344
(880 ) 98,464
Intangible and other non-current assets 8,269
—
8,269
Assumed liabilities (657 ) (145 ) (802 )
Preneed trust liabilities (15,463 ) —
(15,463 )
Deferred revenue (1,633 ) 992
(641 )
Purchase price $ 140,907
$ —
$ 140,907

~~As of March 31, 2020, our accounting for our 2019 acquisitions was not complete.~~

4.3.GOODWILL

The following table presents changes in goodwill in the accompanying Consolidated Balance Sheet ~~for the year ended December 31, 2019 and~~(in thousands):


	December 31, 2020		March 31, 2021
Goodwill at the beginning of the period	$	398,292	$	392,978
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
Goodwill at the end of the period	$	392,978	$	391,972

During the three months ended March 31, 2021, we allocated $1.0 million of goodwill to the sale of 1 funeral home for a loss recorded in Net loss (gain) on divestitures and impairment charges.

4.DIVESTED OPERATIONS

During the three months ended March 31, 2021, we sold 2 funeral homes for $2.8 million.During the three months ended March 31, 2020, we did not sell any funeral homes or cemeteries.

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


	Three months ended March 31,
	2020		2021
Revenue	$	0	$	282

Operating income	0		60
Gain on divestitures(1)	0		308
Income tax expense	0		(114)
Net income from divested operations, after tax	$	0	$	254

December 31, 2019
March 31, 2020
Goodwill at the beginning of the period $ 303,887
$ 398,292
Net increase in goodwill related to acquisitions 99,344
12,036
Decrease in goodwill related to divestitures (4,939 ) —
Decrease in goodwill related to impairments —
(13,632 )
Goodwill at the end of the period $ 398,292
$ 396,696

~~See Notes 1 and 3 to the Consolidated Financial Statements included herein, for a discussion of the methodology used for our goodwill impairment test and discussion of our acquisitions, respectively.~~


5.			~~RECEIVABLES~~
(1)			Gain on divestitures is recorded in Net loss (gain) on divestitures and impairment charges on our Consolidated Statements of Operations.

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5.RECEIVABLES

Accounts Receivable

Accounts receivable is comprised of the following ~~at December 31, 2019 and March 31, 2020~~ (in thousands):


	March 31, 2021
	Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	9,827	$	12,451	$	0	$	22,278
Other receivables	426		2,769		1,395		4,590
Allowance for credit losses	(284)		(999)		0		(1,283)
Accounts receivable, net	$	9,969	$	14,221	$	1,395	$	25,585

March 31, 2020
Funeral
Cemetery
Corporate
Total
Trade and financed receivables $ 9,537
$ 11,057
$ —
$ 20,594
Other receivables 311
870
298
1,479
Allowance for credit losses (258 ) (970 ) —
(1,228 )
Accounts receivable, net $ 9,590
$ 10,957
$ 298
$ 20,845


	December 31, 2019												December 31, 2020
	Funeral			Cemetery			Corporate		Total				Funeral		Cemetery		Corporate		Total
Trade and financed receivables	$	10,046		$	10,508		$	—	$	20,554		Trade and financed receivables	$	11,448	$	12,230	$	0	$	23,678
Other receivables	935			157			681		1,773			Other receivables	367		2,144		201		2,712
Allowance for bad debt and contract cancellation	(223		)	(626		)	—		(849		)
Allowance for credit losses												Allowance for credit losses	(327)		(960)		0		(1,287)
Accounts receivable, net	$	10,758		$	10,039		$	681	$	21,478		Accounts receivable, net	$	11,488	$	13,414	$	201	$	25,103

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

The following table summarizes the activity in our allowance for credit losses by portfolio segment ~~for three months ended March 31, 2020~~ (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs Recoveries March 31, 2020
Trade and financed receivables:
Funeral $ (223 ) $ (325 ) $ —
$ 465
$ (175 ) $ (258 )
Cemetery (626 ) (137 ) (287 ) 80
—
(970 )
Total allowance for credit losses on Trade and financed receivables $ (849 ) $ (462 ) $ (287 ) $ 545
$ (175 ) $ (1,228 )

As noted in Note 3, we acquired preneed cemetery receivables in connection with the business acquired during the three months ended March 31, 2020. We recorded an allowance for credit losses of $0.6 million on these acquired receivables ($0.3 million current portion shown above in ~~Accounts Receivable, net~~ ~~and $0.3 million non-current portion shown below in~~ ~~Preneed Cemetery Receivables, net). We accounted for the allowance for credit losses on these purchased financed assets using specific identification as these assets have a unique set of risk characteristics.~~

~~Bad debt expense for accounts receivable totaled $0.2 million for the three months ended March 31, 2019.~~


	January 1, 2021		Provision for Credit Losses		Write Offs		Recoveries		March 31, 2021
Trade and financed receivables:
Funeral	$	(327)	$	(203)	$	553	$	(307)	$	(284)
Cemetery	(960)		(139)		100		0		(999)
Total allowance for credit losses on Trade and financed receivables	$	(1,287)	$	(342)	$	653	$	(307)	$	(1,283)

Preneed Cemetery Receivables

Our preneed cemetery receivables are comprised of the following ~~at December 31, 2019 and March 31, 2020~~ (in thousands):


	December 31, 2019		March 31, 2020			December 31, 2020		March 31, 2021
Cemetery interment rights	$	31,366	$	33,067	Cemetery interment rights	$	36,696	$	38,108
Cemetery merchandise and services	9,950		10,337		Cemetery merchandise and services	10,526		10,789
Preneed cemetery receivables	$	41,316	$	43,404
Cemetery financed receivables					Cemetery financed receivables	$	47,222	$	48,897

The components of our preneed cemetery receivables ~~at December 31, 2019 and March 31, 2020~~ are as follows (in thousands):


	December 31, 2020		March 31, 2021
Preneed cemetery receivables	$	47,222	$	48,897
Less: unearned finance charges	(4,348)		(4,508)
Preneed cemetery receivables, at amortized cost	$	42,874	$	44,389
Less: allowance for credit losses	(2,604)		(2,864)
Less: balances due on undelivered cemetery preneed contracts	(7,919)		(8,540)
Less: amounts in accounts receivable	(11,270)		(11,452)
Preneed cemetery receivables, net	$	21,081	$	21,533

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December 31, 2019
March 31, 2020
Preneed cemetery receivables $ 41,316
$ 43,404
Less: unearned finance charges (4,522 ) (4,404 )
Preneed cemetery receivables, at amortized cost $ 36,794
$ 39,000
Less: allowance for contract cancellation and credit losses (1,916 ) (2,674 )
Less: balances due on undelivered cemetery preneed contracts (4,823 ) (5,837 )
Less: amounts in accounts receivable (9,882 ) (10,087 )
Preneed cemetery receivables, net $ 20,173
$ 20,402

The following table summarizes the activity in our allowance for credit losses for Preneed cemetery receivables, net ~~for three months ended March 31, 2020~~ (in thousands):

January 1, 2020 Provision for Credit Losses Allowance Recorded at Acquisition Write Offs March 31, 2020
Total allowance for credit losses on Preneed cemetery receivables, net
$ (1,290 ) $ (228 ) $ (318 ) $ 132
$ (1,704 )

~~Bad debt expense for our preneed cemetery receivables totaled $0.2 million for the three months ended March 31, 2019.~~


	January 1, 2021		Provision for Credit Losses		Write Offs		March 31, 2021
Total allowance for credit losses on Preneed cemetery receivables, net	$	(1,644)	$	(246)	$	25	$	(1,865)

The amortized cost basis of our preneed cemetery receivables by year of origination as of March 31, ~~2020~~2021 is as follows (in thousands):

2020
2019
2018
2017
2016
Prior
Total
Total preneed cemetery receivables, at amortized cost $ 4,450
$ 15,420
$ 8,300
$ 5,050
$ 2,900
$ 2,880
$ 39,000


	2021		2020		2019		2018		2017		Prior		Total
Total preneed cemetery receivables, at amortized cost	$	7,913	$	16,490	$	9,585	$	5,118	$	2,814	$	2,469	$	44,389

The aging of past due preneed cemetery receivables as of March 31, ~~2020~~2021 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	$	623	$	404	$	194	$	1,990	$	3,211	$	32,953	$	36,164
Deferred revenue	184		140		46		600		970		11,763		12,733
Total contracts	$	807	$	544	$	240	$	2,590	$	4,181	$	44,716	$	48,897

6.TRUST INVESTMENTS

31-60
Past Due

61-90
Past Due

91-120
Past Due

>120
Past Due

Total Past
Due
Current Total
Recognized revenue $ 807
$ 458
$ 242
$ 2,168
$ 3,675
$ 28,892
$ 32,567
Deferred revenue 243
165
92
237
737
10,100
10,837
Total contracts $ 1,050
$ 623
$ 334
$ 2,405
$ 4,412
$ 38,992
$ 43,404


6.	~~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. ~~Preneed trust investments are reduced by the trust earnings we have been allowed to withdraw in certain states prior to our performance.~~ These earnings are recognized ~~as earned,~~ in Other revenue, on our Consolidated Statements of Operations, when a service is performed or merchandise is delivered. Trust management fees charged by CSV RIA are included as revenue in the period in which they are earned. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. We do not intend to sell and it is likely that we will not be required to sell the securities prior to their anticipated recovery.

Cemetery perpetual care trust investments represent a portion of the proceeds from the sale of cemetery property interment rights which 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 ~~as earned,~~ in Other revenue.

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 foreign debt, corporate debt, preferred stocks, mortgage-backed securities and fixed income mutual funds and other investments, all of which are classified within Level 2 of the valuation hierarchy. We review and update our fair value hierarchy classifications quarterly. See Note 8 to the Consolidated Financial Statements included herein for further information of the fair value measurement.

~~As of March 31, 2020, we have net unrealized losses of $45.1 million~~Changes in ~~our trusts. At March 31, 2020, these net unrealized losses represented 18%~~the fair value of our ~~original cost basis of $245.2 million. The decline~~trust fund assets (Preneed funeral, cemetery and perpetual care trust investments) are offset by changes in the fair value is largely due to changes in interest rates and other market conditions. Our trusts have been and continue to be impacted by adverse conditions in the U.S. and global financial markets primarily as a result of COVID-19. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. In addition, 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.

~~Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income (loss) and offset by the~~ our trust fund liabilities (Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus ~~interests~~) and reflected in ~~those unrealized gains and/or losses.~~Other, net. There is no impact on earnings until such time ~~that the loss is realized in the trusts, allocated to the preneed contracts and~~ the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state ~~regulations.~~regulations and the gain or loss is allocated to the contract.

For ~~available-for-sale debt~~fixed income securities in an unrealized loss position, we first assess whether we intend to sell or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For ~~available-for-sale debt~~fixed income securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, we consider the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If our assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. ~~Any impairment that has not been recorded~~

- 16 -

~~through an allowance for credit losses is recognized in other comprehensive income.~~

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 ~~at December 31, 2019 and March 31, 2020~~ are as follows (in thousands):


	December 31, 2019			March 31, 2020				December 31, 2020		March 31, 2021
Preneed cemetery trust investments, at market value	$	74,572		$	63,130		Preneed cemetery trust investments, at market value	$	89,081	$	94,882
Less: allowance for contract cancellation	(2,190		)	(2,354		)	Less: allowance for contract cancellation	(2,477)		(2,519)
Preneed cemetery trust investments, net	$	72,382		$	60,776
Preneed cemetery trust investments							Preneed cemetery trust investments	$	86,604	$	92,363

The cost and market values associated with preneed cemetery trust investments at March 31, ~~2020~~2021 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value				Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	3,516	$	—	$	—		$	3,516		Cash and money market accounts	1	$	1,464	$	0	$	0	$	1,464
Fixed income securities:												Fixed income securities:

Foreign debt	2	8,294		180		(1,687		)	6,787			Foreign debt	2	15,996		2,244		(620)		17,620
Corporate debt	2	15,474		301		(2,979		)	12,796			Corporate debt	2	14,509		1,849		(91)		16,267
Preferred stock	2	13,691		35		(2,289		)	11,437			Preferred stock	2	11,922		689		(360)		12,251
Mortgage-backed securities	2	451		—		(251		)	200			Mortgage-backed securities	2	0		0		0		0
Common stock	1	34,456		1,646		(11,022		)	25,080			Common stock	1	31,925		7,912		(3,508)		36,329
Mutual funds:												Mutual funds:
Equity												Equity	1	27		1		0		28
Fixed Income	2	2,583		161		(400		)	2,344			Fixed Income	2	8,110		1,729		(137)		9,702
Trust securities		$	78,465	$	2,323	$	(18,628	)	$	62,160		Trust securities		$	83,953	$	14,424	$	(4,716)	$	93,661
Accrued investment income		$	970						$	970		Accrued investment income		$	1,221					$	1,221
Preneed cemetery trust investments									$	63,130		Preneed cemetery trust investments								$	94,882
Market value as a percentage of cost									79.2		%	Market value as a percentage of cost								111.6		%

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


Due in one year or less	$	0
Due in one to five years	13,602
Due in five to ten years	8,505
Thereafter	24,031
Total fixed income securities	$	46,138

- 20 -

Due in one year or less $ —
Due in one to five years 4,178
Due in five to ten years 8,025
Thereafter 19,017
Total fixed income securities $ 31,220

The cost and market values associated with preneed cemetery trust investments at December 31, ~~2019~~2020 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value				Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	5,729	$	—	$	—		$	5,729		Cash and money market accounts	1	$	1,859	$	0	$	0	$	1,859
Fixed income securities:												Fixed income securities:
Foreign debt	2	5,609		312		(243		)	5,678			Foreign debt	2	15,953		2,083		(702)		17,334
Corporate debt	2	16,916		1,044		(649		)	17,311			Corporate debt	2	14,856		1,820		(358)		16,318
Preferred stock	2	14,206		904		(164		)	14,946			Preferred stock	2	11,886		980		(336)		12,530
Mortgage-backed securities	2	517		—		(114		)	403			Mortgage-backed securities	2	272		0		(159)		113
Common stock	1	28,569		2,766		(3,017		)	28,318			Common stock	1	30,253		7,642		(6,601)		31,294
Mutual funds:												Mutual funds:
Fixed income	2	1,463		72		(85		)	1,450			Fixed income	2	7,494		1,331		(185)		8,640
Trust Securities		$	73,009	$	5,098	$	(4,272	)	$	73,835		Trust Securities		$	82,573	$	13,856	$	(8,341)	$	88,088
Accrued investment income		$	737						737			Accrued investment income		$	993					$	993
Preneed cemetery trust investments									$	74,572		Preneed cemetery trust investments								$	89,081
Market value as a percentage of cost									101.1		%	Market value as a percentage of cost								106.7		%

The following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust ~~investment~~investments in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	March 31, 2021
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,590	$	(114)	$	509	$	(506)	$	3,099	$	(620)
Corporate debt	735		(9)		682		(82)		1,417		(91)
Preferred stock	3,912		(324)		837		(36)		4,749		(360)

Total fixed income securities with an unrealized loss	$	7,237	$	(447)	$	2,028	$	(624)	$	9,265	$	(1,071)

The following table summarized our fixed income securities (excluding mutual funds) within our preneed cemetery trust investments in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	December 31, 2020
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,517	$	(57)	$	371	$	(645)	$	2,888	$	(702)
Corporate debt	784		(99)		542		(259)		1,326		(358)
Preferred stock	709		(118)		4,049		(218)		4,758		(336)
Mortgage-backed securities	0		0		112		(159)		112		(159)
Total fixed income securities with an unrealized loss	$	4,010	$	(274)	$	5,074	$	(1,281)	$	9,084	$	(1,555)

- 21 -

March 31, 2020
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 4,655
$ (1,153 ) $ 168
$ (534 ) $ 4,823
$ (1,687 )
Corporate debt 5,810
(1,412 ) 3,253
(1,567 ) 9,063
(2,979 )
Preferred stock 10,813
(2,289 ) —
—
10,813
(2,289 )
Mortgage-backed securities 80
(115 ) 120
(136 ) 200
(251 )
Total fixed income securities with an unrealized loss

$ 21,358
$ (4,969 ) $ 3,541
$ (2,237 ) $ 24,899
$ (7,206 )

December 31, 2019
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 268
$ (42 ) $ 758
$ (201 ) $ 1,026
$ (243 )
Corporate debt 1,368
(168 ) 4,520
(481 ) 5,888
(649 )
Preferred stock 4,135
(164 ) —
—
4,135
(164 )
Mortgage-backed securities —
—
402
(114 ) 402
(114 )
Total fixed income securities with an unrealized loss

$ 5,771
$ (374 ) $ 5,680
$ (796 ) $ 11,451
$ (1,170 )

Preneed cemetery trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Investment income	$	571		$	319		Investment income	$	319	$	467
Realized gains	1,458			1,916			Realized gains	1,916		4,092
Realized losses	(635		)	(1,372		)	Realized losses	(1,372)		(2,518)
Unrealized gains (losses), net							Unrealized gains (losses), net	(16,305)		9,708
Expenses and taxes	(278		)	(187		)	Expenses and taxes	(187)		(327)
Net change in deferred preneed cemetery receipts held in trust	(1,116		)	(676		)	Net change in deferred preneed cemetery receipts held in trust	15,629		(11,422)
	$	—		$	—			$	—	$	—

Purchases and sales of investments in the preneed cemetery trusts ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Purchases	$	(11,626	)	$	(18,857	)	Purchases	$	(18,857)	$	(8,411)
Sales	2,992			13,231			Sales	13,231		8,049

Preneed Funeral Trust Investments

~~The components of~~ Preneed funeral trust investments represent trust fund assets that we are permitted to withdraw as services and merchandise are provided to customers. Preneed funeral contracts are secured by payments from customers, less retained amounts not required to be deposited into trust.

The components of Preneed funeral trust investments on our Consolidated Balance Sheet ~~at December 31, 2019 and March 31, 2020~~ are as follows (in thousands):


	December 31, 2019			March 31, 2020				December 31, 2020		March 31, 2021
Preneed funeral trust investments, at market value	$	99,246		$	84,337		Preneed funeral trust investments, at market value	$	104,166	$	108,131
Less: allowance for expected credit losses and cancellations	(2,911		)	(2,960		)
Less: allowance for contract cancellation							Less: allowance for contract cancellation	(2,931)		(2,930)
Preneed funeral trust investments	$	96,335		$	81,377		Preneed funeral trust investments	$	101,235	$	105,201

The cost and market values associated with preneed funeral trust investments at March 31, ~~2020~~2021 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	18,119	$	0	$	0	$	18,119
Fixed income securities:
U.S treasury debt	1	816		5		0		821

Foreign debt	2	14,959		2,142		(551)		16,550
Corporate debt	2	12,826		1,639		(87)		14,378
Preferred stock	2	10,816		637		(340)		11,113

Common stock	1	29,618		7,546		(3,120)		34,044
Mutual funds:
Equity	1	26		1		0		27
Fixed income	2	6,600		1,534		(87)		8,047
Other investments	2	3,901		0		0		3,901
Trust securities		$	97,681	$	13,504	$	(4,185)	$	107,000
Accrued investment income		$	1,131					$	1,131
Preneed funeral trust investments								$	108,131
Market value as a percentage of cost								109.5		%

- 22 -

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 22,033
$ —
$ —
$ 22,033
Fixed income securities:
U.S treasury debt 1 820
17
—
837
Foreign debt 2 8,185
180
(1,631 ) 6,734
Corporate debt 2 14,374
290
(2,826 ) 11,838
Preferred stock 2 13,127
21
(2,198 ) 10,950
Mortgage-backed securities 2 503
—
(252 ) 251
Common stock 1 32,946
1,648
(10,383 ) 24,211
Mutual funds:
Fixed income 2 2,519
162
(302 ) 2,379
Other investments 2 4,163
—
—
4,163
Trust securities $ 98,670
$ 2,318
$ (17,592 ) $ 83,396
Accrued investment income $ 941
$ 941
Preneed funeral trust investments $ 84,337
Market value as a percentage of cost 84.5 %

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

Due in one year or less $ —
Due in one to five years 5,044
Due in five to ten years 7,093
Thereafter 18,473
Total fixed income securities $ 30,610


Due in one year or less	$	821
Due in one to five years	12,143
Due in five to ten years	7,855
Thereafter	22,043
Total fixed income securities	$	42,862

The cost and market values associated with preneed funeral trust investments at December 31, ~~2019~~2020 are detailed below (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value				Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	24,160	$	—	$	—		$	24,160		Cash and money market accounts	1	$	18,478	$	0	$	0	$	18,478
Fixed income securities:												Fixed income securities:
U.S. treasury debt	1	822		—		—			822			U.S. treasury debt	1	819		6		0		825
Foreign debt	2	5,587		309		(232		)	5,664			Foreign debt	2	15,144		2,018		(634)		16,528
Corporate debt	2	16,109		992		(646		)	16,455			Corporate debt	2	13,292		1,638		(310)		14,620
Preferred stock	2	14,094		874		(198		)	14,770			Preferred stock	2	10,944		900		(298)		11,546
Mortgage-backed securities	2	585		—		(117		)	468			Mortgage-backed securities	2	293		1		(155)		139
Common stock	1	27,652		2,773		(2,869		)	27,556			Common stock	1	28,327		7,364		(6,052)		29,639
Mutual funds:												Mutual funds:
Equity	1	772		617		(4		)	1,385

