Stonemor Inc. - Annual Report: 2021 (Form 10-K)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

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

For the fiscal year ended December 31, 2021

OR

☐ 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: 001-39172

STONEMOR INC.

(Exact name of registrant as specified in its charter)

(Registrant’s telephone number, including area code): (215) 826-2800

__________________________________

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

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☒ No ☐

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

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

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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

As of June 30, 2021, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the common equity held by non-affiliates was approximately $70.8 million based on $2.62 per share, the closing price per common share as reported on the New York Stock Exchange on June 30, 2021.

At March 21, 2022, the registrant had outstanding 118,337,475 shares of Common Stock, par value $.01 per share.

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FORM 10-K OF STONEMOR INC.

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PART I

ITEM 1. BUSINESS

OVERVIEW

Our History

As used in this Annual Report on Form 10-K (the “Annual Report”), unless the context otherwise requires, references to the terms the “Company,” “StoneMor,” “we,” “us,” and “our” refer to StoneMor Inc. and its consolidated subsidiaries.

We are filing as a smaller reporting company within the meaning of Rule 12b-2 under the Exchange Act. As a smaller reporting company, we have chosen to comply with certain scaled or non-scaled financial and non-financial disclosure requirements on an item by item basis.

Recent Developments

Axar Letter

On September 27, 2021, the Company announced that it had received a letter (the “Letter”) dated September 22, 2021 from Axar Capital Management, LP (“Axar”) in which Axar expressed an interest in pursuing discussions concerning strategic alternatives that may be beneficial to the Company and its various stakeholders. Axar has engaged Schulte Roth & Zabel LLP as its legal advisor and stated in the Letter that it would engage a financial advisor at the appropriate time. According to the Letter, Axar expected that any such discussions would be conducted with a special committee of the Board of Directors of the Company (the “Board”), assisted by financial and legal advisors engaged by such committee. The Letter also stated that any transaction involving Axar arising from such discussions would be conditioned upon, among other things, approval of the special committee and the Board, the negotiation and execution of mutually satisfactory definitive agreements and customary terms. The Letter also stated that any transaction structured as a take-private transaction would be subject to a closing condition that the approval of holders of a majority of the outstanding shares not owned by Axar or its affiliates be obtained. On September 26, 2021, the Board authorized its Conflicts Committee, which is comprised of independent directors Stephen J. Negrotti, Kevin Patrick and Patricia Wellenbach, to engage in the discussions contemplated by the Letter, including the authority to engage in discussions concerning and to negotiate the terms and provisions of any strategic alternative the Conflicts Committee determines to be appropriate in connection with such discussions. Under its charter, the Conflicts Committee has the authority to reject, approve or recommend that the Board approve any transaction that is a related party transaction, which would include any transaction to which Axar is a party. The Conflicts Committee has retained independent legal and financial advisors to assist in such discussions. Following receipt of the Letter and until recently, the Conflicts Committee and its counsel had engaged in discussions with Axar and Axar’s counsel, which evolved to focus on a potential offer by Axar to acquire the shares of the Company that are not owned by Axar or its affiliates. While these negotiations had been productive, the Conflicts Committee and Axar had not come to agreement on any price that Axar would pay for such shares or on certain other terms of any transaction, and there can be no assurance that any agreement would be reached in the future. Negotiations between the Conflicts Committee and Axar were recently tabled in light of the work undertaken by the Conflicts Committee with respect to the independent review of certain investments by our trusts in which Axar had an interest. See Part III, Item 13. Certain Relationships and Related Transactions, and Director Independence.

The Conflicts Committee may at any time determine to resume such negotiations, but there can be no assurance that even if such negotiations are resumed, any agreement with respect to a take-private transaction will be executed or that this or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to these matters except as required under applicable law.