Fixed income	2	4,364		107		(107		)	4,364			Fixed income	2	6,475		1,198		(121)		7,552
Other investments	2	2,902		—		—			2,902			Other investments	2	3,928		0		0		3,928
Trust securities		$	97,047	$	5,672	$	(4,173	)	$	98,546		Trust securities		$	97,700	$	13,125	$	(7,570)	$	103,255
Accrued investment income		$	700						$	700		Accrued investment income		$	911					$	911
Preneed funeral trust investments									$	99,246		Preneed funeral trust investments								$	104,166
Market value as a percentage of cost									101.5		%	Market value as a percentage of cost								105.7		%

The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	March 31, 2021
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,270	$	(100)	$	456	$	(451)	$	2,726	$	(551)
Corporate debt	705		(9)		654		(78)		1,359		(87)
Preferred stock	3,750		(311)		599		(29)		4,349		(340)

Total fixed income securities with an unrealized loss	$	6,725	$	(420)	$	1,709	$	(558)	$	8,434	$	(978)

- 23 -

The following table summarized our fixed income securities (excluding mutual funds) within our preneed funeral trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	December 31, 2020
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	2,225	$	(55)	$	337	$	(579)	$	2,562	$	(634)
Corporate debt	763		(96)		528		(214)		1,291		(310)
Preferred stock	506		(87)		3,942		(211)		4,448		(298)
Mortgage-backed securities	0		0		111		(155)		111		(155)
Total fixed income securities with an unrealized loss	$	3,494	$	(238)	$	4,918	$	(1,159)	$	8,412	$	(1,397)

March 31, 2020
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 4,605
$ (1,152 ) $ 152
$ (479 ) $ 4,757
$ (1,631 )
Corporate debt 5,248
(1,357 ) 3,127
(1,469 ) 8,375
(2,826 )
Preferred stock 10,594
(2,198 ) —
—
10,594
(2,198 )
Mortgage-backed securities 84
(115 ) 135
(137 ) 219
(252 )
Total fixed income securities with an unrealized loss

20,531
(4,822 ) 3,414
(2,085 ) 23,945
(6,907 )

December 31, 2019
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 274
$ (43 ) $ 723
$ (189 ) $ 997
$ (232 )
Corporate debt 1,403
(172 ) 4,433
(474 ) 5,836
(646 )
Preferred stock 4,412
(198 ) —
—
4,412
(198 )
Mortgage-backed securities —
—
439
(117 ) 439
(117 )
Total fixed income securities with an unrealized loss

6,089
(413 ) 5,595
(780 ) 11,684
(1,193 )

Preneed funeral trust investment security transactions recorded in Other, net on the Consolidated Statements of Operations ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Investment income	$	573		$	258		Investment income	$	258	$	369
Realized gains	1,320			2,551			Realized gains	2,551		3,871
Realized losses	(583		)	(1,129		)	Realized losses	(1,129)		(2,368)
Unrealized gains (losses), net							Unrealized gains (losses), net	(15,274)		9,319
Expenses and taxes	(228		)	(97		)	Expenses and taxes	(97)		(196)
Net change in deferred preneed funeral receipts held in trust	(1,082		)	(1,583		)	Net change in deferred preneed funeral receipts held in trust	13,691		(10,995)
	$	—		$	—			$	—	$	—

Purchases and sales of investments in the preneed funeral trusts ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Purchases	$	(10,759	)	$	(18,538	)	Purchases	$	(18,538)	$	(7,628)
Sales	2,785			15,968			Sales	15,968		7,524

Cemetery Perpetual Care Trust Investments

Care trusts’ corpus on our Consolidated Balance Sheet represent the corpus of those trusts plus undistributed income. The components of Care trusts’ corpus ~~as of December 31, 2019 and March 31, 2020~~ are as follows (in thousands):


	December 31, 2020		March 31, 2021
Cemetery perpetual care trust investments, at market value	$	70,828	$	75,815
Obligations due from trust	(1,121)		(455)
Care trusts’ corpus	$	69,707	$	75,360

- 24 -

December 31, 2019
March 31, 2020
Cemetery perpetual care trust investments, at market value $ 64,047
$ 52,677
Obligations due to (from) trust (631 ) 97
Care trusts’ corpus $ 63,416
$ 52,774

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at March 31, ~~2020~~2021 (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses			Fair Market Value				Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	4,128	$	—	$	—		$	4,128		Cash and money market accounts	1	$	528	$	0	$	0	$	528
Fixed income securities:												Fixed income securities:

Foreign debt	2	7,041		139		(1,448		)	5,732			Foreign debt	2	12,642		1,775		(508)		13,909
Corporate debt	2	12,357		277		(2,345		)	10,289			Corporate debt	2	11,525		1,540		(69)		12,996
Preferred stock	2	11,988		45		(2,138		)	9,895			Preferred stock	2	10,518		558		(299)		10,777
Mortgage-backed securities	2	347		—		(193		)	154

Common stock	1	26,621		1,261		(8,736		)	19,146			Common stock	1	25,151		6,436		(2,945)		28,642
Mutual funds:												Mutual funds:
Equity												Equity	1	20		1		0		21
Fixed Income	2	2,924		124		(511		)	2,537			Fixed Income	2	6,739		1,374		(164)		7,949
Trust securities		$	65,406	$	1,846	$	(15,371	)	$	51,881		Trust securities		$	67,123	$	11,684	$	(3,985)	$	74,822
Accrued investment income		$	796						$	796		Accrued investment income		$	993					$	993
Cemetery perpetual care investments									$	52,677		Cemetery perpetual care investments								$	75,815
Market value as a percentage of cost									79.3		%	Market value as a percentage of cost								111.5		%

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

Due in one year or less $ —
Due in one to five years 3,296
Due in five to ten years 6,241
Thereafter 16,533
Total fixed income securities $ 26,070


Due in one year or less	$	0
Due in one to five years	10,149
Due in five to ten years	7,216
Thereafter	20,317
Total fixed income securities	$	37,682

The following table reflects the cost and fair market values associated with the trust investments held in perpetual care trust funds at December 31, ~~2019~~2020 (in thousands):


	Fair Value Hierarchy Level	Cost		Unrealized Gains		Unrealized Losses		Fair Market Value
Cash and money market accounts	1	$	686	$	0	$	0	$	686
Fixed income securities:
Foreign debt	2	12,539		1,641		(582)		13,598
Corporate debt	2	11,684		1,506		(240)		12,950
Preferred stock	2	10,444		819		(355)		10,908
Mortgage-backed securities	2	206		0		(121)		85
Common stock	1	23,662		6,108		(5,255)		24,515
Mutual funds:

Fixed income	2	6,444		1,054		(220)		7,278
Trust securities		$	65,665	$	11,128	$	(6,773)	$	70,020
Accrued investment income		$	808					$	808
Cemetery perpetual care investments								$	70,828
Market value as a percentage of cost								106.6		%

- 25 -

Fair Value Hierarchy Level Cost
Unrealized
Gains

Unrealized
Losses

Fair Market
Value
Cash and money market accounts 1 $ 4,624
$ —
$ —
$ 4,624
Fixed income securities:
Foreign debt 2 4,200
238
(175 ) 4,263
Corporate debt 2 11,658
802
(534 ) 11,926
Preferred stock 2 10,782
666
(106 ) 11,342
Mortgage-backed securities 2 324
—
(71 ) 253
Common stock 1 21,594
3,399
(1,911 ) 23,082
Mutual funds:
Equity 1 233
146
(1 ) 378
Fixed income 2 7,156
618
(107 ) 7,667
Trust securities $ 60,571
$ 5,869
$ (2,905 ) $ 63,535
Accrued investment income $ 512
$ 512
Cemetery perpetual care investments $ 64,047
Market value as a percentage of cost 104.9 %

The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at March 31, 2021, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	March 31, 2021
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	1,800	$	(79)	$	430	$	(429)	$	2,230	$	(508)
Corporate debt	559		(7)		519		(62)		1,078		(69)
Preferred stock	2,973		(246)		1,318		(53)		4,291		(299)

Total fixed income securities with an unrealized loss	$	5,332	$	(332)	$	2,267	$	(544)	$	7,599	$	(876)

The following table summarized our fixed income securities (excluding mutual funds) within our perpetual care trust investment in an unrealized loss position at December 31, 2020, aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):


	December 31, 2020
	In Loss Position Less than 12 months				In Loss Position Greater than 12 months				Total
	Fair market value		Unrealized Losses		Fair market value		Unrealized Losses		Fair market value		Unrealized Losses
Fixed income securities:
Foreign debt	$	1,728	$	(43)	$	312	$	(539)	$	2,040	$	(582)
Corporate debt	592		(74)		410		(166)		1,002		(240)
Preferred stock	1,142		(191)		3,060		(164)		4,202		(355)
Mortgage-backed securities	0		0		85		(121)		85		(121)
Total fixed income securities with an unrealized loss	$	3,462	$	(308)	$	3,867	$	(990)	$	7,329	$	(1,298)

March 31, 2020
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 4,069
$ (976 ) $ 151
$ (472 ) $ 4,220
$ (1,448 )
Corporate debt 4,077
(1,042 ) 2,803
(1,303 ) 6,880
(2,345 )
Preferred stock 9,173
(2,138 ) —
—
9,173
(2,138 )
Mortgage-backed securities 61
(88 ) 93
(105 ) 154
(193 )
Total fixed income securities with an unrealized loss

$ 17,380
$ (4,244 ) $ 3,047
$ (1,880 ) $ 20,427
$ (6,124 )

December 31, 2019
In Loss Position Less than 12 months In Loss Position Greater than 12 months Total
Fair market value Unrealized Losses Fair market value Unrealized Losses Fair market value Unrealized Losses
Fixed income securities:
Foreign debt $ 168
$ (26 ) $ 549
$ (149 ) $ 717
$ (175 )
Corporate debt 1,057
(196 ) 3,253
(338 ) 4,310
(534 )
Preferred stock 2,989
(106 ) —
—
2,989
(106 )
Mortgage-backed securities —
—
252
(71 ) 252
(71 )
Total fixed income securities with an unrealized loss

$ 4,214
$ (328 ) $ 4,054
$ (558 ) $ 8,268
$ (886 )

Perpetual care trust investment security transactions recorded in Other, net on our Consolidated Statements of Operations ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Realized gains	$	709	$	691
Realized losses	(679)		(420)
Unrealized gains (losses), net	(13,525)		7,699
Net change in Care trusts’ corpus	13,495		(7,970)
Total	$	—	$	—

Three Months Ended March 31,
2019
2020
Realized gains $ 354
$ 709
Realized losses (171 ) (679 )
Net change in Care trusts’ corpus (183 ) (30 )
Total $ —
$ —

Perpetual care trust investment security transactions recorded in Other revenue ~~for the three months ended March 31, 2019 and 2020~~ on our Consolidated Statements of Operations are as follows (in thousands):


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Investment income	$	1,087		$	1,405		Investment income	$	1,405	$	2,513
Realized losses, net	(290		)	(36		)	Realized losses, net	(36)		(138)
Total	$	797		$	1,369		Total	$	1,369	$	2,375

Purchases and sales of investments in the perpetual care trusts ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Purchases	$	(14,612)	$	(6,137)
Sales	12,694		5,956

- 26 -

Three Months Ended March 31,
2019
2020
Purchases $ (9,157 ) $ (14,612 )
Sales 1,702
12,694

7.RECEIVABLES FROM PRENEED TRUSTS


7.	~~RECEIVABLES FROM PRENEED TRUSTS~~

Our ~~Receivables~~receivables from preneed 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. ~~As of December 31, 2019 and March 31, 2020, receivables~~Receivables from preneed trusts are as follows (in thousands):


	December 31, 2019			March 31, 2020				December 31, 2020		March 31, 2021
Preneed trust funds, at cost	$	18,581		$	18,650		Preneed trust funds, at cost	$	17,365	$	17,502
Less: allowance for contract cancellation	(557		)	(561		)	Less: allowance for contract cancellation	(521)		(526)
Receivables from preneed trusts, net	$	18,024		$	18,089		Receivables from preneed trusts, net	$	16,844	$	16,976

The following summary reflects the composition of the assets held in trust and controlled by third parties to satisfy our future obligations under preneed arrangements related to the preceding contracts at ~~March~~December 31, 2020 and ~~December~~March 31, ~~2019.~~2021. The cost basis includes reinvested interest and dividends that have been earned on the trust assets. Fair value includes unrealized gains and losses on trust assets.

The composition of the preneed trust funds at March 31, ~~2020~~2021 is as follows (in thousands):


	Historical Cost Basis		Fair Value
Cash and cash equivalents	$	4,697	$	4,697
Fixed income investments	10,473		10,473
Mutual funds and common stocks	2,327		2,406
Annuities	5		5
Total	$	17,502	$	17,581

Historical
Cost Basis
Fair Value
Cash and cash equivalents $ 4,580
$ 4,580
Fixed income investments 11,685
11,685
Mutual funds and common stocks 2,380
2,392
Annuities 5
5
Total $ 18,650
$ 18,662

The composition of the preneed trust funds at December 31, ~~2019~~2020 is as follows (in thousands):


	Historical Cost Basis		Fair Value
Cash and cash equivalents	$	4,604	$	4,604
Fixed income investments	10,355		10,355
Mutual funds and common stocks	2,402		2,569
Annuities	4		4
Total	$	17,365	$	17,532

8.FAIR VALUE MEASUREMENTS

Historical
Cost Basis
Fair Value
Cash and cash equivalents $ 4,533
$ 4,533
Fixed income investments 11,603
11,603
Mutual funds and common stocks 2,440
2,518
Annuities 5
5
Total $ 18,581
$ 18,659


8.	~~FAIR VALUE MEASUREMENTS~~

We evaluated our financial assets and liabilities for those financial assets and liabilities that met the criteria of the disclosure requirements and fair value framework. The carrying values of cash and cash equivalents, ~~trade receivables,~~accounts receivable and ~~trade payables~~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 ~~funeral and~~ 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 10) and Senior Notes (as defined in Note 12) are classified within Level 2 of the Fair Value Measurements hierarchy.

~~The~~At March 31, 2021, the carrying value and fair ~~values~~value of our Credit Facility was $28.3 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 March 31, 2021, the carrying value of our acquisition debt ~~and Credit Facility approximate the carrying values of these instruments based on the index yields of similar securities compared to U.S. Treasury yield curves.~~was $5.4 million, which approximated its fair value. The fair value of ~~the Convertible~~our Senior Notes ~~(as defined in Note 11)~~ was approximately ~~$6.4~~$417.6 million at March 31, ~~2020~~2021 based on the last traded or broker quoted price. ~~The fair value of the Senior Notes (as defined in Note 12) was approximately $432.3 million at~~

At December 31, 2020 and March 31, ~~2020 based on the last traded or broker quoted price.~~ 2021, we did not have any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.

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.

~~As of December 31, 2019~~ Our receivables from preneed trusts represent assets in trusts which are controlled and ~~March 31, 2020,~~operated by third parties in which we ~~did~~do not have ~~any assets that had fair values determined by Level 3 inputs and no liabilities measured at fair value.~~

a controlling financial interest (less than 50%) in the trust assets. We account for ~~our~~these investments ~~as available-for-sale~~at cost.

- 28 -

See Notes 6 and measure them at fair value under standards of financial accounting and reporting for investments in equity instruments that have readily determinable fair values and for all investments in debt securities. See Note 67 to our Consolidated Financial Statements herein for the fair value hierarchy levels of our trust investments.

9.INTANGIBLE AND OTHER NON-CURRENT ASSETS


9.	~~INTANGIBLE AND OTHER NON-CURRENT ASSETS~~

Intangible and other non-current assets ~~at December 31, 2019 and~~ ~~March 31, 2020~~are as follows (in thousands):


	December 31, 2020		March 31, 2021
Tradenames	$	23,565	$	23,565
Prepaid agreements not-to-compete, net of accumulated amortization of $3,193 and $3,361, respectively	2,785		2,676
Capitalized commissions on preneed contracts, net of accumulated amortization of $1,594 and $1,746, respectively	3,141		3,240

Other	51		21
Intangible and other non-current assets, net	$	29,542	$	29,502

December 31, 2019
March 31, 2020
Prepaid agreements not-to-compete, net of accumulated amortization of $7,195 and $7,382, respectively $ 3,915
$ 3,792
Tradenames 25,233
26,649
Capitalized commissions on preneed contracts, net of accumulated amortization of $1,127 and $1,268, respectively 2,818
2,903
Other 150
113
Intangible and other non-current assets, net $ 32,116
$ 33,457
Tradenames

Our tradenames have indefinite lives and therefore are not amortized.

Prepaid Agreements

Prepaid agreements not-to-compete are amortized over the term of the respective agreements, ranging generally from one to ten years. Amortization expense was ~~$168,000~~$187,000 and ~~$187,000~~$168,000 for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

Capitalized Commissions

We capitalize our selling costs related to preneed cemetery merchandise and services and preneed funeral trust contracts. These costs are amortized on a straight-line basis over the average maturity period for our preneed cemetery merchandise and services contracts and preneed funeral trust contracts, of eight and ten years, respectively. Amortization expense related to capitalized commissions totaled ~~$138,000~~$141,000 and ~~$141,000~~$152,000 for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

~~See Notes 1 and 3 to the Consolidated Financial Statements included herein, for a discussion of the methodology used~~The aggregate amortization expense for our ~~indefinite-lived intangible asset impairment test~~non-compete agreements and ~~discussion~~capitalized commissions as of ~~our acquisitions, respectively.~~March 31, 2021 is as follows (in thousands):


	Non-Compete Agreements		Capitalized Commissions
Years ending December 31,
Remainder of 2021	$	459	$	437
2022	519		543
2023	446		488
2024	380		425
2025	373		359
Thereafter	499		988
Total amortization expense	$	2,676	$	3,240

10.CREDIT FACILITY AND ACQUISITION DEBT

At ~~December 31, 2019 and~~ March 31, ~~2020,~~2021, our ~~Credit Facility~~$190.0 million senior secured revolving credit facility (the “Credit Facility”) was comprised of: (i) a $190.0 million revolving credit facility, ~~which includes~~including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans. The final maturity of the Credit Facility will occur on May 31, 2023.

The Credit Facility is secured by a first-priority perfected security interest in and lien on substantially all of the Company’s personal property assets and those of the Credit Facility Guarantors. In the event the Company’s actual Total Leverage Ratio is not at least 0.25 less than the required Total Leverage Ratio covenant level, at the discretion of the Administrative Agent, the Administrative Agent may unilaterally compel the Company and the Credit Facility Guarantors to grant and perfect first-priority mortgage liens on fee-owned real property assets which account for no less than 50% of funeral operations EBITDA.

- 29 -

The Credit Facility contains customary affirmative covenants, including, but not limited to, covenants with respect to the use of proceeds, payment of taxes and other obligations, continuation of the Company’s business and the maintenance of existing rights and privileges, the maintenance of property and insurance, amongst others.

In addition, the Credit Facility also contains customary negative covenants, including, but not limited to, covenants that restrict (subject to certain exceptions) the ability of the Company and its subsidiaries ~~and~~ party thereto as guarantors (the “Credit Facility Guarantors”) to incur additional indebtedness, grant liens on assets, make investments, engage in mergers and acquisitions, and pay dividends and other restricted payments, and certain financial covenants. As of March 31, ~~2020,~~2021, we were subject to the following financial ~~covenant~~covenants under our Credit Facility: (A) a Total Leverage Ratio not to exceed ~~(i) 5.75 to 1.00 for the quarters ended March 31, 2020, June 30, 2020 and September 30, 2020 and (ii)~~ 5.50 to 1.00, ~~for the quarter ended December 31, 2020 and each quarter ended thereafter,~~ (B) a Senior Secured Leverage Ratio (as defined in the Credit Facility) not to exceed 2.00 to 1.00 as of the end of any period of four consecutive fiscal quarters, and (C) a Fixed Charge Coverage Ratio (as defined in the Credit Facility) of not less than 1.20 to 1.00 as of the end of any period of four consecutive fiscal quarters. These financial maintenance covenants are calculated for the Company and its subsidiaries on a consolidated basis. ~~As more fully described below, we~~

We were ~~not~~ in compliance with the ~~Total Leverage Ratio covenant for the quarter ended March 31, 2020.~~

As of March 31, 2020, the Company was not in compliance with the then current Total Leverage Ratio covenant as noted above. On May 18, 2020, we received a waiver under our Credit Facility for the failure to comply with such Total Leverage Ratio and the Credit Facility was also amended whereby the interest rate margin applicable to borrowings was increased at each pricing level. See Note 19 for additional information related to our debt covenant limited waiver and fourth amendment to our Credit Facility.

~~We are in compliance with the~~total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of March 31, ~~2020.~~

2021.

Our Credit Facility and Acquisition debt consisted of the following ~~at December 31, 2019 and March 31, 2020~~ (in thousands):


	December 31, 2020		March 31, 2021
Credit Facility	$	47,200	$	28,300
Debt issuance costs, net of accumulated amortization of $819 and $937, respectively	(1,136)		(1,018)
Total Credit Facility	$	46,064	$	27,282

Acquisition debt	$	5,509	$	5,355
Less: current portion	(1,027)		(913)
Total acquisition debt, net of current portion	$	4,482	$	4,442

December 31, 2019
March 31, 2020
Credit Facility $ 83,800
$ 114,000
Debt issuance costs, net of accumulated amortization of $337 and $464, respectively (1,618 ) (1,491 )
Total Credit Facility $ 82,182
$ 112,509

Acquisition debt $ 6,964
$ 6,547
Less: current portion (1,306 ) —
(1,085 )
Total acquisition debt, net of current portion $ 5,658
$ 5,462

At March 31, 2021, we had outstanding borrowings under the Credit Facility of $28.3 million. We also had one letter of credit ~~issued on November 30, 2019 and~~for $2.1 million outstanding under the Credit Facility, ~~for approximately $2.0 million,~~ which bears interest at ~~2.125%~~3.125% and will expire on November 25, ~~2020.~~2021. The letter of credit will automatically ~~renews~~renew annually and secures our obligations under our various self-insured policies. At March 31, 2021, we had $159.6 million of availability under the Credit Facility after giving effect to the $2.1 million of the outstanding letter of credit.

Outstanding borrowings under our Credit Facility bear interest at either a prime rate or a LIBOR rate, plus an applicable margin based upon our leverage ratio. ~~As of~~At March 31, ~~2020,~~2021, the prime rate margin was equivalent to ~~1.50%~~1.5% and the LIBOR rate margin was ~~2.50%~~2.5%. The weighted average interest rate on our Credit Facility was 4.3% and 3.3% for the three months ended March 31, ~~2019~~2020 and ~~2020 was 4.1%~~2021, respectively.

The interest expense and ~~4.3%, respectively.~~

~~Interest expense related to our Credit Facility was $0.4 million and $1.2 million for the three months ended March 31, 2019 and 2020, respectively. Amortization~~amortization of debt issuance costs related to our Credit Facility ~~was $0.1 million~~are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Credit Facility interest expense	$	1,230	$	445
Credit Facility amortization of debt issuance costs	126		118

See Note 18 to the Consolidated Financial Statements herein for ~~both the three months ended March 31, 2019 and 2020.~~additional information related to our Credit Facility.

Acquisition debt consists of deferred purchase price and promissory notes payable to sellers. A majority of the deferred purchase price and notes bear no interest and are discounted at imputed interest rates ranging from 7.3% to 10.0%. Original maturities range from five to twenty years. ~~Imputed~~

The imputed interest expense related to our acquisition debt ~~was $0.2 million and $0.1 million for~~is as follows (in thousands):


	Three months ended March 31,
	2020		2021
Acquisition debt imputed interest expense	$	127	$	97

- 30 -

11.CONVERTIBLE SUBORDINATED NOTES

During the three months ended March 31, ~~2019~~2021, we converted approximately $2.4 million in aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”) held by certain holders for approximately $3.8 million in cash and ~~2020, respectively.~~

~~11.CONVERTIBLE SUBORDINATED NOTES~~recorded $1.4 million for the reacquisition of the equity component. The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, approximately $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at March 31, 2021.

The carrying values of the liability and equity components of our ~~2.75% convertible subordinated notes due 2021 (the “Convertible Notes”) at December 31, 2019 and March 31, 2020~~Convertible Notes are reflected on our Consolidated Balance Sheet as follows (in thousands):


	December 31, 2020		March 31, 2021
Current liabilities:
Principal amount	$	2,559	$	0
Unamortized discount of liability component	(20)		0
Convertible Notes issuance costs, net of accumulated amortization of $63 and $64, respectively	(1)		0
Carrying value of the liability component	$	2,538	$	0

Carrying value of the equity component	$	319	$	0

December 31, 2019
March 31, 2020
Current liabilities:
Principal amount $ 6,319
$ 6,319
Unamortized discount of liability component (319 ) (254 )
Convertible Notes issuance costs, net of accumulated amortization of $130 and $136, respectively (29 ) (23 )
Carrying value of the liability component $ 5,971
$ 6,042

Carrying value of the equity component $ 789
$ 789

The carrying value of the liability component and the carrying value of the equity component are recorded in Convertible subordinated notes due 2021 and Additional paid-in capital, respectively, on our Consolidated Balance Sheet at December 31, ~~2019 and March 31,~~ 2020. ~~The balance of our deferred tax liability related to our Convertible Notes was $0.1 million at March 31, 2020.~~

The fair value of the Convertible Notes, which are Level 2 measurements, was $6.4 million at March 31, 2020. The Convertible Notes are due in March 2021 and bear interest at 2.75% per year, which is payable semi-annually in arrears on March 15 and September 15 of each year.

At March 31, 2020, the adjusted conversion rate of the Convertible Notes is 45.5554 shares of our common stock per $1,000 principal amount of Convertible Notes, equivalent to an adjusted conversion price of $21.95 per share of common stock.

~~Interest expense on the Convertible Notes included contractual coupon~~ interest expense and accretion of ~~$44,000~~debt discount and $43,000 for the three months ended March 31, 2019 and 2020, respectively. Accretion of the discount on the Convertible Notes was $57,000 and $65,000 for the three months ended March 31, 2019 and 2020, respectively. Amortization of debt issuance costs related to our Convertible Notes ~~was $6,000 for both the three months ended March 31, 2019 and 2020.~~are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Convertible Notes interest expense	$	43	$	18
Convertible Notes accretion of debt discount	65		20
Convertible Notes amortization of debt issuance costs	6		1

The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 11 months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both the three months ended March 31, ~~2019~~2020 and ~~2020~~2021 was 11.4%. The effective interest rate on the debt issuance costs for ~~both~~the three months ended March 31, ~~2019~~2020 and ~~2020~~2021 was 3.2%. and 3.1%, respectively.

12.SENIOR NOTES

The carrying value of our 6.625% ~~Senior Notes~~senior notes due 2026 (the “Senior Notes”) ~~at December 31, 2019 and March 31, 2020~~ is reflected on our Consolidated Balance Sheet as follows (in thousands):


	December 31, 2020		March 31, 2021
Long-term liabilities:
Principal amount	$	400,000	$	400,000
Debt premium, net of accumulated amortization of $221 and $279, respectively	1,467		1,409
Debt discount, net of accumulated amortization of $1,293 and $1,431, respectively	(3,582)		(3,444)
Debt issuance costs, net of accumulated amortization of $496 and $570, respectively	(1,917)		(1,843)
Carrying value of the Senior Notes	$	395,968	$	396,122

December 31, 2019
March 31, 2020
Long-term liabilities:
Principal amount $ 400,000
$ 400,000
Debt premium, net of accumulated amortization of $0 and $54, respectively 1,688
1,633
Debt discount, net of accumulated amortization of $765 and $894, respectively (4,110 ) (3,981 )
Debt issuance costs, net of accumulated amortization of $216 and $283, respectively (2,131 ) (2,077 )
Carrying value of the Senior Notes $ 395,447
$ 395,575

~~The~~At March 31, 2021, the fair value of the Senior Notes, which are Level 2 measurements, was ~~$432.3 million at March~~$417.6 million.

The Senior Notes were issued under an indenture, dated as of May 31, ~~2020.~~2018 (the “Indenture”), among us, certain of our existing subsidiaries (collectively, the “Subsidiary Guarantors”), as guarantors, and Wilmington Trust, National Association., as trustee. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each of the Subsidiary Guarantors. The Senior Notes are due on June 1, 2026 unless earlier redeemed or repurchased and bear interest at 6.625% per year, which is payable semi-annually in arrears on June 1 and December 1 of each year.

~~Interest expense on~~

- 31 -

We may redeem all or part of the Senior Notes ~~included contractual coupon interest expense of $5.4 million and $6.6 million for the three months ended March 31, 2019 and 2020, respectively. Amortization~~at any time prior to June 1, 2021 at a redemption price equal to 100% of the ~~debt discount on~~principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption. We have the right to redeem the Senior Notes ~~was $120,000~~at any time on or after June 1, 2021 at the redemption prices described in the Indenture, plus accrued and ~~$129,000~~unpaid interest, if any, to the date of redemption. Additionally, at any time before June 1, 2021, we may redeem up to 40% of the aggregate principal amount of the Senior Notes issued with an amount equal to the net proceeds of certain equity offerings, at a price equal to 106.625% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption; provided that (1) at least 60% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Senior Notes held by us); and (2) each such redemption must occur within 180 days of the date of the closing of each such equity offering.

If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the ~~three months ended March 31, 2019~~principal amount of the Senior Notes, plus accrued and ~~2020, respectively~~unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

The Indenture contains restrictive covenants limiting our ability and our Restricted Subsidiaries (as defined in the Indenture) to, among other things, incur additional indebtedness or issue certain preferred shares, create liens on certain assets to secure debt, pay dividends or make other equity distributions, purchase or redeem capital stock, make certain investments, sell assets, agree to certain restrictions on the ability of Restricted Subsidiaries to make payments to us, consolidate, merge, sell or otherwise dispose of all or substantially all assets, or engage in transactions with affiliates. The Indenture also contains customary events of default.

The interest expense and amortization of ~~the~~debt discount, debt premium ~~was $54,000 for the three months ended March 31, 2020. Amortization of~~and debt issuance costs ~~on the~~related to our Senior Notes ~~was $34,000 and $67,000 for the three months ended March 31, 2019 and 2020, respectively.~~are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Senior Notes interest expense	$	6,625	$	6,625
Senior Notes amortization of debt discount	129		138
Senior Notes amortization of debt premium	54		58
Senior Notes amortization of debt issuance costs	67		74

The debt discount, the debt premium and the debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 7462 months of the Senior Notes. The effective interest rate on the unamortized debt discount and the unamortized debt issuance costs for the ~~initial~~ Senior Notes, ~~which were~~ issued in May 2018, for ~~the~~both three months ended March 31, 2020 and 2021 was 6.87% and 6.69%, respectively. The effective interest rate on the unamortized debt premium and the unamortized debt issuance costs for the ~~additional~~ Senior Notes, ~~which were~~ issued in December 2019, for ~~the~~both three months ended March 31, 2020 and 2021 was 6.20% and 6.88%, respectively.

On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the Senior Notes to call for redemption on June 1, 2021, all of the outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the scheduled redemption date. See Note 18 to the Consolidated Financial Statements herein for additional information regarding the notice of conditional redemption for our Senior Notes.

- 32 -

13.LEASES

Our lease obligations consist of operating and finance leases related to real estate and equipment. The components of lease cost ~~for the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):

Three months ended March 31,
Income Statement Classification 2019
2020
Operating lease cost
Facilities and grounds expense⁽¹⁾
$ 924
$ 957
Short-term lease cost
Facilities and grounds expense⁽¹⁾
75
57

Finance lease cost:
Depreciation of leased assets
Depreciation and amortization⁽²⁾
$ 132
$ 109
Interest on lease liabilities Interest expense 132
126
Total finance lease cost 264
235
Total lease cost $ 1,263
$ 1,249


		Three months ended March 31,
	Income Statement Classification	2020		2021
Operating lease cost	Facilities and grounds expense(1)	$	957	$	960
Short-term lease cost	Facilities and grounds expense(1)	32		49
Variable lease cost	Facilities and grounds expense(1)	25		41

Finance lease cost:
Depreciation of leased assets	Depreciation and amortization(2)	$	109	$	108
Interest on lease liabilities	Interest expense	126		120
Total finance lease cost		235		228
Total lease cost		$	1,249	$	1,278




(1)	Facilities and grounds expense is included within Cost of service and General, administrative and other on our Consolidated Statements of Operations.
(2)		Depreciation and amortization expense is included within Field depreciation and Home office depreciation and amortization on our Consolidated Statements of Operations.

~~Variable lease expense was immaterial for the~~ ~~three months ended March 31, 2019 and 2020.~~

Supplemental cash flow information related to our leases ~~for the three months ended March 31, 2019 and 2020~~ is as follows (in thousands):


	Three months ended March 31,			Three months ended March 31,
	2019	2020		2020		2021
Cash paid for operating leases included in operating activities	979	696	Cash paid for operating leases included in operating activities	$	696	$	965
Cash paid for finance leases included in financing activities	228	200	Cash paid for finance leases included in financing activities	200		209

Right-of-use assets obtained in exchange for new leases ~~for the three months ended March 31, 2019 and 2020~~ is as follows (in thousands):


	Three months ended March 31,
	2020		2021
Right-of-use assets obtained in exchange for new operating lease liabilities	$	77	$	56
Right-of-use assets obtained in exchange for new finance lease liabilities	0		0

Three months ended March 31,
2019
2020
Right-of-use assets obtained in exchange for new operating lease liabilities $ —
$ 77
Right-of-use assets obtained in exchange for new finance lease liabilities —
—

Supplemental balance sheet information related to ~~finance lease right-of-use assets recorded in~~ ~~Property, plant and equipment, net~~ ~~as of December 31, 2019 and March 31, 2020~~leases is as follows (in thousands):


Lease Type	December 31, 2019			March 31, 2020			Lease Type	Balance Sheet Classification	December 31, 2020		March 31, 2021
Operating lease right-of-use assets							Operating lease right-of-use assets	Operating lease right-of-use assets	$	21,201	$	20,747

Finance lease right-of-use assets	$	6,770		$	6,770		Finance lease right-of-use assets	Property, plant and equipment, net	$	6,770	$	6,770
Accumulated depreciation	(1,566		)	(1,675		)	Accumulated depreciation	Property, plant and equipment, net	(2,005)		(2,113)
Finance lease right-of-use assets, net	$	5,204		$	5,095		Finance lease right-of-use assets, net		$	4,765	$	4,657

Operating lease current liabilities							Operating lease current liabilities	Current portion of operating lease obligations	$	2,082	$	2,057
Finance lease current liabilities							Finance lease current liabilities	Current portion of finance lease obligations	323		331
Total current lease liabilities							Total current lease liabilities		$	2,405	$	2,388

Operating lease non-current liabilities							Operating lease non-current liabilities	Obligations under operating leases, net of current portion	$	20,302	$	19,876
Finance lease non-current liabilities							Finance lease non-current liabilities	Obligations under finance leases, net of current portion	5,531		5,445
Total non-current lease liabilities							Total non-current lease liabilities		$	25,833	$	25,321

Total lease liabilities							Total lease liabilities		$	28,238	$	27,709

The average lease terms and discount rates ~~as of~~at March 31, ~~2020~~2021 are as follows:


	Weighted-average remaining lease term (years)	Weighted-average discount rate
Operating leases	10.7	8.1	%
Finance leases	5.6	8.2	%

- 33 -

Weighted-average remaining lease term (years) Weighted-average discount rate
Operating leases 10.7 8.1 %
Finance leases 6.7 8.2 %

The aggregate future lease payments for operating and finance leases as of March 31, ~~2020~~2021 are as follows (in thousands):


	Operating		Finance
Lease payments due:
Remainder of 2021	$	2,854	$	627
2022	3,439		860
2023	3,318		860
2024	3,301		791
2025	3,161		736
Thereafter	16,188		5,555
Total lease payments	32,261		9,429
Less: Interest	(10,328)		(3,653)
Present value of lease liabilities	$	21,933	$	5,776

Operating Finance
Lease payments due:
Remainder of 2020 $ 2,688
$ 628
2021 3,725
836
2022 3,365
860
2023 3,267
860
2024 3,262
791
Thereafter 17,799
6,291
Total lease payments 34,106
10,266
Less: Interest (11,164 ) (4,192 )
Present value of lease liabilities $ 22,942
$ 6,074

~~As of~~At March 31, ~~2020,~~2021, we had no additional significant operating or finance leases that had not yet commenced.


~~14.~~	~~COMMITMENTS AND CONTINGENCIES~~

~~Litigation~~

We are a party to various litigation matters and proceedings. For each of our outstanding legal matters, we evaluate the merits of the case, our exposure to the matter, possible legal or settlement strategies, and the likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and can be reasonably estimated, we establish the necessary accruals. We hold certain insurance policies that may reduce cash outflows with respect to an adverse outcome of certain of these litigation matters.

~~Faria, et al. v. Carriage Funeral Holdings, Inc.,~~ Superior Court of California, Contra Costa County, Case No. MSC18-00606. On March 26, 2018, six Plaintiffs filed a putative class action against Carriage Funeral Holdings, Inc., our subsidiary, their alleged

employer, on behalf of themselves and all similarly situated current and former employees. Plaintiffs seek monetary damages and claim that Carriage Funeral Holdings, Inc. failed to pay minimum wages, provide meal and rest breaks, provide accurately itemized wage statements, reimburse employees for required expenses, and provide wages when due. Plaintiffs also claim that Carriage Funeral Holdings, Inc. violated California Business and Professions Code §17200 et seq. On June 5, 2018, Plaintiffs filed a First Amended Complaint to add a claim under the California Private Attorney General Act. On October 23, 2018, the parties mediated this matter and executed a Memorandum of Understanding for class settlement. In February 2019, a Class Action Settlement Agreement was fully executed and was approved by the Court in October 2019. We paid $0.7 million under the settlement agreement in November 2019. We anticipate the case to formally close in 2020.

~~15.~~14.STOCKHOLDERS’ EQUITY

Restricted Stock

During the three months ended March 31, 2021, we issued restricted stock to certain employees totaling 9,300 shares that vest over a three-year period and had an aggregate grant date market value of $324,000 at a weighted average stock price of $34.79. During the three months ended March 31, 2020, we issued restricted stock to certain employees totaling 10,200 shares that vest over a ~~three-year~~three-year period and had an aggregate grant date market value of ~~approximately $0.3 million~~$255,000 at a weighted average stock price of $25.00.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for restricted stock awards of ~~$217,000~~$184,000 and ~~$184,000,~~$121,000, for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

~~As of~~Stock Options

During the three months ended March 31, ~~2020,~~2021, we ~~had $1.1 million of total unrecognized compensation costs related~~granted 701,400 options to ~~unvested restricted stock awards, which are expected to be recognized over~~certain key employee at a weighted average price of $34.79. These options will vest in one-fifth increments over a five-year period and have a ten-year term. The fair value of ~~approximately 1.7 years.~~

~~Stock Options~~

these options was $7.1 million. During the three months ended March 31, 2020, we did not ~~grant~~issue any stock options.

The fair value of the options granted were estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:


Grant date	February 17, 2021
Dividend yield	1.15	%
Expected volatility	36.72	%
Risk-free interest rate	0.57	%
Expected holding period (years)	5.0
Black-Scholes value	$10.14

During the three months ended March 31, 2021, employees exercised 101,000 stock options at a weighted average exercise price of $24.18 with an aggregate intrinsic value of $1.3 million. We received $147,000 in cash for payment of the option price and we withheld $295,000 for payment of payroll taxes. In addition, we accelerated 12,980 options in connection with the resignation of an employee which resulted in an additional $129,000 of stock-based compensation expense.

During the three months ended March 31, 2021, we also granted an additional 150,000 options to a certain key employee at a weighted average price of $34.79. These options will vest when the price of our common stock closes at or above the specified prices below for three consecutive days within the ten-year term and the employee has remained continuously employed by us through such date. The fair value of these options was $1.7 million.

- 34 -

The fair value of the options granted were estimated on the date of grant using the Monte-Carlo simulation pricing model using the following assumptions:


Grant date	February 17, 2021		February 17, 2021
Awards granted	50,000		100,000
Fair value (in millions)	$0.5		$1.2

Vesting share price	$53.39		$77.34
Dividend yield	1.15	%	1.15	%
Expected volatility	34.08	%	34.08	%
Risk-free interest rate	1.29	%	1.29	%

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for stock options, including the accelerated stock options discussed above of ~~$204,000~~$215,000 and ~~$215,000,~~$560,000, for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

Performance Awards

During the three months ended March 31, 2021, we did not issue any performance awards and we cancelled 27,948 performance awards in connection with the resignation of two employees.

During the three months ended March 31, 2020, we ~~granted~~issued 237,500 performance awards to ~~our leadership team and~~ certain ~~key~~ employees, payable in ~~shares. These awards will vest (if at all) during 2024, provided that certain criteria surrounding our common stock price is achieved and the employee has remained continuously employed~~shares, with ~~the Company through such date. The~~a fair value of ~~these~~$2.8 million. On May 19, 2020, we cancelled all performance award agreements previously awarded to all individuals during 2019 and the February 19, 2020 award. Concurrently with the cancellation, the Compensation Committee of the Board of Directors (the “Board”) approved 368,921 new performance awards ~~was $2.8~~to be issued to certain employees. These new performance awards were treated as a modification of the cancelled awards and resulted in an additional $1.7 million ~~and was determined by using the Monte-Carlo simulation pricing model with the following assumptions:~~of incremental compensation costs.



	~~February 19, 2020~~
~~Performance period~~	~~February 19, 2020 - December 31, 2024~~
~~Simulation period (years)~~	~~4.87~~
~~Share price at grant date~~	~~$25.00~~
~~Expected volatility~~	~~27.73~~	%
~~Risk-free interest rate~~	~~1.41~~	%

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, for performance awards of ~~$19,000~~$121,000 and ~~$121,000~~$237,000 for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

~~See Note 19 to the Consolidated Financial Statements herein for additional information related to our performance awards.~~

Employee Stock Purchase Plan

During the three months ended March 31, 2021, employees purchased a total of 18,182 shares at a weighted average price of $26.32 per share. During the three months ended March 31, 2020, employees purchased a total of 26,294 shares at a weighted average price of $13.73 per share.