Refinancing

On May 11, 2021, the Company issued $400.0 million aggregate principal amount of 8.500% Senior Secured Notes due 2029 (the “2029 Notes”). The gross proceeds from the sale of the 2029 Notes was $389.9 million, less advisor fees, legal fees, mortgage costs and other closing expenses. The 2029 Notes were issued pursuant to an indenture (the “2029 Indenture”), dated as of May 11, 2021, by and among the Company, the guarantors named therein and Wilmington Trust, National Association, as trustee and collateral agent. Substantially concurrently with the closing of the offering of the 2029 Notes, StoneMor Partners L.P. (the “Partnership”) and Cornerstone Family Services of West Virginia Subsidiary, Inc. (collectively, the “2024 Issuers”) deposited

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from the net cash proceeds from the offering of the 2029 Notes an amount sufficient to fund the full redemption of the outstanding 9.875%/11.500% Senior Secured PIK Toggle Notes due 2024 (the “2024 Notes”) with Wilmington Trust, National Association (the “2024 Trustee”) as trustee under the Indenture, dated as of June 27, 2019 (as amended, the “2024 Indenture”), among the 2024 Issuers, the guarantors party thereto and the 2024 Trustee governing the 2024 Notes. Upon deposit of such funds with the 2024 Trustee, the 2024 Indenture was satisfied and discharged in accordance with its terms. As a result of the satisfaction and discharge of the 2024 Indenture, the 2024 Issuers and the guarantors of the 2024 Notes, including the Company, have been released from their obligations with respect to the 2024 Indenture and the 2024 Notes, except with respect to those provisions of the 2024 Indenture that, by their terms, survive the satisfaction and discharge of the 2024 Indenture. Refer to Note 9 Long-Term Debt to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report.

COVID-19 Pandemic

In December 2019, an outbreak of a novel strain of coronavirus (“COVID-19”) spread worldwide posing public health risks that reached pandemic proportions (including the effect of variants that have developed, the “COVID-19 Pandemic”). The COVID-19 Pandemic poses a significant threat to the health and economic wellbeing of the Company’s employees, customers and vendors. The Company’s operations are deemed essential by the state and local governments in which it operates, with the exception of Puerto Rico, and the Company has been working with federal, state and local government officials to ensure that it continues to satisfy their requirements for offering the Company’s essential services.

The Company’s top priority is the health and safety of its employees and the families it serves. Since the start of the outbreak in the U.S., the Company’s senior management team has taken actions to protect its employees and the families it serves, and to support its field locations as they adapt and adjust to the circumstances resulting from the COVID-19 Pandemic. The operation of all of the Company’s facilities is critically dependent on the employees who staff these locations. To ensure the wellbeing of the Company’s employees and their families, the Company provided all of its employees with detailed health and safety literature on COVID-19, such as the industry-specific guidelines from the Centers for Disease Control and Prevention (the “CDC”) for working with the deceased who were or may have been infected with COVID-19. In addition, the Company’s procurement and safety teams have consistently secured and distributed supplies to ensure that the Company’s locations have appropriate personal protective equipment (“PPE”) and cleaning supplies to provide its essential services, as well as updated and developed new safety-oriented guidelines to support daily field operations. These guidelines include reducing the number of staff present for a service and restricting the number of attendees. The Company also implemented additional safety and precautionary measures as it concerns the businesses’ day-to-day interaction with the families and communities it serves. The Company’s corporate office employees began working from home in March 2020 consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting the field operations. The Company did not experience any significant disruptions to its business as a result of the work from home policies in its corporate office and employees have returned on a hybrid basis. The Company monitors the CDC guidance on a regular basis, continually reviews and updates its processes and procedures and provides updates to its employees as needed to comply with regulatory guidelines.

The Company’s marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that the Company can continue to connect with and meet its customers’ needs in a safe, effective and productive manner. Some of the Company’s locations provide live video streaming of their funeral and burial services to its customers or provide other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

Like most businesses world-wide, the COVID-19 Pandemic has impacted the Company financially. At the start of the COVID-19 Pandemic in early 2020, the Company saw its pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. However, since May 2020, the Company experienced at-need sales growth, and since late 2020, it has experienced pre-need sales growth. The Company believes the implementation of its virtual meeting tools early on in the COVID-19 Pandemic was one of several key steps that had mitigated this disruption. Throughout the COVID-19 Pandemic, the Company’s cemeteries and funeral homes have largely remained open and available to serve its families in all the locations in which it operates to the extent permitted by local authorities and the Company expects that this will continue. The Company has leveraged the relationships it has made with the families it has served during its response to the COVID-19 Pandemic, which has directly resulted in new sales leads and the increase in pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became more widely available, the Company has experienced growth in its pre-need cemetery sales, see “Results of Operations” of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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The Company expects the COVID-19 Pandemic could have an adverse effect on its future results of operations and cash flows depending on COVID-19 variants and case counts. However, the Company cannot presently predict the likely scope and severity of that impact. In the event there are confirmed diagnoses of COVID-19 within a significant number of its facilities, the Company may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. In addition, the Company’s pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic. Alternatively, in the event that COVID-19 case counts continue to normalize and variants become less severe, we would expect to see a reduction in the demand for at-need products and services as well as a reduction in pre-need turning to at-need.