The fair value of the right (option) to purchase shares under the ESPP is estimated at the date of purchase with the four quarterly purchase dates using the following assumptions:



	~~2020~~2021
Dividend yield	~~0.01~~	%0.01%
Expected volatility	~~48.63~~	%48.14%
Risk-free interest rate	~~1.54%,1.57%,1.57%,1.56%~~	0.09%, 0.09%, 0.10%, 0.10%
Expected life (years)	0.25, 0.50, 0.75, 1.00

We recorded stock-based compensation expense, which is included in General, administrative and other expenses and Regional and unallocated funeral and cemetery costs, for the ESPP totaling ~~$105,000~~$163,000 and ~~$163,000~~$206,000 for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

~~Good to Great Incentive Program~~Non-Employee Director Compensation

During the three months ended March 31, ~~2020,~~2021, we ~~issued 17,991~~granted 5,040 shares of our common stock to ~~certain employees,~~6 Directors, which were valued at ~~approximately $449,000~~$177,000 at a ~~grant date~~weighted average stock price of ~~$25.00.~~

~~Non-Employee Director Compensation~~

~~We compensate our non-employee directors through cash payments or unrestricted shares of common stock, payable in quarterly installments, as elected by~~$35.19. During the non-employee director. On February 19, 2020, our Board of Directors (the “Board”) revised the Director Compensation Policy to provide that each independent director is entitled to a quarterly retainer of $35,000, payable at the end of the quarter. Committee Chairs and Lead Director payments remain unchanged.

~~For the~~ three months ended March 31, 2020, we granted ~~an aggregate of~~ 8,821 shares of our common stock to five ~~of our non-employee directors,~~Directors, which were valued at ~~$0.1 million~~$147,000 at a weighted average stock price of $16.15.

We recorded stock-based compensation expense, which is included in General, administrative and other expenses, related to annual retainers, including the value of stock granted to Directors above, of $201,000 and ~~common stock awards of $114,000 and $201,000~~$231,000 for the three months ended March 31, ~~2019~~2020 and ~~2020,~~2021, respectively.

~~See Note 19 to the Consolidated Financial Statements herein for additional information related to our Director Compensation Policy.~~

- 35 -

Share Repurchase

On July 31, 2019, our Board approved an additional $25.0 million under our share repurchase program in accordance with Rule 10b-18 of the Securities Exchange Act of 1934, as amended. During the three months ended March 31, ~~2020,~~2021, we did not repurchase any shares of our common ~~stock pursuant to our share repurchase program.~~stock. At March 31, ~~2020,~~2021, we had approximately $25.6 million available for repurchases under our share repurchase program.

Cash Dividends

~~During the three months ended March 31, 2019 and 2020, our~~Our Board declared the following dividends payable on the dates below (in thousands, except per share amounts):


2021	Per Share		Dollar Value
March 1st	$	0.100	$	1,799



2020	Per Share		Dollar Value
March 1st	$	0.075	$	1,339

2019 Per Share Dollar Value
March 1^st
$ 0.075
$ 1,360

2020 Per Share Dollar Value
March 1^st
$ 0.075
$ 1,339

~~Accumulated other comprehensive income~~

~~Our components of accumulated other comprehensive income are as follows (in thousands):~~



	~~Accumulated Other Comprehensive Income~~
~~Balance at December 31, 2019~~	$	—
~~Net unrealized losses associated with available-for-sale securities of the trusts~~	~~(45,104~~		)
~~Reclassification of net unrealized losses activity attributable to the~~ ~~Deferred preneed funeral and cemetery receipts held in trust and Care trusts’ corpus~~	~~45,104~~
~~Balance at March 31, 2020~~	$	—

~~16.~~15.EARNINGS ~~(LOSS)~~ PER SHARE

The following table sets forth the computation of the basic and diluted earnings ~~(loss)~~ per share ~~for the three months ended March 31, 2019 and 2020~~ (in thousands, except per share data):

Three Months Ended March 31,
2019
2020
Numerator for basic and diluted earnings per share:
Net income (loss) $ 6,525
$ (4,197 )
Less: Loss (earnings) allocated to unvested restricted stock (33 ) 13
Income (loss) attributable to common stockholders $ 6,492
$ (4,184 )

Denominator:
Denominator for basic earnings per common share - weighted average shares outstanding 18,057
17,805
Effect of dilutive securities:
Stock options 40
—
Denominator for diluted earnings per common share - weighted average shares outstanding 18,097
17,805

Basic earnings (loss) per common share: $ 0.36
$ (0.23 )
Diluted earnings (loss) per common share: $ 0.36
$ (0.23 )

For the three months ended March 31, 2019 and 2020, there were no shares that would have been issued upon conversion of our Convertible Notes as a result of the application under the if-converted method prescribed by the FASB ASC 260, ~~Earnings Per Share~~ ~~for the fully diluted weighted average shares outstanding and the corresponding calculation of fully diluted earnings per share.~~


	Three months ended March 31,
	2020		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	(4,197)	$	12,933
Less: Loss (earnings) allocated to unvested restricted stock	13		(27)
Income (loss) attributable to common stockholders	$	(4,184)	$	12,906

Denominator:
Denominator for basic earnings per common share - weighted average shares outstanding	17,805		17,965
Effect of dilutive securities:
Stock options	0		234

Denominator for diluted earnings per common share - weighted average shares outstanding	17,805		18,199

Basic earnings (loss) per common share:	$	(0.23)	$	0.72
Diluted earnings (loss) per common share:	$	(0.23)	$	0.71

For the three months ended March 31, ~~2019 and~~ 2020 there were ~~1,307,000 and 1,034,000~~1,034,084 stock options ~~respectively,~~ excluded from the computation of diluted earnings per share because the inclusion of such stock options would result in an antidilutive ~~effect. For the three months ended March 31, 2020, 27,000~~effect and 27,085 shares were excluded from the computation of diluted earnings per share amounts because the loss attributable to common stockholders was a loss, not income. For the three months ended March 31, 2021, 0 stock options were excluded from the computation of diluted earnings per share.

- 36 -

~~17.~~

16.SEGMENT REPORTING

Revenue, disaggregated by major source for each of our reportable segments was as follows (in thousands):


Three months ended March 31, 2021
	Funeral		Cemetery		Total
Services	$	43,522	$	4,235	$	47,757
Merchandise	24,461		3,424		27,885
Cemetery property	0		14,011		14,011
Other revenue	3,791		3,193		6,984
Total	$	71,774	$	24,863	$	96,637


Three Months Ended March 31, 2020
Three months ended March 31, 2020							Three months ended March 31, 2020
	Funeral		Cemetery		Total			Funeral		Cemetery		Total
Services	$	37,559	$	3,173	$	40,732	Services	$	37,559	$	3,173	$	40,732
Merchandise	20,700		2,286		22,986		Merchandise	20,700		2,286		22,986
Cemetery property	—		8,285		8,285		Cemetery property	0		8,285		8,285
Other revenue	3,483		2,004		5,487		Other revenue	3,483		2,004		5,487
Total	$	61,742	$	15,748	$	77,490	Total	$	61,742	$	15,748	$	77,490

Three Months Ended March 31, 2019
Funeral
Cemetery
Total
Services $ 33,977
$ 2,675
$ 36,652
Merchandise 19,965
1,778
21,743
Cemetery property —
6,836
6,836
Other revenue 2,221
1,629
3,850
Total $ 56,163
$ 12,918
$ 69,081

~~We conduct funeral and cemetery operations only in the United States.~~ The following table presents ~~Operating~~operating income (loss), ~~Income~~income (loss) before income taxes and ~~Total~~total assets ~~by segment~~ (in thousands):


	Funeral		Cemetery		Corporate		Consolidated



Operating income (loss):
Three months ended March 31, 2021	$	25,876	$	9,493	$	(9,123)	$	26,246
Three months ended March 31, 2020	4,311		4,167		(6,328)		2,150




Income (loss) before income taxes:
Three months ended March 31, 2021	$	25,718	$	9,476	$	(16,620)	$	18,574
Three months ended March 31, 2020	4,119		4,105		(14,571)		(6,347)




Total assets:
March 31, 2021	$	763,761	$	378,945	$	15,020	$	1,157,726
December 31, 2020	764,535		366,964		14,326		1,145,825

- 37 -

Funeral
Cemetery
Corporate
Consolidated
Operating income (loss):
Three Months Ended March 31, 2020 $ 4,311
$ 4,167
$ (6,328 ) $ 2,150
Three Months Ended March 31, 2019 18,076
3,524
(6,001 ) 15,599

Income (loss) before income taxes:
Three Months Ended March 31, 2020 $ 4,119
$ 4,105
$ (14,571 ) $ (6,347 )
Three Months Ended March 31, 2019 17,862
3,585
(12,246 ) 9,201

Total assets:
March 31, 2020 $ 762,815
$ 318,960
$ 38,782
$ 1,120,557
December 31, 2019 790,459
314,413
24,883
1,129,755

~~18.~~17.SUPPLEMENTARY DATA

Balance Sheet

The following table presents the detail of certain balance sheet accounts ~~as of December 31, 2019 and March 31, 2020~~ (in thousands):


	December 31, 2020		March 31, 2021
Prepaid and other current assets:
Prepaid expenses	$	1,919	$	1,913



Other current assets	157		163
Total prepaid and other current assets	$	2,076	$	2,076

Current portion of debt and lease obligations:
Current portion of acquisition debt	$	1,027	$	913
Current portion of finance lease obligations	323		331
Current portion of operating lease obligations	2,082		2,057
Total current portion of debt and lease obligations	$	3,432	$	3,301

Accrued and other liabilities:
Accrued salaries and wages	$	1,392	$	3,307
Accrued incentive compensation	11,139		5,964
Accrued vacation	3,271		3,440
Accrued insurance	3,016		3,507
Accrued interest	2,291		8,888
Accrued ad valorem and franchise taxes	435		1,059
Employer payroll tax deferral	1,773		1,773
Accrued commissions	634		912
Perpetual care trust payable	908		1,097
Income tax payable	798		4,392
Other accrued liabilities	1,825		1,604
Unrecognized tax benefit	3,656		3,656
Total accrued and other liabilities	$	31,138	$	39,599

Other long-term liabilities:
Incentive compensation	$	2,975	$	351

Employer payroll tax deferral	1,773		1,773
Accrued severance	0		553
Total other long-term liabilities	$	4,748	$	2,677

Cash Flow

The following information is supplemental disclosure for the Consolidated Statements of Cash Flows (in thousands):


	Three months ended March 31,
	2020		2021
Cash paid for interest and financing costs	$	1,337	$	616
Cash paid for taxes	96		532
Fair value of donated real property	0		635

December 31, 2019
March 31, 2020
Prepaid and other current assets:
Prepaid expenses $ 1,596
$ 1,660
Deposit on pending acquisition 5,000
—
Federal income taxes receivable 2,973
11,814
State income taxes receivable 986
853
Other current assets 112
120
Total prepaid and other current assets $ 10,667
$ 14,447

Current portion of debt and lease obligations:
Current portion of acquisition debt $ 1,306
$ 1,085
Current portion of finance lease obligations 290
298
Current portion of operating lease obligations 1,554
1,836
Total current portion of debt and lease obligations $ 3,150
$ 3,219

Accrued and other liabilities:
Accrued salaries and wages $ 4,323
$ 2,803
Accrued incentive compensation 9,199
1,009
Accrued vacation 2,880
2,994
Accrued insurance 2,329
2,532
Accrued interest 2,299
8,979
Accrued ad valorem and franchise taxes 678
1,063
Accrued commissions 560
565
Perpetual care trust payable 401
146
Other accrued liabilities 1,357
837
Unrecognized tax benefit —
2,860
Total accrued and other liabilities $ 24,026
$ 23,788

Other long-term liabilities:
Incentive compensation $ 1,267
$ 1,435
Contingent consideration 470
—
Total other long-term liabilities $ 1,737
$ 1,435

~~19.~~18.SUBSEQUENT EVENTS

On April 23, 2020, as part of our broad-based effort to respond to COVID-19, the Compensation Committee of the Board approved, with the agreement of the impacted executive officers, temporary salary reductions to the base salary of our Chief Executive Officer by 15%, the base salary of our President and Chief Operating Officer by 10% and the base salaries of the Company’s other Executive Officers by 7.5%, along with a temporary reduction of the quarterly retainer for our non-employee directors from $35,000 per quarter to $29,750 per quarter (or 15%) effective April 19, 2020. With respect to the Director Compensation Policy, all other provisions of the policy remain unchanged, including the lead director and chairmanship fees. The Company will reevaluate these temporary reductions of compensation on a monthly basisNew Notes Purchase Agreement

On April 29, ~~2020,~~2021, we ~~filed~~and certain of our existing subsidiaries (the “Subsidiary Guarantors”) entered into a ~~Current Report on Form 8-K giving notice that~~Purchase Agreement with BofA Securities, Inc., as representative of the several initial purchasers named therein (collectively, the “Purchasers”), under which we agreed to sell $400 million in aggregate principal amount of 4.25% Senior Notes due 2029 (the “New Notes”) in a private placement to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A and to certain non-U.S. persons outside of the United States pursuant to Regulation S, each under the Securities Act of 1933, as amended. The New Notes will be issued pursuant to an indenture to be entered into among the Company, ~~intends~~the Subsidiary Guarantors and Wilmington Trust, National Association, as trustee.

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The sale of the New Notes to ~~avail itself~~the Purchasers is expected to settle on May 13, 2021, subject to customary closing conditions, and is expected to result in approximately $394 million in net proceeds to us after deducting the Purchasers’ discount and estimated offering expenses payable by us.

We intend to use the net proceeds of ~~an extension~~the sale of the New Notes, together with borrowings under the amended and restated credit facility, which we expect to ~~file its Quarterly report~~enter into concurrently with the settlement of the sale of the New Notes, to redeem all of our existing Senior Notes.

The New Notes will be our unsecured senior obligations and will bear interest at a rate of 4.25% per year. Interest will be payable semi-annually in arrears on ~~Form 10-Q~~May 15 and November 15 of each year, beginning on November 15, 2021. The New Notes will mature on May 15, 2029, unless earlier repurchased or redeemed.

The New Notes will be guaranteed on a senior unsecured basis by the Subsidiary Guarantors.

Notice of Conditional Redemption

On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the ~~fiscal quarter ended March 31, 2020. The Company is relying~~Senior Notes to call for redemption on ~~the Securities and Exchange Commission’s (the “SEC”) Orders under Section 36~~June 1, 2021, all of the ~~Securities~~outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and ~~Exchange Act~~unpaid interest up to, but excluding, the scheduled redemption date. Our redemption obligation is conditioned on and subject to the completion of ~~1934 (the “Exchange Act”), as~~the offering of New Notes and the entry into an amended ~~(Release Nos. 34-88318~~ and ~~34-88465), to delay the filing of its Quarterly Report.~~

~~On May 18 2020, we received a waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020. In~~restated credit facility in connection with the waiver, the Credit Facility was also amended to increase the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio. Immediately following the effectivenessclosing of the ~~limited waiver and fourth amendment, $74.0 million remained available for borrowing under the Credit Facility.~~offering.

~~On May 19, 2020, the Board approved an increase of $0.05 to our annual dividend beginning with the next dividend declaration in the third quarter.~~

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On May 19, 2020 Compensation Committee of the Board approved a new Performance Award Agreement (the “New Agreement”) for certain eligible employees. Pursuant to the New Agreement, the target share awards for each of the eligible employees will vest on December 31, 2024 if the Company’s common stock reaches one of five pre-determined growth targets for a sustained period beginning on the grant date of May 19, 2020 and ending on December 31, 2024.

CAUTIONARY STATEMENT ON FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q contains certain statements and information that may constitute forward-looking statements within the ~~safe harbor provisions~~meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical information, should be deemed to be forward-looking statements. These statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. The words “may”, “will”, “estimate”, “intend”, “believe”, “expect”, “seek”, “project”, “forecast”, “foresee”, “should”, “would”, “could”, “plan”, “anticipate” and other similar words or expressions are intended to identify forward-looking statements, which are generally not historical in nature. These forward-looking statements include, but are not limited to, statements regarding any projections of earnings, revenue, asset sales, cash flow, debt levels or other financial items; any statements of the plans, strategies and objectives of management for future operations or future acquisitions; any statements of the plans, timing and objectives of management for acquisition and divestiture activities; any statements of the plans, timing, expectations and objectives of management for future financing activities; any statements regarding future economic and market conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing and are based on our current expectations and beliefs concerning future developments and their potential effect on us. While management believes that these forward-looking statements are reasonable as and when made, there can be no assurance that future developments affecting us will be those that we anticipate. All comments concerning our expectations for future revenue and operating results are based on our forecasts for our existing operations and do not include the potential impact of any future acquisitions. Our forward-looking statements involve significant risks and uncertainties (some of which are beyond our control) and assumptions that could cause actual results to differ materially from our historical experience and our present expectations or projections. Important factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, those summarized below:

•our ability to find and retain skilled personnel;

•the effects of our incentive and compensation plans and programs, including such effects on our Standards Operating Model and our operational and financial performance;

•our ability to execute our growth strategy;

•the execution of our Standards Operating, 4E Leadership and ~~Standard~~Strategic Acquisition Models;

•the effects of competition;

•changes in the number of deaths in our markets;

•changes in consumer ~~preferences;~~preferences and our ability to adapt to or meet those changes;

•our ability to generate preneed ~~sales;~~sales, including implementing our cemetery portfolio sales strategy;

•the investment performance of our funeral and cemetery trust funds;

•fluctuations in interest rates;

•our ability to obtain debt or equity financing on satisfactory terms to fund additional acquisitions, expansion projects, working capital requirements and the repayment or refinancing of indebtedness;

•our ability to meet the timing, objectives and cost saving expectations related to anticipated financing activities, including our deleveraging program, forecasts and planned uses of free cash flow, expected plans and projections for refinancing our senior notes and future capital allocation, including potential acquisitions, share repurchases, dividend increases, or debt repayment plans;

•our ability to meet the projected financial performance metrics included in our updated Milestone Two-Year Scenario, if at all;

•the timely and full payment of death benefits related to preneed funeral contracts funded through life insurance contracts;

•the financial condition of third-party insurance companies that fund our preneed funeral contracts;

•increased or unanticipated costs, such as insurance or taxes;

•our level of indebtedness and the cash required to service our indebtedness;

•changes in federal income tax laws and regulations and the implementation and interpretation of these laws and regulations by the Internal Revenue Service;

•effects of the application of other applicable laws and regulations, including changes in such regulations or the interpretation thereof;

•the potential impact of epidemics and pandemics, including the COVID-19 coronavirus (“COVID-19”), on customer preferences and on our business;

•effects of ~~litigation and burial practice claims;~~litigation;

•consolidation of the funeral and cemetery industry;

•our ability to consummate the divestiture of low performing businesses as currently expected, if at all, including expected use of proceeds related thereto;

•our ability to integrate acquired businesses with our existing ~~businesses;~~businesses, including expected performance and financial improvements related thereto;

•economic, financial and stock market fluctuations;

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•interruptions or security lapses of our information technology, including any cybersecurity or ransomware incidents;

•our failure to maintain effective control over financial reporting; and

•other factors and uncertainties inherent in the funeral and cemetery industry.

For additional information regarding known material factors that could cause our actual results to differ from our projected results, please see (i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii) Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

Investors are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statements after the date they are made, whether as a result of new information, future events or otherwise.

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

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

OVERVIEW

General

Carriage Services, Inc. (“Carriage,” the “Company,” “we,” “us,” or “our”) was incorporated in the State of Delaware in December 1993 and is a leading U.S. provider of funeral and cemetery services and merchandise. We operate in two business segments: Funeral Home Operations, which currently account for approximately ~~80%~~75% of our revenue, and Cemetery Operations, which currently account for approximately ~~20%~~25% of our revenue.

At March 31, ~~2020,~~2021, we operated ~~186~~173 funeral homes in 2926 states and 32 cemeteries in 1112 states. We compete with other publicly held and independent operators of funeral and cemetery companies. We believe we are a market leader in most of our markets.

Funeral home and cemetery businesses provide products and services to families in three principal areas: (i) ceremony and tribute, generally in the form of a funeral or memorial service; (ii) disposition of remains, either through burial or cremation; and (iii) memorialization, generally through monuments, markers or inscriptions. Our funeral homes offer a complete range of ~~high value personal~~ services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and ~~remembrance~~memorial services and transportation services. Most of our funeral homes have a non-denominational chapel on the premises, which permits family visitation and services to take place at one location and thereby reduces transportation costs and inconvenience to the family.

Our cemeteries provide interment rights ~~(grave~~(primarily grave sites, lawn crypts, mausoleum spaces and ~~mausoleum spaces) and~~niches), related cemetery merchandise ~~such~~(such as outer burial containers, memorial markers and ~~outer burial containers.~~ floral placements) and services (interments, inurnments and installation of cemetery merchandise).

We provide funeral and cemetery services and products on both an “atneed” (time of death) and “preneed” (planned prior to death) basis.

Recent Developments

Divestitures

During the three months ended March 31, 2021, we divested two funeral homes for a total of $2.8 million, at a gain of $0.3 million.

Convertible Notes Conversions and Maturity

During the three months ended March 31, 2021, we converted approximately $2.4 million in aggregate principal amount of our 2.75% convertible subordinated notes due 2021 (the “Convertible Notes”) held by certain holders for approximately $3.8 million in cash. The Convertible Notes matured on March 15, 2021, at which time all Convertible Notes outstanding, approximately $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at March 31, 2021.

Business Impact under the Macroeconomic Environment of COVID-19

On March 11, 2020, COVID-19 was deemed a global pandemic and since then, the Company has continued to proactively monitor and assess the pandemic’s current and potential impact to the Company’s operations. ~~Since~~Beginning in early March 2020, the Company’s senior leadership team ~~has taken~~took certain steps to assist our businesses in appropriately adjusting and adapting to the conditions resulting from the COVID-19 pandemic. Our businesses have been designated as essential services and, therefore, each one of the Company’s business locations remains open and ready to provide service to their communities in this time of need. While our businesses provide an essential public function, along with a critical responsibility to the communities and families they serve, the health and safety of our employees and the families we serve remain our top priority. The Company has taken additional steps during this time to continually review and update our processes and procedures to comply with all regulatory mandates and procure additional supplies to ensure that each of our businesses have appropriate personal protective equipment to provide these essential services. Additionally, in many of our business locations, we have also updated staffing and service guidelines, such as reducing the number of team members present for a service, restricting the size and number of attendees and adjusting other operating procedures. The Company has also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities they serve.

The overall impact of the macroeconomic environment to the deathcare industry from COVID-19 may provide varying results as compared to other ~~industries, because death occurs on a relatively consistent basis.~~industries. Our industry’s revenues are impacted by various factors, including the number of funeral services performed, the average price for a service and the mix of traditional burial versus cremation contracts. Changes

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in the macroeconomic environment as a result of the pandemic ~~may not necessarily impact~~have, to this point, led to an increase in volume ~~but could~~and may create situations where people choose to spend less on funerals by purchasing less expensive caskets, minimize the scale of services and visitations, or elect not to make a preneed funeral or cemetery arrangement. During this time, our businesses have been focused on being innovative and resourceful, providing some type of immediate service as part of the grieving process. Gathering ~~and travel~~ restrictions across many areas of the country have, in some cases, limited our ability to provide large, in-person memorialization services and we have seen client families elect webcasting and livestreaming services, hold services with smaller attendance or rotating visitors, outdoor services, or in some cases, choose to delay services to a future date. ~~We have also offered various incentives to our customers and sales counselors to continue to foster sales in our cemeteries.~~

Within our financial reporting environment, we have considered various areas that could affect the results of our operations, though the scope, severity and duration of these impacts remain uncertain at this time because the COVID-19 pandemic is continually evolving and the ultimate impact of COVID-19 remains ~~highly~~ uncertain. Certain estimates inherently involve assumptions about future events and annual results, making reliable estimates for those matters challenging in periods of ~~extreme~~ economic instability. We do not believe we are vulnerable to certain concentrations, whether by geographic area, revenue for specific products or our relationships with our vendors. Our relationships with our vendors and suppliers have remained consistent and we continue to receive ~~utmost~~reliable service. Remote working arrangements, when utilized, have not ~~adversely~~materially affected our ability to maintain and support operations, including financial reporting systems, internal controls over financial reporting, and disclosure controls and procedures. ~~Our employees at the Houston Support Office, which account for approximately 5% of our total employee population, were the primary group affected by stay-at-home state and local orders.~~

We believe our access to capital, the cost of our capital, or the sources and uses of our cash should be relatively consistent in the near ~~term. However, we believe~~term, but given the unprecedented nature of COVID-19, we also believe, it is prudent for us to take a broad-based approach to ensuring we maintain financial flexibility throughout the expected duration of the pandemic. WeWhile the expected duration of the pandemic is unknown, we have not currently experienced any material negative impacts to our liquidity position, access to capital, or cash flows as ~~part~~a result of a larger plan, taken steps to reduce overall expenses throughout the rest of 2020. For example, discretionary spending, such as growth capital expenditures (primarily cemetery inventory development) will be tightly managed and minimized during this time. Moreover, our executive officers and non-employee directors voluntarily agreed to temporary reductions in salary compensation effective as of April 19, 2020.COVID-19. See Liquidity within Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations, for additional information related to our liquidity position.

We have also applied certain measures of the ~~Coronavirus Aid, Relief, and Economic Security~~CARES Act, ~~(the “CARES Act”),~~ which ~~was enacted on March 27, 2020, which we anticipate should provide~~has provided a cash benefit in the form of a tax payment ~~refund,~~refunds, tax credits related to employee retention, cash deferral for the employer portion of the Social Security tax and anticipated minimal cash taxes for 2020. Although we expect to take advantage of certain tax relief provisions of the CARES Act, we do not believe it will have a significant impact on our short-term or long-term liquidity position. See Item 1, Financial Statements and Supplementary Data, Note 1 for additional information related to the CARES Act.

The COVID-19 pandemic, and related gathering restrictions issued by state and local officials, did impact aspects of our financial results in the first quarter including revenue, volume, preneed cemetery sales, and average revenue per contract. ~~While it is difficult to gauge the exact extent of that impact over the last few weeks of the first quarter, the Company~~We will continue to assess these impacts and implement appropriate procedures, plans, strategy, and issue any disclosures that may be required, as the situation surrounding the pandemic and related gathering restrictions evolves.

Funeral Home Operations

Our funeral homes offer a complete range of high value personal services to meet a family’s funeral needs, including consultation, the removal and preparation of remains, the sale of caskets and related funeral merchandise, the use of funeral home facilities for visitation and remembrance services and transportation services. Factors affecting our funeral operating results include, but are not limited to: demographic trends relating to population growth and average age, which impact death rates and number of deaths; establishing and maintaining leading market share positions supported by strong local heritage and relationships; effectively responding to increasing cremation trends by selling complementary services and merchandise; controlling salary and merchandise costs; and exercising pricing leverage to increase average revenue per contract.

Cemetery Operations

Our cemeteries provide interment rights (grave sites and mausoleum spaces) and related merchandise, such as markers and outer burial containers both on an atneed and preneed basis. Factors affecting our cemetery operating results include, but are not limited to: the size and success of our sales organization; local perceptions and heritage of our cemeteries; our ability to adapt to changes in the economy and consumer confidence; and our response to fluctuations in capital markets and interest rates, which affect investment earnings on trust funds, finance charges on installment contracts and our securities portfolio within the trust funds.

Business Strategy

Our business strategy is based on strong, local leadership with entrepreneurial principles that is focused on sustainable ~~long-term~~long term market share, revenue, and profitability growth in each local business. We believe Carriage has the most innovative operating model in the funeral and cemetery industry, which we are able to achieve through a decentralized, high-performance culture ~~and~~ operating framework linked with incentive compensation programs that attract top-quality industry talent to our organization. We also believe that Carriage provides a unique consolidation and operating framework that offers a highly

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attractive succession planning solution for owners who want their legacy family business to remain operationally prosperous in their local communities.

Our Mission Statement states that “we are committed to being the most professional, ethical and highest quality funeral and cemetery service organization in our industry” and our Guiding Principles state our core values, which are comprised of:

•Honesty, ~~Integrity~~integrity and ~~Quality~~quality in ~~All That We Do~~all that we do;

•Hard work, ~~Pride~~pride of ~~Accomplishment,~~accomplishment, and ~~Shared Success Through Employee Ownership~~shared success through employee ownership;

•Belief in the ~~Power~~power of ~~People Through Individual Initiative~~people through individual initiative and ~~Teamwork~~teamwork;

•Outstanding ~~Service~~service and ~~Profitability Go Hand-in-Hand~~profitability to hand-in-hand; and

•Growth of the ~~Company Is Driven~~company is driven by ~~Decentralization~~decentralization and ~~Partnership~~partnership.

Our five Guiding Principles collectively embody our Being The Best high-performance culture and operating framework. Our operations and business strategy are built upon the execution of the following three models:

•Standards Operating ~~Model~~Model;

•4E Leadership ~~Model~~Model; and

•Strategic Acquisition ~~Model~~

Model.

Standards Operating Model

Our Standards Operating Model is focused on growing local market share, providing personalized high-value services to our client families and guests, and operating financial metrics that drive long-term, sustainable revenue growth and improved earning power of our portfolio of businesses by employing leadership and entrepreneurial principles that fit the nature of our high-value personal service business. Standards Achievement is the measure by which we judge the success of each business and incentivize our local managers and their teams. Our Standards Operating Model is not designed to produce maximum short-term earnings because we believe such performance is unsustainable and will ultimately stress the business, which very often leads to declining market share, revenue and earnings.

4E Leadership Model

Our 4E Leadership Model requires strong local leadership in each business to grow an entrepreneurial, decentralized, high-value, personal service and sales business at sustainable profit margins. Our 4E Leadership Model is based upon principles established by ~~the late~~ Jack Welch during his tenure at General Electric, and is based upon 4E qualities essential to succeed in a ~~high-performance~~high performance culture: Energy to get the job done; the ability to ~~Energize~~Energize others; the Edge necessary to make difficult decisions; and the ability to Execute and produce results. To achieve a high level within our Standards in a business year after year, we require local Managing Partners that have the 4E Leadership skills to entrepreneurially grow the business by hiring, training and developing highly motivated and productive local teams.

Strategic Acquisition Model

Our Standards Operating Model led to the development of our Strategic Acquisition Model, which guides our acquisition strategy. We believe that both models, when executed effectively, will drive long-term, sustainable increases in market share, revenue, earnings and cash flow. We believe a primary driver of higher revenue and profits in the future will be the execution of our Strategic Acquisition Model using strategic ranking criteria to assess acquisition candidates. As we execute this strategy over time, we expect to acquire larger, higher margin strategic businesses.

We have learned that the long-term growth or decline of a local branded funeral and cemetery business is reflected by several criteria that correlate strongly with five to ten year performance in volumes (market share), revenue and sustainable field-level earnings before interest, taxes, depreciation and amortization (“EBITDA”) margins (a non-GAAP measure). We use criteria such as cultural alignment, volume and price trends, size of business, size of market, competitive standing, demographics, strength of brand and barriers to entry to evaluate the strategic position of potential acquisition candidates. Our financial valuation of the acquisition candidate is then determined through the application of an appropriate after-tax cash return on investment that exceeds our cost of capital.

Our belief in our Mission Statement and Guiding Principles ~~that define us~~ and proper execution of the three models that define our strategy have given us ~~the~~a competitive advantage in ~~any~~every market ~~in which~~where we compete. We believe that we can execute our three models without proportionate incremental investment in our consolidation platform infrastructure and without additional fixed regional and corporate overhead. This gives us a competitive advantage that is evidenced by the sustained earning power of our portfolio as defined by our EBITDA margin.

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LIQUIDITY AND CAPITAL RESOURCES

Overview

Our primary sources of liquidity and capital resources are internally generated cash flows from operating activities and availability under our Credit Facility.

We generate cash in our operations primarily from atneed sales and delivery of preneed sales. We also generate cash from earnings on our cemetery perpetual care trusts. Based on our recent operating results, current cash position ~~steps taken to reduce overall expenses throughout the rest of 2020,~~ and anticipated future cash flows, we do not anticipate any significant liquidity constraints in the foreseeable future. We have the ability to draw on our Credit Facility, subject to its customary terms and conditions. However, if our capital expenditures or acquisition ~~or divestiture~~ plans ~~or business impacts from the pandemic~~ change, we may need to access the capital markets to obtain additional funding. Further, to the extent operating cash flow or access to and cost of financing sources are materially different than expected, future liquidity may be adversely affected. For additional information regarding known material factors that could cause cash flow or access to and cost of finance sources to differ from our expectations, please read ~~(i) Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q and (ii)~~ Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020 and Part II, Item 1A “Risk Factors” in this Quarterly Report on Form 10-Q.

Our plan is to remain focused on integrating our newly acquired businesses and to use cash on hand and borrowings under our Credit Facility primarily for general corporate purposes, ~~and for~~ payment of dividends and ~~our~~ debt obligations. ~~Discretionary spending, such as~~However, if the conditions set forth in our conditional notice of redemption are satisfied and we are able to redeem our existing Senior Notes on June 1, 2021, then it may provide us the ability, from a capital allocation perspective, to potentially resume strategic acquisitions, internal growth ~~projects~~capital expenditures, share repurchases, dividend increases and ~~expenditures (primarily cemetery inventory development, along with funeral home~~

~~expansion projects) will be tightly managed~~further debt repayments. See Item 1, Financial Statements and ~~minimized during~~Supplementary Data, Note 18 for additional details regarding the ~~remainder~~notice of ~~2020.~~conditional redemption for our Senior Notes. We also expect continued divestiture activity for the next 6-9 months, which could yield approximately $3-5 million of cash from the proceeds of the sale. From time to time we may also use available cash resources (including borrowings under our Credit Facility) to repurchase shares of our common stock, subject to satisfying certain financial covenants in our Credit ~~Facility, repurchase shares of our common stock and our remaining 2.75% convertible subordinated notes due 2021 (“Convertible Notes”) in open market or privately negotiated transactions.~~Facility. We ~~have the ability to draw on our Credit Facility, subject to its customary terms and conditions.~~

As of March 31, 2020, we have net unrealized losses of $45.1 million in our trusts. At March 31, 2020, these net unrealized losses represented 18% of our original cost basis of $245.2 million. The decline in fair value is largely due to changes in interest rates and other market conditions. Our investments are diversified across multiple industry segments using a balanced allocation strategy to minimize long-term risk. In addition, 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. Changes in unrealized gains and/or losses related to these securities are reflected in Other comprehensive income (loss) and offset by the ~~Deferred preneed funeral and cemetery receipts held in trust~~ ~~and~~ ~~Care trusts’ corpus~~ interests in those unrealized gains and/or losses. There is no impact on earnings until such time that the loss is realized in the trusts, allocated to the preneed contracts and the services are performed or the merchandise is delivered, causing the contract to be withdrawn from the trust in accordance with state regulations.

~~In light of recent developments relating to COVID-19, we~~ believe that our existing and anticipated cash resources will be sufficient to meet our anticipated working capital requirements, capital expenditures, scheduled debt payments, commitments and dividends for the next 12 months.

Cash Flows

We began ~~2020~~2021 with ~~$0.7~~$0.9 million in cash ~~and other liquid investments~~ and ended the first quarter with ~~$11.9 million. As of~~$0.4 million in cash. At March 31, ~~2020,~~2021, we had borrowings of ~~$114.0~~$28.3 million outstanding on our Credit Facility compared to ~~$83.8~~$47.2 million ~~as of~~at December 31, ~~2019.~~2020.

The following table sets forth the elements of cash flow ~~for the three months ended March 31, 2019 and 2020~~ (in thousands):


	Three months ended March 31,
	2020		2021
Cash at beginning of year	$	716	$	889

Net cash provided by operating activities	13,546		26,811

Acquisitions of businesses	(28,000)		—
Acquisitions of real estate	—		(350)
Proceeds from divestitures and sale of other assets	78		2,800
Capital expenditures	(2,738)		(4,347)
Net cash used in investing activities	(30,660)		(1,897)

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations	29,713		(19,133)
Conversions and maturity of the Convertibles Notes	—		(3,980)

Payment of debt issuance and transaction costs	(14)		(7)
Net proceeds (payments) related to employee equity plans	127		(17)
Dividends paid on common stock	(1,339)		(1,799)

Other financing costs	(169)		(461)
Net cash provided by (used in) financing activities	28,318		(25,397)

Cash at end of the period	$	11,920	$	406

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Three months ended March 31,
2019
2020
Cash at beginning of year $ 644
$ 716

Net cash provided by operating activities 10,994
13,546

Acquisitions —
(28,000 )
Net proceeds from the sale of other assets 100
78
Capital expenditures (3,543 ) (2,738 )
Net cash used in investing activities (3,443 ) (30,660 )

Net borrowings (payments) on our Credit Facility, acquisition debt and finance lease obligations (6,571 ) 29,713
Payment of debt issuance costs related to the Senior Notes —
(14 )
Net proceeds from employee equity plans 572
127
Dividends paid on common stock (1,360 ) (1,339 )
Other financing costs (162 ) (169 )
Net cash provided by (used in) financing activities (7,521 ) 28,318

Cash at end of the period $ 674
$ 11,920

Operating Activities

For the three months ended March 31, ~~2020,~~2021, cash provided by operating activities was ~~$13.5~~$26.8 million compared to ~~$11.0~~$13.5 million for the three months ended March 31, ~~2019.~~2020. The increase of ~~$2.5~~$13.3 million ~~was due primarily~~is a reflection of the resilient cash generating ability of our portfolio of high-quality funeral home and cemetery operations. Our operating income (excluding the non-cash impact of the divestitures and impairment charges) increased $9.1 million in addition to other favorable working capital ~~changes during the period.~~

changes.

Investing Activities

Our investing activities, resulted in a net cash outflow of $1.9 million for the three months ended March 31, 2021 compared to $30.7 million for the three months ended March 31, 2020, ~~compared to $3.4 million for~~a decrease of $28.8 million.

Acquisition and Divestiture Activity

During the three months ended March 31, ~~2019, an increase of $27.3~~2021, we sold two funeral homes for $2.8 million and purchased real estate for $0.4 million.

During the three months ended March 31, 2020, we acquired a funeral home and cemetery combination business in Lafayette, California for $33.0 million in cash, of which $5.0 million was deposited in escrow in 2019 and $28.0 million was paid in 2020.

Capital Expenditures

For the three months ended March 31, ~~2020,~~2021, capital expenditures (comprising of growth and maintenance spend) totaled ~~$2.7~~$4.3 million compared to ~~$3.5~~$2.7 million for the three months ended March 31, ~~2019, a decrease~~2020, an increase of ~~$0.8~~$1.6 million.

The following tables present our growth and maintenance capital expenditures (in thousands):


	Three months ended March 31,
	2020		2021
Growth
Cemetery development	$	954	$	1,486

Renovations at certain businesses	141		710

Other	87		11
Total Growth	$	1,182	$	2,207


						Three months ended March 31,
	Three months ended March 31,
	2019		2020
Growth
Cemetery development	$	1,067	$	954
Renovations at certain businesses	744		141
Other	39		87
Total growth expenditures	$	1,850	$	1,182
						2020		2021
Maintenance					Maintenance
Facility repairs and improvements	$	217	$	246	Facility repairs and improvements	$	246	$	253
Vehicles	587		428		Vehicles	428		514
General equipment and furniture	781		649		General equipment and furniture	649		1,130
Paving roads and parking lots	61		132		Paving roads and parking lots	132		182
Other	47		101		Other	101		61
Total maintenance expenditures	$	1,693	$	1,556

Total capital expenditures	$	3,543	$	2,738
Total Maintenance					Total Maintenance	$	1,556	$	2,140

Financing Activities

Our financing activities resulted in a net cash outflow of $25.4 million for the three months ended March 31, 2021 compared to a net cash inflow of $28.3 million for the three months ended March 31, 2020, ~~compared to a net cash outflow~~an increase of ~~$7.5 million for~~$53.7 million.

During the three months ended March 31, ~~2019, an increase~~2021, we had net payments on our Credit Facility, acquisition debt and finance leases of ~~$35.8 million.~~ $19.1 million, we paid $1.8 million in dividends and $4.0 million for the conversions and maturity of our Convertible Notes.

During the three months ended March 31, 2020, we had net borrowings on our Credit Facility, ~~of $30.2 million and payments on our~~ acquisition debt and finance leases of ~~$0.5~~$29.7 million and paid $1.3 million in dividends.

Share Repurchase

During the three months ended March 31, ~~2019,~~2021, we did not repurchase any shares of our common stock. At March 31, 2021, we had ~~net payments on~~approximately $25.6 million available for repurchases under our ~~Credit Facility of $6.1 million and payments on our acquisition debt and finance leases of $0.5 million and paid $1.4 million in dividends.~~share repurchase program.

- 46 -

Dividends

~~During the three months ended March 31, 2019 and 2020, our~~Our Board ~~of Directors~~ declared the following dividends payable on the dates below (in thousands, except per share amounts):

2019 Per Share Dollar Value
March 1^st
$ 0.075
$ 1,360


2020	Per Share		Dollar Value
March 1st	$	0.075	$	1,339

~~Share Repurchases~~

During the three months ended March 31, 2020, we did not repurchase any shares of common stock pursuant to our share repurchase program. At March 31, 2020, we had approximately $25.6 million available for repurchases under our share repurchase program.


2021	Per Share		Dollar Value
March 1st	$	0.100	$	1,799

Credit Facility, Lease Obligations and Acquisition Debt

The outstanding principal of our Credit Facility, lease obligations and acquisition debt at March 31, ~~2020~~2021 is as follows (in thousands):

March 31, 2020
Credit Facility $ 114,000
Finance leases 6,074
Operating leases 22,942
Acquisition debt 6,547
Total $ 149,563


	March 31, 2021
Credit Facility	$	28,300
Finance leases	5,776
Operating leases	21,933
Acquisition debt	5,355
Total	$	61,364

Credit Facility

At March 31, ~~2020,~~2021, our ~~Credit Facility~~$190.0 million senior secured revolving credit facility (the “Credit Facility”) was comprised of: (i) a $190.0 million revolving credit facility, ~~which includes~~including a $15.0 million subfacility for letters of credit and a $10.0 million swingline, and (ii) an accordion or incremental option allowing for future increases in the facility size by an additional amount of up to $75.0 million in the form of increased revolving commitments or incremental term loans. The final maturity of the Credit Facility will occur on May 31, 2023.

We were ~~not~~ in compliance with the ~~Total Leverage Ratio covenant for the quarter ended March 31, 2020.~~

As of March 31, 2020, the Company was not in compliance with the Total Leverage Ratio covenant requirement as noted above. On May 18, 2020, we received a waiver under our Credit Facility for the failure to comply with the Total Leverage Ratio covenant for the fiscal quarter ended March 31, 2020. In connection with the waiver, the Credit Facility was also amended to increase the interest rate margin applicable to borrowings by up to 0.625% at each pricing level based on the Total Leverage Ratio. Immediately following the effectiveness of the limited waiver and fourth amendment, $74.0 million remained available for borrowing under the Credit Facility.

~~We are in compliance with the~~total leverage ratio, fixed charge coverage ratio and senior secured leverage ratio covenants contained in our Credit Facility as of March 31, ~~2020.~~2021.

At March 31, 2021, we had outstanding borrowings under our Credit Facility of $28.3 million. We ~~expect to be in compliance with all of our covenant requirements for the next twelve months.~~

Wealso had one letter of credit ~~issued on November 30, 2019 and~~for $2.1 million outstanding under the Credit Facility, ~~for approximately $2.0 million,~~ which bears interest at ~~2.125%~~3.125% and will expire on November 25, ~~2020.~~2021. The letter of credit will automatically ~~renews~~renew annually and secures our obligations under our various self-insured policies. At March 31, 2021, we had $159.6 million of availability under the Credit Facility after giving effect to the $2.1 million of the outstanding letter of credit.

- 47 -

The interest expense and amortization of debt issuance costs related to our Credit Facility ~~during the three months ended March 31, 2019 and 2020 is~~are as follows (in thousands):


	Three months ended March 31,					Three months ended March 31,
	2019		2020			2020		2021
Credit Facility interest expense	$	379	$	1,230	Credit Facility interest expense	$	1,230	$	445
Credit Facility amortization of debt issuance costs	54		126		Credit Facility amortization of debt issuance costs	126		118

Lease Obligations

Our lease obligations consist of operating and finance leases. We lease certain office facilities, certain funeral homes and equipment under operating leases with original terms ranging from one to nineteen years. Many leases include one or more options to renew, some of which include options to extend the leases for up to 26 years. We lease certain funeral homes under finance leases with original terms ranging from ten to forty years.

The lease cost related to our operating leases and short-term leases and depreciation expense and interest expense related to our finance leases ~~during the three months ended March 31, 2019 and 2020~~ are as follows (in thousands):


	Three months ended March 31,					Three months ended March 31,
	2019		2020			2020		2021
Operating lease cost	$	924	$	957	Operating lease cost	$	957	$	960
Short-term lease cost	75		57		Short-term lease cost	32		49
Variable lease cost					Variable lease cost	25		41

Finance lease cost:					Finance lease cost:
Depreciation of lease right-of-use assets	$	132	$	109	Depreciation of lease right-of-use assets	$	109	$	108
Interest on lease liabilities	132		126		Interest on lease liabilities	126		120

Acquisition Debt

The imputed interest expense related to our ~~Credit~~ acquisition debt ~~during~~is as follows (in thousands):


	Three months ended March 31,
	2020		2021
Acquisition debt imputed interest expense	$	127	$	97

Convertible Subordinated Notes due 2021

During the three months ended March 31, ~~2019 and 2020 is as follows (in thousands):~~

Three months ended March 31,
2019
2020
Acquisition debt imputed interest expense $ 168
$ 127

~~Convertible Subordinated Notes due~~ 2021,

~~At March 31, 2020, the~~ we converted approximately $2.4 million in aggregate principal amount ~~of the liability component~~ of our Convertible Notes ~~was $6.3~~held by certain holders for approximately $3.8 million ~~the net carrying amount was $6.0 million and the carrying amount of the equity component was $0.8 million~~in cash. The ~~fair value of the~~ Convertible Notes matured on March 15, 2021, at which ~~are Level 2 measurements, was $6.4~~time all Convertible Notes outstanding, approximately $0.2 million in aggregate principal amount, were paid in full in cash at par value. Therefore, no Convertible Notes remain outstanding at March 31, ~~2020. The Convertible Notes are due in March 2021 and bear interest at 2.75% per year, which is payable semi-annually in arrears on March 15 and September 15 of each year.~~2021.

The interest expense and accretion of debt discount and debt issuance costs related to our Convertible Notes ~~during the three months ended March 31, 2019 and 2020 is~~are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Convertible Notes interest expense	$	43	$	18
Convertible Notes accretion of debt discount	65		20
Convertible Notes amortization of debt issuance costs	6		1

Three months ended March 31,
2019
2020
Convertible Notes interest expense $ 44
$ 43
Convertible Notes accretion of debt discount 57
65
Convertible Notes amortization of debt issuance costs 6
6

The remaining unamortized debt discount and the remaining unamortized debt issuance costs are being amortized using the effective interest method over the remaining term of approximately 11 months of the Convertible Notes. The effective interest rate on the unamortized debt discount for both the three months ended March 31, ~~2019~~2020 and ~~2020~~2021 was 11.4%. The effective interest rate on the debt issuance costs for ~~both~~ the three months ended March 31, ~~2019~~2020 and ~~2020~~2021 was 3.2%.

and 3.1%, respectively.

Senior Notes due 2026

At March 31, ~~2020,~~2021, the principal amount of our ~~Senior Notes~~6.625% senior notes due 2026 (the “Senior Notes”) was $400.0 million. The ~~fair value~~Senior Notes were issued under an indenture, dated as of May 31, 2018 (the “Indenture”), among us, certain of our existing subsidiaries (collectively, the “Subsidiary Guarantors”), as guarantors, and Wilmington Trust, National Association., as trustee. The Senior Notes are unsecured, senior obligations and are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by each of the ~~Senior Notes, which are Level 2 measurements, was $432.3 million at March 31, 2020.~~Subsidiary Guarantors. The Senior Notes are due on June 1, 2026 unless earlier redeemed

- 48 -

or repurchased and bear interest at 6.625% per year, which is payable semi-annually in arrears on June 1 and December 1 of each year.

We may redeem all or part of the Senior Notes at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption. We have the right to redeem the Senior Notes at any time on or after June 1, 2021 at the redemption prices described in the Indenture, plus accrued and unpaid interest, if any, to the date of redemption. Additionally, at any time before June 1, 2021, we may redeem up to 40% of the aggregate principal amount of the Senior Notes issued with an amount equal to the net proceeds of certain equity offerings, at a price equal to 106.625% of the principal amount of the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption; provided that (1) at least 60% of the aggregate principal amount of the Senior Notes (including any additional Senior Notes) originally issued under the Indenture remain outstanding immediately after the occurrence of such redemption (excluding Senior Notes held by us); and (2) each such redemption must occur within 180 days of the date of the closing of each such equity offering.

If a “change of control” occurs, holders of the Senior Notes will have the option to require us to purchase for cash all or a portion of their Senior Notes at a price equal to 101% of the principal amount of the Senior Notes, plus accrued and unpaid interest. In addition, if we make certain asset sales and do not reinvest the proceeds thereof or use such proceeds to repay certain debt, we will be required to use the proceeds of such asset sales to make an offer to purchase the Senior Notes at a price equal to 100% of the principal amount of the Senior Notes, plus accrued and unpaid interest.

The interest expense and amortization of debt discount, debt premium and debt issuance costs related to our Senior Notes ~~during the three months ended March 31, 2019 and 2020 is~~are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Senior Notes interest expense	$	6,625	$	6,625
Senior Notes amortization of debt discount	129		138
Senior Notes amortization of debt premium	54		58
Senior Notes amortization of debt issuance costs	67		74

Three months ended March 31,
2019
2020
Senior Notes interest expense $ 5,383
$ 6,625
Senior Notes amortization of debt discount 120
129
Senior Notes amortization of debt premium —
(54 )
Senior Notes amortization of debt issuance costs 34
67
At March 31, 2021, the fair value of the Senior Notes, which are Level 2 measurements, was $417.6 million.

On April 30, 2021, we delivered a notice of conditional redemption to the trustee for the Senior Notes to call for redemption on June 1, 2021, all of the outstanding aggregate principal amount of the Senior Notes at a redemption price of 104.969% of the principal amount thereof, plus accrued and unpaid interest up to, but excluding, the scheduled redemption date. Our redemption obligation is conditioned on and subject to the completion of the offering of $400 million in aggregate principal amount of 4.25% Senior Notes due 2029 and the entry into an amended and restated credit facility in connection with the closing of the offering.

~~Financial Highlights~~

- 49 -

FINANCIAL HIGHLIGHTS

Below are our financial highlights ~~for the three months ended March 31, 2019 and 2020~~ (in thousands except for volumes and averages):


	Three Months Ended March 31,						Three months ended March 31,
	2019		2020				2020		2021
Revenue	$	69,081	$	77,490		Revenue	$	77,490	$	96,637
Funeral contracts	9,881		11,493			Funeral contracts	11,493		13,296
Average revenue per funeral contract	$	5,635	$	5,233		Average revenue per funeral contract	$	5,233	$	5,276
Preneed interment rights (property) sold	1,462		1,868			Preneed interment rights (property) sold	1,868		2,658
Average price per preneed interment right sold	$	3,808	$	3,779		Average price per preneed interment right sold	$	3,779	$	4,551
Gross profit	$	21,600	$	23,171		Gross profit	$	23,171	$	35,061
Net income (loss)	$	6,525	$	(4,197	)	Net income (loss)	$	(4,197)	$	12,933

Revenue for the three months ended March 31, ~~2020~~2021 increased ~~$8.4~~$19.1 million compared to the three months ended March 31, ~~2019,~~2020, as we experienced a ~~16.3%~~15.7% increase in total funeral contracts primarily due to ~~the funeral home acquisitions made~~a peak spike in Covid deaths in the ~~fourth~~first quarter of ~~2019 and~~2021 when compared to the first quarter of 2020, ~~offset by a decrease~~which resulted in market share gains for the majority of our businesses, while the average revenue per funeral contract ~~of 7.1%.~~remained flat. In addition, we experienced ana 42.3% increase ~~of 27.8%~~ in the number of preneed interment rights (property) sold, as well as a 20.4% increase in the average price per interment right sold of 20.4%, primarily due to 1) the full integration of the cemetery acquisitions made in the fourth quarter of 2019 and first quarter of 2020, ~~while~~and 2) the ~~average price per interment right sold decreased 0.8%.~~execution of the initial stages of our two year cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries.

Gross profit for the three months ended March 31, ~~2020~~2021 increased ~~$1.6~~$11.9 million compared to the three months ended March 31, ~~2019,~~2020, primarily due to the increase in revenue from both our funeral home and cemetery segments, ~~due to the acquisitions made in the fourth quarter of 2019~~as well as disciplined expense and ~~first quarter of 2020.~~cost management by leaders at each business.

Net income for the three months ended March 31, ~~2020 decreased $10.7~~2021 increased $17.1 million compared to the three months ended March 31, ~~2019,~~2020, primarily due to the ~~impairment of goodwill and tradenames and~~ increase in ~~interest expense related to our Senior Notes,~~gross profit and the $14.7 million impairment charge we recorded in the first quarter of 2020 that did not occur in first quarter of 2021, offset by the $7.8 million increase in ~~gross profit.~~tax expense in the first quarter of 2021 as we experienced a net loss in the first quarter of 2020.

Further discussion of Revenue and the components of Gross profit for our funeral home and cemetery segments is presented herein under “– Results of Operations.”

Further discussion of General, administrative and other expenses, Home office depreciation and amortization expense, Interest expense, Income taxes and other components of income and expenses are presented herein under “– Other Financial Statement Items.”

- 50 -

REPORTING AND NON-GAAP FINANCIAL MEASURES

We also present our financial performance in our “Operating and Financial Trend Report” (“Trend Report”) as reported in our earnings release for the ~~quarter~~three months ended March 31, ~~2020 dated May 19, 2020~~2021 issued on April 21, 2021 and discussed in the corresponding earnings conference call. ~~This~~The Trend Report is used as a supplemental financial statement by management and investors to compare our current financial performance with our previous results and with the performance of other companies. We do not intend for this information to be considered in isolation or as a substitute for other measures of performance prepared in accordance with United States generally accepted accounting principles (“GAAP”). The Trend Report is a non-GAAP statement that also provides insight into underlying trends in our business.

Below is a reconciliation of Net income (loss) (a, a GAAP ~~measure)~~measure, to Adjusted net income, (aa non-GAAP ~~measure) for the three months ended March 31, 2019 and 2020~~measure, (in thousands):

Three months ended March 31,
2019 2020
Net income (loss) $ 6,525
$ (4,197 )
Special items, net of tax except for items noted by **⁽¹⁾

Acquisition and divestiture expenses —
90
Severance and retirement costs 171
228
Accretion of discount on Convertible Notes** 57
65
Net impact of impairment of goodwill and other intangibles⁽²⁾
—
9,757
Litigation reserve 99
59
Natural disaster costs —
111
Adjusted net income⁽³⁾
$ 6,852
$ 6,113


	Three months ended March 31,
	2020		2021
Net income (loss)	$	(4,197)	$	12,933
Special items, net of tax(1)
Acquisition expenses	90		—
Severance and separation costs(2)	228		1,244

Accretion of discount on Convertible Notes(1)	65		20

Gain on divestitures(3)	—		(213)
Net impact of impairment of goodwill and other intangibles(3)	9,757		—
Litigation reserve	59		—
Natural disaster and pandemic costs(4)	111		706



Adjusted net income(5)	$	6,113	$	14,690

(1)

~~(1)~~

Special items are defined as charges or credits included in our GAAP financial statements that can vary from period to period and are not reflective of costs incurred in the ordinary course of our operations. Special ~~Items~~items are taxed at the federal statutory rate of ~~21 percent for the three months ended March 31, 2019 and 2020,~~21.0%, except for the Accretion of the discount on ~~the~~ Convertible Notes, as this is a non-tax deductible ~~item~~item. The Gain on divestitures and the Net impact of impairment of goodwill and other intangibles taxed at the operating tax rate during the respective period (described below).

(2)

The ~~Net impact~~increase is due to separation costs related to the resignation of ~~impairment~~two members of ~~goodwill and other intangibles special item is net~~senior leadership in the first quarter of 2021.

(3)

Net of the operating tax rate of 33.6%. in 2020 and 31.0% in 2021.

~~(3)~~(4)

The increase is primarily due to health and safety expenses, including personal protective equipment (“PPE”). In the first quarter of 2020, we purchased PPE during the last few weeks of March 2020 when the Pandemic began compared to three months in the first quarter of 2021.

(5)

Adjusted net income is defined as Net income ~~(loss)~~ plus adjustments for Special items and other expenses or gains that we believe do not directly reflect our core operations and may not be indicative of our normal business operations.

- 51 -

Below is a reconciliation of Gross profit (a GAAP measure) to Operating profit (a non-GAAP measure) ~~for the three months ended March 31, 2019 and 2020~~ (in thousands):


	Three months ended March 31,					Three months ended March 31,
	2019		2020			2020		2021
Gross profit	$	21,600	$	23,171	Gross profit	$	23,171	$	35,061

Cemetery property amortization	849		877		Cemetery property amortization	877		1,517
Field depreciation expense	3,085		3,290		Field depreciation expense	3,290		3,136
Regional and unallocated funeral and cemetery costs	2,789		2,756		Regional and unallocated funeral and cemetery costs	2,756		6,073
Operating profit⁽¹⁾	$	28,323	$	30,094	Operating profit(1)	$	30,094	$	45,787

(1)

~~(1)~~

Operating profit is defined as Gross profit less Cemetery property amortization, Field depreciation expense and Regional and unallocated funeral and cemetery costs.

Our operations are reported in two business segments: Funeral Home and Cemetery. Below is a breakdown of Operating profit (a non-GAAP measure) by Segment ~~for the three months ended March 31, 2019 and 2020~~ (in thousands):

Three months ended March 31,
2019 2020
Funeral Home $ 23,167
$ 24,274
Cemetery 5,156
5,820
Operating profit $ 28,323
$ 30,094

Operating profit margin⁽¹⁾
41.0 % 38.8 %


	Three months ended March 31,
	2020		2021
Funeral Home	$	24,274	$	32,906
Cemetery	5,820		12,881
Operating profit	$	30,094	$	45,787

Operating profit margin(1)	38.8%		47.4%

(1)

~~(1)~~

Operating profit margin is defined as Operating profit as a percentage of Revenue.

Further discussion of Operating profit for our funeral home and cemetery segments is presented herein under “– Results of Operations.”

RESULTS OF OPERATIONS

The following is a discussion of our results of operations for the three months ended March 31, ~~2020~~2021 and ~~2019.~~2020.

The term “same store” refers to funeral homes and cemeteries acquired prior to January 1, ~~2016~~2017 and owned and operated for the entirety of each period being presented, excluding certain funeral home and cemetery businesses that we intend to divest in the near future.

The term “acquired” refers to funeral homes and cemeteries purchased after December 31, ~~2015,~~2016, excluding any funeral home and cemetery businesses that we intend to divest in the near future. This classification of acquisitions has been important to management and investors in monitoring the results of these businesses and to gauge the leveraging performance contribution that a selective acquisition program can have on total company performance.

The term “divested” when discussed in the Funeral Home Segment, refers to the ~~three~~two funeral ~~home businesses whose building leases expired, one funeral home business~~homes we sold ~~and a funeral home business we merged with a business~~ in ~~an existing market in 2019.~~first quarter of 2021.

“Planned divested” ~~in the Funeral Home Segment~~ refers to the funeral home and cemetery businesses that we intend to ~~divest in the near future.~~divest.

“Ancillary” in the Funeral Home Segment represents our flower shop, pet cremation business and online cremation ~~business in Texas.~~business.

Cemetery property amortization, Field depreciation expense and Regional and unallocated funeral and cemetery costs, are not included in Operating profit, a non-GAAP financial measure. Adding back these items will result in Gross profit, a GAAP financial measure.

- 52 -

Funeral Home Segment

The following table sets forth certain information regarding our Revenue and Operating profit from our funeral home operations ~~for the three months ended March 31, 2020 compared to the three months ended March 31, 2019~~ (in thousands):


	Three Months Ended March 31,					Three months ended March 31,
	2019		2020			2020		2021
Revenue:					Revenue:
Same store operating revenue	$	45,018	$	44,866	Same store operating revenue	$	46,696	$	56,683
Acquired operating revenue	6,953		11,714		Acquired operating revenue	8,885		10,139
Divested/planned divested revenue	2,027		1,722		Divested/planned divested revenue	2,757		1,217
Ancillary funeral services revenue	—		1,151
Ancillary revenue					Ancillary revenue	1,151		1,207
Preneed funeral insurance commissions	359		366		Preneed funeral insurance commissions	366		330
Preneed funeral trust and insurance	1,806		1,923		Preneed funeral trust and insurance	1,887		2,198
Total	$	56,163	$	61,742	Total	$	61,742	$	71,774

Operating profit:					Operating profit:
Same store operating profit	$	18,071	$	17,236	Same store operating profit	$	18,062	$	25,812
Acquired operating profit	2,739		4,245		Acquired operating profit	3,247		4,467
Divested/planned divested operating profit	459		466		Divested/planned divested operating profit	673		134
Ancillary funeral services operating profit	—		295
Ancillary operating profit					Ancillary operating profit	295		242
Preneed funeral insurance commissions	133		160		Preneed funeral insurance commissions	156		91
Preneed funeral trust and insurance	1,765		1,872		Preneed funeral trust and insurance	1,841		2,160
Total	$	23,167	$	24,274	Total	$	24,274	$	32,906

The following measures reflect the significant metrics over this comparative period:


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Same store:							Same store:
Contract volume	8,289			8,762			Contract volume	9,058		11,028
Average revenue per contract, excluding preneed funeral trust earnings	$	5,431		$	5,121		Average revenue per contract, excluding preneed funeral trust earnings	$	5,155	$	5,140
Average revenue per contract, including preneed funeral trust earnings	$	5,618		$	5,314		Average revenue per contract, including preneed funeral trust earnings	$	5,344	$	5,318
Burial rate	39.3		%	36.9		%	Burial rate	36.9%		36.6%
Cremation rate	53.0		%	55.1		%	Cremation rate	55.0%		57.0%

Acquired:							Acquired:
Contract volume	1,050			2,208			Contract volume	1,733		2,002
Average revenue per contract, excluding preneed funeral trust earnings	$	6,623		$	5,305		Average revenue per contract, excluding preneed funeral trust earnings	$	5,127	$	5,065
Average revenue per contract, including preneed funeral trust earnings	$	6,746		$	5,372		Average revenue per contract, including preneed funeral trust earnings	$	5,182	$	5,135
Burial rate	50.1		%	41.8		%	Burial rate	42.0%		41.1%
Cremation rate	43.0		%	53.4		%	Cremation rate	54.6%		54.1%

Funeral home same store operating revenue for the three months ended March 31, ~~2020 decreased $0.2~~2021 increased $10.0 million compared to the three months ended March 31, ~~2019. Although same store contract volume increased 5.7%, it was offset by a decrease~~2020. The increase in ~~contract averages excluding preneed interest of 5.7%. The decrease in funeral contract averages for the three months ended March 31, 2020 compared to the same period in 2019~~operating revenue is primarily due to a ~~240 basis point decrease in~~21.7% same store contract volume increase, while the burial rate. In addition, over the last two weeks of March, we saw a decrease in services performed due to the rigorous restrictions placed on gatherings mandated by state, provincial, and local governments as COVID-19 became more prominent and individuals began to practice social distancing and comply with multiple state and provincial shelter in place orders. For both burial and cremation contracts for which memorial services were performed, we experienced a 230 and 390 basis point decrease in the number of these contracts, respectively,average revenue per contract excluding preneed interest, remained flat in the three months ended March 31, 2021 compared to the same period in 2020. The increase in volume is primarily due to a peak spike in Covid deaths in the first quarter of 2021, which resulted in market share gains for the majority of our businesses.

Funeral home same store operating profit for the three months ended March 31, ~~2020 decreased $0.8~~2021 increased $7.8 million when compared to the three months ended March 31, ~~2019, and the~~2020. The comparable operating profit margin ~~decreased 170~~increased 680 basis points to ~~38.4%~~45.5%. The ~~decrease~~increase in operating ~~margin~~profit is primarily due to the ~~decrease~~increase in same store operating revenue along with disciplined expense and cost management by leaders at each business. Operating expenses as a ~~2.5% increase in~~percent of operating ~~costs.~~

~~Same store salaries and benefits~~revenue decreased 6.9% for the three months ending March 31, 2020 had the largest increase of $0.4 million compared to the three months ended March 31, 2019. The increase in salaries and benefits was primarily due to the increase in contract volume as we experienced an increase in the demand for pickup and embalming services. The costs for funeral supplies for the three months ending March 31, 2020 increased $0.1 million2021 compared to the same period in ~~2019~~2020. The largest decrease was in salaries and benefits, which decreased 3.7% as ~~our funeral homes ramped up their purchases~~a percent of ~~supplies in preparation for COVID-19. The provision for credit losses~~operating revenue as we increased ~~$0.1 million compared to the three months ending March 31, 2020 compared to the three months ending March 31, 2019.~~revenue without adding extra personnel.

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Funeral home acquired operating revenue for the three months ended March 31, ~~2020~~2021 increased ~~$4.8~~$1.3 million ~~as our funeral home acquired portfolio for~~compared to the three months ended March 31, ~~2020 included nine funeral home businesses over four acquisitions~~2020. The increase in operating revenue is primarily due to a 15.5% increase in acquired contract volume primarily due to the increased deaths related to the COVID-19 pandemic and broad market share gains, which was partially offset by a 1.2% decrease in the ~~fourth quarter of 2019 and one business acquired~~average revenue per contract, excluding preneed interest, due to a 90 basis point decrease in the ~~first quarter~~burial rate, along with a 5.4% decrease of ~~2020 not present in the three months ended March 31, 2019.~~cremation contracts with services.

Acquired operating profit for the three months ended March 31, ~~2020~~2021 increased ~~$1.5~~$1.2 million when compared to the three months ended March 31, ~~2019. Operating~~2020. The comparable operating profit margin ~~decreased 320~~increased 760 basis points to ~~36.2% for~~44.1%. The increase in operating profit is primarily due to the increase in acquired operating revenue along with disciplined expense and cost management by leaders at each business. The operating margin of the nine businesses acquired in the fourth quarter of 2019 increased 310 basis points and the operating margin of the business acquired in the first quarter of 2020 increased 520 basis points during the three months ended March 31, ~~2020~~2021 compared to the same period in ~~2019. The~~2020. Overall acquired operating expenses as a percent of operating revenue decreased 7.5%, with the largest decrease is primarily due to the recently acquired businesses (discussed above), as operating profit margins for these businesses were lower compared to our other acquired businesses, particularly with regard to higherin salaries and benefits ~~expenses. We expect the operating margins for our recently acquired businesses to increase~~of 5.9% as we ~~focus on integrating these businesses into our high performance framework of the Standards Operating Model.~~increased revenue without adding extra personnel.

Ancillary ~~funeral services~~ revenue, which is recorded in Other revenue, represents revenue from our flower shop, pet cremation ~~business~~ and online cremation ~~business in Texas, which were~~businesses acquired in the fourth quarter of 2019. ~~Operating~~Ancillary revenue increased 4.9% for the three months ending March 31, 2021 compared to the three months ending March 31, 2020 primarily due to an increase in our online cremation business.

Ancillary operating profit ~~from our ancillary funeral service businesses was $0.3 million~~decreased 18.0% for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to an increase in operating expenses with ~~an operating profit margin of 25.6%.~~the largest increase in third party pick up and embalming and general and administrative expenses at our online cremation business.

Preneed funeral insurance commissions and preneed funeral trust and insurance, also recorded in Other revenue, on a combined basis, increased ~~$0.1~~$0.3 million or ~~5.7%~~12.2% for the three months ended March 31, ~~2020~~2021 compared to the same period in ~~2019.~~2020. The increase is primarily ~~due~~related to ~~the~~a 13.9% increase in preneed contracts maturing to atneed which triggers the recognition of trust ~~and insurance, while preneed funeral commissions remained fairly flat.~~earnings on matured contracts. Operating profit for preneed funeral insurance commissions and preneed trust and insurance, on a combined basis, increased ~~7.1%~~$0.3 million or 12.7% for the same comparative period, ~~in 2019,~~ primarily due to the increase in preneed funeral trust and insurance revenue.

Cemetery Segment

The following table sets forth certain information regarding our Revenue and Operating profit from our cemetery operations ~~for the three months ended March 31, 2020 compared to the three months ended March 31, 2019~~ (in thousands):


	Three months ended March 31,
	2020		2021
Revenue:
Same store operating revenue	$	10,907	$	14,621
Acquired operating revenue	2,799		6,980
Divested/planned divested revenue	58		108
Preneed cemetery trust revenue	1,742		2,889
Preneed cemetery finance charges	242		265
Total	$	15,748	$	24,863

Operating profit:
Same store operating profit	$	3,167	$	5,711
Acquired operating profit	827		4,102
Divested/planned divested operating profit	3		38
Preneed cemetery trust operating profit	1,581		2,765
Preneed cemetery finance charges	242		265
Total	$	5,820	$	12,881

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Three Months Ended March 31,
2019
2020
Revenue:
Same store operating revenue $ 11,289
$ 10,945
Acquired operating revenue —
2,799
Preneed cemetery trust and insurance 1,251
1,761
Preneed cemetery finance charges 378
243
Total $ 12,918
$ 15,748

Operating profit:
Same store operating profit $ 3,661
$ 3,151
Acquired operating profit —
827
Preneed cemetery trust and insurance 1,117
1,599
Preneed cemetery finance charges 378
243
Total $ 5,156
$ 5,820

The following measures reflect the significant metrics over this comparative period:


	Three Months Ended March 31,							Three months ended March 31,
	2019			2020				2020		2021
Same store:							Same store:
Preneed revenue as a percentage of operating revenue	59		%	58		%	Preneed revenue as a percentage of operating revenue	58%		58%
Preneed revenue (in thousands)	$	6,661		$	6,311		Preneed revenue (in thousands)	$	6,303	$	8,460
Atneed revenue (in thousands)	$	4,629		$	4,634		Atneed revenue (in thousands)	$	4,604	$	6,162
Number of preneed interment rights sold	1,462			1,568			Number of preneed interment rights sold	1,561		1,887
Average price per interment right sold	$	3,808		$	3,604		Average price per interment right sold	$	3,615	$	3,879


Acquired:							Acquired:
Preneed revenue as a percentage of operating revenue	n/a			62		%	Preneed revenue as a percentage of operating revenue	62%		64%
Preneed revenue (in thousands)	n/a			$	1,736		Preneed revenue (in thousands)	1,736		$	4,444
Atneed revenue (in thousands)	n/a			$	1,063		Atneed revenue (in thousands)	1,063		$	2,537
Number of preneed interment rights sold	n/a			300			Number of preneed interment rights sold	300		750
Average price per interment right sold	n/a			$	4,696		Average price per interment right sold	$	4,696	$	5,800

Cemetery same store preneed revenue increased $2.2 million for the three months ended March 31, 2020 decreased $0.3 million due to the decrease in cemetery property revenue as we experienced a 5.4% decrease in the average price of interments, offset by a 7.3% increase in the number of preneed interment rights sold2021 compared to the same period in ~~2019.~~2020, as we experienced a 20.9% increase in the number of interments rights sold, as well as a 7.3% increase in the average price per interment right sold. The increase is primarily due to the execution of the initial stages of our two year cemetery sales strategy of building high performance sales teams and standardized sales systems across our portfolio of cemeteries. Cemetery same store atneed revenue, which represents ~~approximately~~ 42% of our same store operating revenue, ~~remained flat~~increased $1.6 million as we experienced a ~~0.7%~~23.7% increase in same store atneed contracts and an 8.3% increase in the average sale per contract ~~offset by a 0.6% decrease~~for the three months ended March 31, 2021 compared to the same period in 2020, primarily due to the ~~number of atneed contracts sold.~~increased deaths related to the COVID-19 pandemic.

Cemetery same store operating profit for the three months ended March 31, ~~2020 decreased $0.5~~2021 increased $2.5 million from the same period in ~~2019.~~2020. The comparable operating profit margin ~~decreased 360~~increased 1,010 basis points to ~~28.8% for~~39.1% primarily as a result of the ~~three months ended March 31, 2020 from 32.4%~~increase in operating revenue, along with disciplined expense and cost management by leaders at each business. Operating expenses as a percent of operating revenue decreased 10.0% in the first quarter of 2021 compared to the same period in ~~2019. The decrease~~2020, most notably in ~~operating profit margin is~~salaries and wages, which decreased 4.5% as a ~~result~~percent of ~~the decrease in~~ operating revenue, followed by promotional expenses and facilities and grounds costs which decreased 1.8% and 1.3% respectively, as a ~~2.2% increase~~percent of operating revenue.

There are three businesses in ~~operating costs, most notably a $0.2 million increase in promotional expenses.~~

~~Our~~our acquired cemetery portfolio, ~~includes~~ two ~~businesses~~of which were acquired ~~during~~in the fourth quarter of 2019 and one ~~business~~ acquired ~~during~~in the first quarter of 2020. ~~These three businesses contributed $2.8~~In the first quarter of 2020, we hired new sales leadership at two of the newly acquired cemeteries and continued to build their respective sales team throughout the year. As a result, our acquired cemetery portfolio experienced a $2.7 million increase in preneed revenue and ~~$0.8~~a $1.5 million increase in atneed revenue for the period ended March 31, 2021 compared to the same period in 2020.

Cemetery acquired operating profit increased $3.3 million for ~~the~~ three months ended March 31, ~~2020.~~2021. The comparable operating profit margin increased 2,930 basis points to 58.8% primarily as a result of the increase in operating revenue, along with disciplined expense and cost management by leaders at each business. Operating expenses as a percent of operating revenue decreased 29% in the first quarter of 2021 compared to the same period in 2020, as we experienced decreases in the majority of our operating costs, most notably in salaries and wages, which decreased 17% as a percent of operating revenue, as we increased revenue without adding extra personnel.

Preneed cemetery trust ~~and insurance~~revenue and preneed cemetery finance charges, which are recorded in Other revenue, on a combined basis increased ~~$0.4~~$1.2 million for the three months ended March 31, ~~2020~~2021 compared to the same period in ~~2019. Earnings~~2020. The increase in our ~~perpetual care~~ trust fund ~~increased $0.5 million~~income is primarily due to our ~~acquisitions.~~execution of a major repositioning strategy beginning at the height of the COVID-19 market crisis in March 2020, substantially increasing our preneed cemetery trust revenue and operating profit. We experienced a $0.9 million increase in income and a $0.2 million increase in realized capital gains within our trusts in the first quarter of 2021 compared to the same period of 2020. Operating profit for the two categories of Other revenue, on a combined basis, ~~also~~ increased ~~$0.3~~$1.2 million for three months ended March 31, 2021 compared to the same period in 2020 primarily due to the increase in preneed cemetery trust revenue.

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Cemetery property amortization. Cemetery property amortization totaled $1.5 million for the three months ended March 31, ~~2020 compared to the same period in 2019.~~

~~Cemetery property amortization. Cemetery property amortization remained flat at $0.9~~2021, an increase of $0.6 million ~~for the three months ended March 31, 2020~~ compared to the three months ended March 31, ~~2019.~~2020, due to the increase in property sold across our cemetery portfolio.

Field depreciation. Depreciation expense for our field businesses ~~increased~~decreased $0.2 million for the three months ended March 31, ~~2020~~2021 compared to the three months ended March 31, ~~2019.~~2020. The ~~increase~~decrease was primarily ~~attributable~~due to ~~additional depreciation expense from~~building structures and older vehicles becoming fully depreciated without any newly acquired building structures and vehicles to offset the ~~assets acquired through our 2019 and first quarter 2020 acquisitions.~~decrease.

Regional and unallocated funeral and cemetery costs. Regional and unallocated funeral and cemetery costs consist of salaries and benefits for regional management, field incentive compensation and other related costs for field infrastructure. Regional and unallocated funeral and cemetery costs ~~remained flat at $2.8~~totaled $6.1 million for the three months ended March 31, ~~2020, compared~~2021, an increase of $3.3 million primarily due to the ~~three months ended March 31, 2019.~~following: (1) a $2.2 million increase in cash incentives and equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation; (2) a $0.7 million increase in health and safety expenses related to the COVID-19 pandemic; and (3) a $0.4 million increase in other general administrative costs.

Other Financial Statement Items

General, administrative and other. General, administrative and other expenses totaled ~~$5.9~~$8.8 million for the three months ended March 31, ~~2020,~~2021, an increase of ~~$0.3~~$2.9 million compared to the three months ended March 31, ~~2019.~~2020. The increase was primarily attributable to the following: (1) a ~~$0.5~~$1.4 million increase in ~~salaries~~cash incentives and ~~benefits~~equity compensation, as a result of our improved performance, which reinforces our strategy of aligning incentives with long-term value creation; (2) a $1.3 million increase in separation expenses related to the resignation of two members of senior leadership; and ~~severance costs, offset by~~(3) a $0.2 million ~~decrease~~increase in ~~incentive and equity compensation~~other general administrative costs.

Home office depreciation and amortization. Home office depreciation and amortization expense ~~remained flat at $0.4~~totaled $0.3 million for the three months ended March 31, ~~2020,~~2021, a decrease of $0.1 million compared to the three months ended March 31, ~~2019.~~2020 primarily due to equipment and software at the home office becoming fully depreciated in the latter half of 2020 without any newly acquired assets to offset the decrease.

~~Impairment~~Net loss (gain) on divestitures and impairments charges. The components of ~~goodwill~~Net loss (gain) on divestitures and ~~other intangibles. As a result of~~impairment charges are as follows (in thousands):


	Three months ended March 31,
	2020		2021
Goodwill impairment	$	13,632	$	—
Tradename impairment	1,061		—
Gain on divestitures	—		(308)
Total	$	14,693	$	(308)

During the ~~economic conditions caused by the response to COVID-19, we performed a quantitative assessment of our goodwill and indefinite-lived intangible assets at~~three months ended March 31, ~~2020. We~~2021, we divested two funeral homes for a gain of $0.3 million.

During the three months ended March 31, 2020, we recorded aan impairment for goodwill ~~impairment~~ of $13.6 million ~~related to~~as the carrying amount of our funeral homes in the Eastern Region Reporting Unit ~~as the carrying value of goodwill~~ exceeded the fair value ~~at March 31, 2020. We also~~and we recorded ~~a $1.1 million~~an impairment ~~charge to~~for certain of our tradenames of $1.1 million as the carrying amount of these tradenames exceeded the fair value.

Interest expense. Interest expense totaled ~~$8.4~~$7.6 million for the three months ended March 31, ~~2020, an increase~~2021, a decrease of ~~$2.1~~$0.8 million compared to the three months ended March 31, ~~2019. The increase was~~2020, primarily due to ~~increased~~decreased borrowings on our Credit ~~Facility and the $75.0~~Facility.

Income taxes. Our income tax expense was $5.6 million ~~of additional Senior Notes we issued on December 19, 2019.~~

~~Accretion of discount on convertible subordinated notes. We recognized accretion of the discount on our Convertible Notes of $0.1 million~~ for ~~both~~ the three months ended March 31, ~~2020 and 2019.~~

~~Income taxes.~~ ~~We calculate our quarterly income tax expense (benefit) using a forecasted annual effective tax rate and we adjust for any discrete items arising during the quarter. Our~~2021 compared to an income tax benefit ~~was~~of $2.2 million for the three months ended March 31, ~~2020 compared to an income tax expense of $2.7 million for the three months ended March 31, 2019.~~2020. Our operating tax rate before discrete items was ~~33.6%~~31.0% and ~~28.0%~~33.6% for the three months ended March 31, ~~2020~~2021 and 2020.

We filed carryback refund claims for the 2018 and 2019 ~~respectively. We recorded $0.7 million of additional~~ tax ~~expense~~years as allowed by the legislative changes included in the ~~three months ended March~~CARES Act. As a result of requesting a tax refund in excess of $5 million, we must receive Joint Committee approval and undergo an audit for the tax year ending December 31, 2018. This audit is currently in progress. In 2020, ~~related~~the 2018 tax return was amended to ~~the impairment~~take full advantage of ~~goodwill and other intangibles for businesses that were previously acquired as a stock acquisition, which caused an increase of 3.6% in our operating tax rate.~~

~~In connection with~~ the CARES Act ~~we expect to file a claim for a~~legislative benefits resulting in additional losses that increase the amount of our carryback refund during 2020 to carryback the net operating losses generated in the tax years ending December 31, 2018 and 2019 and have included the impact in our current provision. In an effort to maximize the expected benefits afforded by the CARES Act we plan to amend our 2018 tax return to include the additional first year depreciation deduction for qualified improvement property.claim. The majority of the net operating losses generated in 2018 are the result of filing non-automatic accounting method changes relating to the recognition of revenue from our cemetery property and merchandise and services sales. Due to the uncertainty of ~~the timing of~~ receiving Internal Revenue Service approval ~~for~~regarding our non-automatic accounting method changes, a reserve has been recorded against the benefit derived from this carrying back that the net operating losses generated. At March 31, 2021, the reserve for uncertain tax positions was $3.7 million.

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OVERVIEW OF CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the Consolidated Financial Statements requires us to make estimates and judgments that affect the amounts reported in the unaudited consolidated financial statements and accompanying notes. We base our estimates on historical experience, third-party data and assumptions that we believe to be reasonable under the circumstances. The results of these considerations form the basis for making judgments about the amount and timing of revenue and expenses, the carrying value of assets and the recorded amounts of liabilities. 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 that our margins, operating income and net income, as a percentage of revenue, will be consistent from year to year.

Management’s discussion and analysis of financial condition and results of operations (“MD&A”) is based upon our Consolidated Financial Statements presented herewith, which have been prepared in accordance with GAAP. Our critical accounting policies are discussed in MD&A in our Annual Report on Form 10-K for the year ended December 31, ~~2019.~~2020.

SEASONALITY

Our business can be affected by seasonal fluctuations in the death rate. Generally, the death rate is higher during the winter months because the incidences of death from influenza and pneumonia are higher during this period than other periods of the year.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk.~~

Item 3.Quantitative and Qualitative Disclosures About Market Risk.

In the ordinary course of business, we are typically exposed to a variety of market risks. Currently, these are primarily related to interest rate risk and changes in the values of securities associated with the preneed and perpetual care trusts. Management is actively involved in monitoring exposure to market risk and developing and utilizing appropriate risk management techniques when appropriate and when available for a reasonable price. We are not exposed to any other significant market ~~risks.~~risks other than those related to COVID-19 which are described in more detail in Item 1A - Risk Factors below.

The following quantitative and qualitative information is provided about financial instruments to which we are a party at March 31, ~~2020~~2021 and from which we may incur future gains or losses from changes in market conditions. We do not enter into derivative or other financial instruments for speculative or trading purposes.

Hypothetical changes in interest rates and the values of securities associated with the preneed and perpetual care trusts chosen for the following estimated sensitivity analysis are considered to be reasonable near-term changes generally based on consideration of past fluctuations for each risk category. However, since it is not possible to accurately predict future changes in interest rates, these hypothetical changes may not necessarily be an indicator of probable future fluctuations.

The following information about our market-sensitive financial instruments constitutes a “forward-looking statement.”

In connection with our preneed funeral operations and preneed cemetery merchandise and service sales, the related funeral and cemetery trust funds own investments in equity and debt securities and mutual funds, which are sensitive to current market prices. Cost and market values of such investments as of March 31, ~~2020~~2021 are presented in Item 1, “Condensed Notes to Consolidated Financial Statements,” ~~Notes~~Note 6 ~~and 7~~ to our Consolidated Financial Statements in this Quarterly Report on Form 10-Q. The sensitivity of the fixed income securities is such that a 0.25% change in interest rates causes an approximate ~~1.47%~~1.38% change in the value of the fixed income securities.

We monitor current and forecasted interest rate risk in the ordinary course of business and seek to maintain optimal financial flexibility, quality and solvency. As of March 31, ~~2020,~~2021, we had outstanding borrowings under the Credit Facility of ~~$114.0~~$28.3 million. Any further borrowings or voluntary prepayments against the Credit Facility or any change in the floating rate would cause a change in interest expense. We have the option to pay interest under the Credit Facility at either prime rate or the LIBOR rate plus a margin. At March 31, ~~2020,~~2021, the prime rate margin was equivalent to ~~1.50%~~1.5% and the LIBOR rate margin was ~~2.50%~~2.5%. Assuming the outstanding balance remains unchanged, a change of 100 basis points in our borrowing rate would result in a change in income before taxes of ~~$1.1~~$0.3 million. We have not entered into interest rate hedging arrangements in the past. Management continually evaluates the cost and potential benefits of interest rate hedging arrangements.

Our Convertible Notes bear interest at the fixed annual rate of 2.75%. The Convertible Notes do not contain a call feature. At March 31, 2020, the carrying value of the Convertible Notes on our Consolidated Balance Sheet was $6.0 million and the fair value of the Convertible Notes was $6.4 million based on the last traded or broker quoted price, as reported by the Financial Industry Regulatory Authority, Inc. (“FINRA)”. Increases in market interest rates may cause the value of the Convertible Notes to decrease, but such changes will not affect our interest costs.

Our Senior Notes bear interest at the fixed annual rate of 6.625%. We may redeem all or part of the Senior Notes at any time prior to June 1, 2021 at a redemption price equal to 100% of the principal amount of Senior Notes redeemed, plus a “make whole” premium, and accrued and unpaid interest, if any, to the date of redemption. We have the right to redeem the Senior Notes at any time on or after June 1, 2021 at the redemption prices described in the indenture governing the Senior Notes, plus accrued and unpaid interest, if any, to the date of redemption. At March 31, ~~2020,~~2021, the carrying value of the Senior Notes on our Consolidated Balance Sheet was ~~$395.6~~$396.1 million and the fair value of the Senior Notes was ~~$432.3~~$417.6 million based on the last

- 57 -

traded or broker quoted price, as reported by ~~FINRA.~~the Financial Industry Regulatory Authority, Inc. Increases in market interest rates may cause the value of the Senior Notes to decrease, but such changes will not affect our interest costs.

The remainder of our long-term debt and leases consist of non-interest bearing notes and fixed rate instruments that do not trade in a market and do not have a quoted market value. Any increase in market interest rates causes the fair value of those liabilities to decrease, but such changes will not affect our interest costs.


~~Item 4.~~	~~Controls and Procedures.~~

Item 4.Controls and Procedures.

Management’s Evaluation of Disclosure Controls and Procedures

Our management, including our principal executive and principal financial officers, have evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and to ensure that such information is accumulated and communicated to management, including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure. Based on such evaluation, our principal executive and principal financial officers concluded that our disclosure controls and procedures are effective as of March 31, ~~2020~~2021 and that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q fairly present, in all material respects, our financial condition, results of operations, and cash flows for the periods presented in conformity with US GAAP.

Changes in Internal Control over Financial Reporting

There was no change in our system of internal control over financial reporting (defined in Rules 13a-15(f) or 15d-15(f) under the Exchange Act) during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION


~~Item 1.~~	~~Legal Proceedings.~~

Item 1.Legal Proceedings.

We and our subsidiaries are parties to a number of legal proceedings that arise from time to time in the ordinary course of our business. While the outcome of these proceedings cannot be predicted with certainty, we do not expect these matters to have a material adverse effect on our financial statements.

We self-insure against certain risks and carry insurance with coverage and coverage limits for risk in excess of the coverage amounts consistent with our assessment of risks in our business and of an acceptable level of financial exposure. Although there can be no assurance that self-insurance reserves and insurance will be sufficient to mitigate all damages, claims, or contingencies, we believe that the reserves and our insurance provides reasonable coverage for known asserted and unasserted claims. In the event we sustain a loss from a claim and the insurance carrier disputes coverage or coverage limits, we may record a charge in a different period than the recovery, if any, from the insurance carrier.

~~See Part I, Item 1, Financial Statements and Supplementary Data, Note 14 for additional information related to our legal proceedings.~~


~~Item 1A.~~	~~Risk Factors.~~

Item 1A.Risk Factors.

Risk Factor Update

~~In light of the rapidly evolving COVID-19 outbreak, we~~We are ~~also~~ supplementing the risk factors ~~set out under “Item 1A. Risk~~as previously disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the ~~fiscal~~ year ended December 31, ~~2019~~2020 (the ~~“2019~~“2020 Form 10-K”), with the ~~new~~updated risk ~~factor~~factors set out below. The risk factors below should be read in conjunction with the risk factors set out in our ~~2019~~2020 Form 10-K:

~~Unfavorable economic conditions, including as a result of health~~RISKS RELATED TO OUR BUSINESS

Key Employees and ~~safety concerns, could adversely affect our business, financial condition or results of operations.~~ Compensation

Our ~~business~~“Good To Great” and operational results could be adversely affected by general conditions in the U.S. economy, including conditions that are outside of our control, such as the impact of health and safety concerns from the current outbreak of the COVID-19 coronavirus (“COVID-19”), which has been declared by the World Health Organization to be a pandemic. The most recent U.S. and global economic and financial conditions related to COVID-19 resulted in extreme volatility and disruptions in the capital and credit markets. A severe or prolonged economic downturn, and the related adverse economic and health consequences“Good To Great II” incentive programs could result in significant future payments and the issuance of a ~~variety~~significant number of ~~risks~~shares of common stock to our Managing Partners and to certain critical employees who are not managing partners.

Our Good To Great incentive program rewards our Managing Partners for achieving an average net revenue compounded annual growth rate equal to at least 1% (the “Minimum Growth Rate”) over a five year performance period (the “Performance Period”) with respect to our funeral homes that they operate, which aligns our incentives with long-term value creation. Each Managing Partner that achieves the Minimum Growth Rate during the applicable Performance Period and remains continuously employed as a Managing Partner of the same business financial condition or results from operations, including weakened demand from our client families, decreased preneed sales, increased preneed installment contract defaults, increased cremation rates, reduced access to capitalthroughout the Performance Period will receive a one-time bonus, payable in a combination of cash and credit markets or delays in obtaining client family payments. A weak or declining economy could also strain our supply partners. Additionally, our business relies heavily on our employees, including key employees due to the localized and personal natureshares of our ~~business, and adverse events such as health-related concerns,~~common stock, determined at our discretion. To date, we have had five Performance Periods ended, with the ~~inability to travel and other matters affecting~~most recent period ended December 31, 2020, which over the ~~general work environment could harm~~course of those five Performance Periods our business. In the event of a major disruption caused by the outbreak of pandemic diseases such as COVID-19, we may lose the services of a number of our key employees or experience system interruptions, which could lead to impactshighest Good To Great incentive bonus paid to our ~~regular business operations, inefficiencies and reputational harm. Due~~Managing Partners was for the Performance Period ended December 31, 2016, totaling $2.4 million. Although we have had sufficient levels of cash on hand to make cash bonus payments under the ~~uncertainty around~~program, there is the ~~ultimate impact of the COVID-19 outbreak to our business and operations, the impact on our business and operational results cannot~~potential we could be reasonably estimated at this time. Any of the foregoing could harm our business and we cannot anticipate all the ways in which the current COVID-19 pandemic and financial market conditions could adversely impact our business.

Covenant restrictions in our debt instruments may limit our flexibility to operate and grow our business, and if we are not able to comply with such covenants, our lenders could accelerate our indebtedness, proceed against certain collateral or exercise other remedies, which could have a material adverse effect on us.

The covenants in our Credit Facility and the indenture governing our Senior Notes contain a number of provisions that impose operating and financial restrictions which, subject to certain exceptions, limit our ability and the ability of our subsidiaries to, among other things: incur additional indebtedness (including guarantees); pay dividends or make distributions or redeem or repurchase our common stock; make investments; grant liens on assets; make capital expenditures; enter into transactions with affiliates; enter into sale-leaseback transactions; sell or dispose assets; and acquire the assets of, or merge or consolidate with, other companies.

~~We are~~ required to ~~comply with certain financial covenants in~~make similar or higher cash bonus payments than our Credit Facility. Complying with these financial covenants and other restrictive covenants, as well as those that may be contained in any future debt agreements, may limit our ability to finance our future operations or working capital needs or to take advantage of future business opportunities. Our ability to comply with these covenants and will depend on our future performance, which may be affected by events beyond our control. Our failure

to comply with any of these covenants or restrictions could result in a default under any future debt instrument, which could lead to an acceleration of the debt under that instrument and, in some cases, the acceleration of debt under other instruments that contain cross-default or cross-acceleration provisions, each of which could have a material adverse effect on us. In the case of an event of default, or in the event of a cross-default or cross-acceleration, we may not have sufficient funds available to make the required payments under our debt instruments. If we are unable to repay amounts owedhighest historical payment under the terms of our Credit Facility, the lenders thereunder may choose to exercise their remedies in respect of the collateral, including a foreclosure of their lien which results in a sale of certain of our funeral assets to satisfy our obligations under the Credit Facility.

Pursuant to the terms of our Credit Facility, we must comply with, amongst other things, a maximum Total Leverage Ratio covenant which is measured quarterly. If we are unable to comply with the maximum Total Leverage Ratio, we will be in immediate default under the Credit Facility. The COVID-19 pandemic may have a future impact on our businessprogram, which could result in less cash available to fund our ~~inability~~operations. Because the bonus payments under the program are subject to ~~comply~~achieving a Minimum Growth Rate, which is determined by various operational, financial and performance measures, future potential bonus payments cannot be determined with certainty at this ~~Total Leverage Ratio covenant and other covenants~~time. In addition, our Good To Great II incentive program rewards certain of our employees who are not Managing Partners in alignment with the incentive programs for our ~~Credit Facility. There can be no assurance that the lenders will agree~~Managing Partners. For example, there is a potential risk of dilution to amend the Credit Facility in the future to adjust or eliminate this covenant or whether the lenders may agree to waive any non-compliance with this financial covenant or any other covenant in the future.

~~Moreover,~~our shareholders if we ~~do not maintain compliance with our continuing obligations or any covenants, terms and conditions of~~achieve the Credit Facility, we could be in default and required to repay outstanding borrowings on an accelerated basis, which could subject us to decreased liquidity and other negative impacts on our business, results of operations and financial condition. It may be difficult for us to find an alternative lending source under these circumstances. Without access to borrowingshighest performance tier under the ~~Credit Facility, our liquidity~~Good To Great II incentive program, which equals a Common Stock Price Average (as defined by the program) of $77.34 per share. As of March 31, 2021, under such a scenario, a total of 971,820 shares of common stock would be ~~adversely affected~~awarded to participants under the program. We believe these incentive programs will result in improved field-level margins, market share and ~~we would lack sufficient working capital to operate our business as presently conducted. Any disruption in access to credit could force us to take measures to conserve cash.~~

~~New or revised tax regulations could have a material effect on our~~overall financial ~~statements~~

New tax laws or regulations could be enacted at any time, and existing tax laws or regulations could be interpreted, amended, or applied in a manner that has a material effect on us, which could materially impact our business and financial condition. For example, on March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was enacted in response to the macroeconomic environment conditions posed by COVID-19. The CARES Act is a sweeping stimulus bill intended to bolster the U.S. economy, among other things, and provide emergency assistance to qualifying businesses and individuals. Based on available guidance, we anticipate that the legislative changes will have a positive impact on our earnings and cash flow. We have conducted an initial analysis into determining the impact of the legislative changes on our provision for income taxes. As the enacted legislation includes provisions that would expire after certain periods of time, the fact that our business has the potential to change its operating situation, and the existence of potential changes by state tax authorities related to conformity with federal tax regulations, the possibility exists that the future benefit of the legislation could change. In addition, it is uncertain if, and to what extent, various states will conform to the CARES Act, or any newly enacted or revised federal tax legislation. Under the CARES Act, the primary areas that should be considered for future earnings and cash impact are the changes to the interest expense limitation threshold and the technical correction to the Tax Cuts and Jobs Act regarding the qualified improvement property now being eligible for full expensing. We continue to work to determine the full impact that the recent tax legislation as a whole will have on us.

performance.

Please also refer to the complete set of Risk Factors ~~under~~discussed in Part I, Item 1A “Risk Factors” in ~~the Company’s 2019~~our 2020 Form 10-K, ~~filed with~~which could materially affect our business, financial condition or future results. The risks described in our 2020 Form 10-K are not the ~~U.S. Securities and Exchange Commission on February 28, 2020, for additional~~only risks we face. Additional risks and uncertainties not currently known to ~~the Company~~us or that we currently deem to be immaterial also may ~~have an adverse effect on the Company’s~~materially adversely affect our business, financial condition or future results.

- 59 -

Item 2. Unregistered Sales of Equity Securities and ~~results~~Use of ~~operations.~~Proceeds.


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

The following table sets forth certain information with respect to repurchases of our common stock during the quarter ended March 31, ~~2020:~~2021:

Period
Total Number of Shares Purchased⁽¹⁾
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⁽²⁾

January 1, 2020 - January 31, 2020 482
$ 23.67
—
$ 25,601,446
February 1, 2020 - February 29, 2020 9,392
$ 23.90
—
$ 25,601,446
March 1, 2020 - March 31, 2020 —
$ —
—
$ 25,601,446
Total for quarter ended March 31, 2020 9,874
—


Period	Total Number of Shares Purchased(1)	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(2)

January 1, 2021 - January 31, 2021	—	$	—	—	$	25,601,446
February 1, 2021 - February 28, 2021	9,688	$	35.81	—	$	25,601,446
March 1, 2021 - March 31, 2021	—	$	—	—	$	25,601,446
Total for quarter ended March 31, 2021	9,688			—



(1)
~~(1)~~	Represents shares surrendered by employees to pay taxes withheld upon the vesting of restricted stock awards.
(2)		See ~~Note 15 to the Consolidated~~Part I, Item 1, Financial Statements ~~included herein~~and Supplementary Data, Note 14 for additional information on our publicly announced share repurchase program.


~~Item 3.~~	~~Defaults Upon Senior Securities~~. Item 3.Defaults Upon Senior Securities.

Not applicable.


~~Item 4.~~	~~Mine Safety Disclosures.~~

Item 4.Mine Safety Disclosures.

Not applicable.


~~Item 5.~~	~~Other Information.~~

Item 5.Other Information.

None.


~~Item 6.~~	~~Exhibits.~~

Item 6.Exhibits.

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.

- 60 -

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



	CARRIAGE SERVICES, INC.
Date:		May ~~27, 2020~~5, 2021	/s/ ~~Viki K. Blinderman~~C. Benjamin Brink
			~~Viki K. Blinderman~~C. Benjamin Brink
			Senior Vice President, Chief ~~Accounting~~Financial Officer and ~~Secretary~~Treasurer
			(Principal Financial Officer)

- 61 -

CARRIAGE SERVICES, INC.

INDEX OF EXHIBITS


Exhibit No.		Description
10.1		First A mendment to E mploymen t Agreement d ate d February 17, 2021 by and betw een the Company and Melvin C. Payne . I ncorporate d by reference to Exhibit 10.1 to the C ompany 's Current Report on Form 8-K file d on February 18, 2021 . †

~~Exhibit No.~~*10.2		~~Description~~ Form of First Amendment to Employment Agreement Consideration $77.34 Option Grant dated February 17, 2021 by and between the Company and Melvin C. Payne. †
~~10.1~~
*10.3		~~Limited Waiver and Fourth~~Form of First Amendment to ~~Credit~~Employment Agreement Consideration $53.39 Option Grant dated ~~as of May 18, 2020,~~February 17, 2021 by and ~~among~~between the Company and Melvin C. Payne. †

10.4		Release and Separation Agreement by and between Carriage Services, Inc.~~, the financial institutions party thereto, as lenders,~~ and ~~Bank of America, as administrative agent, swing line lender~~Viki K. Blinderman, dated February 2, 2021 and ~~L/C issuer.~~effective March 31, 2021 . Incorporated by reference to ~~exhibit 10.1~~Exhibit 10.40 to the Company's ~~Current~~Annual Report on Form ~~8-K~~10-K filed on ~~May 22, 2020.~~March 2, 2021. †

~~10.2~~10.5		~~Form of Performance Award Agreement under~~Second Amendment to the Amended and Restated Carriage Services, Inc. ~~2017 Omnibus Incentive Plan.~~2007 Employee Stock Purchase Plan . Incorporated by reference to ~~exhibit 10.2~~Appendix A to the ~~Company's Current Report~~Company’s Definitive Proxy Statement on ~~Form 8-K~~Schedule 14A filed with the SEC on ~~May 22, 2020.~~April 5, 2021 and Amendment No. 1 to our Definitive Proxy Statement on Schedule 14A filed with the SEC on April 6, 2021. †

*31.1		Certification of Periodic Financial Reports by Melvin C. Payne in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

*31.2		Certification of Periodic Financial Reports by ~~Viki K. Blinderman~~C. Benjamin Brink in satisfaction of Section 302 of the Sarbanes-Oxley Act of 2002.

**32		Certification of Periodic Financial Reports by Melvin C. Payne and ~~Viki K. Blinderman~~C. Benjamin Brink in satisfaction of Section 906 of the Sarbanes-Oxley Act of 2002 and 18 U.S.C. Section 1350.

*101	~~Interactive Data Files.~~

~~__________________~~



~~(*)~~	~~Filed herewith.~~
(**)101.INS	~~Furnished herewith.~~	XBRL Instance Document - the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

*101.SCH		Inline XBRL Taxonomy Extension Schema Documents.

*101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

*101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

*101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

*104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

__________________


(*)			Filed herewith.
(**)			Furnished herewith.
(†)			Management contract or compensatory plan or arrangement.

- 5662 -



	Purchase Price Allocation
Current assets	$	2,662
Preneed trust assets	9,089
Property, plant & equipment	1,720
Cemetery property	14,753
Goodwill	12,916
Intangible and other non-current assets	2,506
Assumed liabilities	(489		)
Deferred tax liability	(527		)
Preneed trust liabilities	(9,089		)
Deferred revenue	(541		)
Purchase price	$	33,000



	Initial Purchase Price Allocation			Adjustments			Adjusted Purchase Price Allocation
Current assets	$	1,482		$	33		$	1,515
Preneed trust assets	15,891			—			15,891
Property, plant & equipment	21,680			—			21,680
Cemetery property	11,994			—			11,994
Goodwill	99,344			(880		)	98,464
Intangible and other non-current assets	8,269			—			8,269
Assumed liabilities	(657		)	(145		)	(802		)
Preneed trust liabilities	(15,463		)	—			(15,463		)
Deferred revenue	(1,633		)	992			(641		)
Purchase price	$	140,907		$	—		$	140,907



	January 1, 2020			Provision for Credit Losses			Allowance Recorded at Acquisition			Write Offs		Recoveries			March 31, 2020
Trade and financed receivables:
Funeral	$	(223	)	$	(325	)	$	—		$	465	$	(175	)	$	(258	)
Cemetery	(626		)	(137		)	(287		)	80		—			(970		)
Total allowance for credit losses on Trade and financed receivables	$	(849	)	$	(462	)	$	(287	)	$	545	$	(175	)	$	(1,228	)



Due in one year or less	$	—
Due in one to five years	4,178
Due in five to ten years	8,025
Thereafter	19,017
Total fixed income securities	$	31,220



Due in one year or less	$	—
Due in one to five years	5,044
Due in five to ten years	7,093
Thereafter	18,473
Total fixed income securities	$	30,610



Due in one year or less	$	—
Due in one to five years	3,296
Due in five to ten years	6,241
Thereafter	16,533
Total fixed income securities	$	26,070



Three Months Ended March 31, 2019
	Funeral		Cemetery		Total
Services	$	33,977	$	2,675	$	36,652
Merchandise	19,965		1,778		21,743
Cemetery property	—		6,836		6,836
Other revenue	2,221		1,629		3,850
Total	$	56,163	$	12,918	$	69,081



	March 31, 2020
Credit Facility	$	114,000
Finance leases	6,074
Operating leases	22,942
Acquisition debt	6,547
Total	$	149,563



Period	Total Number of Shares Purchased⁽¹⁾	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⁽²⁾

January 1, 2020 - January 31, 2020	482	$	23.67	—	$	25,601,446
February 1, 2020 - February 29, 2020	9,392	$	23.90	—	$	25,601,446
March 1, 2020 - March 31, 2020	—	$	—	—	$	25,601,446
Total for quarter ended March 31, 2020	9,874			—