Acquisitions

On January 31, 2022, the Company acquired two cemeteries in Virginia for cash consideration of $5.1 million, pursuant to a definitive agreement signed on March 23, 2021 with Daly Seven, Inc. to acquire four cemeteries for a total purchase price of $5.4 million, subject to customary working capital adjustments. The remaining two cemeteries, which are located in North Carolina, are expected to close in the second quarter of 2022.

On March 1, 2022, the Company acquired one funeral home in Florida for a cash purchase price of $1.7 million and on March 15, 2022, the Company acquired one combination cemetery and funeral home, a separate cemetery and a separate funeral home in West Virginia for a cash purchase price of $11.3 million, in each case subject to customary working capital adjustments.

Products and Service Offerings

We are currently one of the largest owners and operators of cemeteries and funeral homes in the U.S. As of December 31, 2021, we operated 300 cemeteries in 24 states and Puerto Rico. We own 271 of these cemeteries and we manage or operate the remaining 29 under lease, management or operating agreements with the nonprofit cemetery companies that own the cemeteries. As of December 31, 2021, we also owned, operated or managed 69 funeral homes, including 33 located on the grounds of cemetery properties that we own, in 15 states and Puerto Rico.

The cemetery products and services that we sell include the following:

We sell these products and services both at the time of death, which we refer to as at-need, and prior to the time of death, which we refer to as pre-need. In 2021, we performed 54,205 burials and sold 21,739 interment spaces (net of cancellations), excluding divested locations. Based on our sales of interment spaces in 2021, our cemeteries have an aggregate average remaining sales life of 282 years.

Our cemetery properties are located in Alabama, Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Iowa, Kansas, Kentucky, Maryland, Michigan, Mississippi, Missouri, New Jersey, North Carolina, Ohio, Pennsylvania, Puerto Rico, Rhode Island, South Carolina, Tennessee, Virginia, West Virginia and Wisconsin. Our cemetery operations accounted for approximately 86% and 85% of our revenues in 2021 and 2020, respectively.

The funeral home products and services that we sell include the following:

Our funeral homes are located in Alabama, Florida, Illinois, Indiana, Kansas, Maryland, Mississippi, Missouri, North Carolina, Ohio, Pennsylvania, Puerto Rico, South Carolina, Tennessee, Virginia and West Virginia. Our funeral home operations accounted for approximately 14% and 15% of our consolidated revenues in 2021 and 2020, respectively.

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OPERATIONS

Segment Reporting and Related Information

We have two distinct reportable segments, which are classified as Cemetery Operations and Funeral Home Operations segments, both of which are supported by corporate costs and expenses.

We have chosen this level of organization and disaggregation of reportable segments because: (a) each reportable segment has unique characteristics that set it apart from the other segment; (b) we have organized our management personnel at these two operational levels; and (c) it is the level at which our chief decision makers evaluates performance.

Cemetery Operations

As of December 31, 2021, we operated 300 cemeteries. Our Cemetery Operations include sales of cemetery interment rights, merchandise and services and the performance of cemetery maintenance and other services. An interment right entitles a customer to a burial space in one of our cemeteries and the perpetual care of that burial space. Burial spaces, or lots, are parcels of property that hold interred human remains. A burial vault is a rectangular container, usually made of concrete but can also be made of steel or plastic, which sits in the burial lot and in which the casket is placed. The top of the burial vault is buried approximately 18 to 24 inches below the surface of the ground, and the casket is placed inside the vault. Burial vaults prevent ground settling that may create uneven ground surfaces. Ground settling typically results in higher maintenance costs and potential exposure for accidents on the property. Lawn crypts are a series of closely spaced burial lots with preinstalled vaults and may include other improvements, such as landscaping, sprinkler systems and drainage. A mausoleum crypt is an above ground structure that may be designed for a particular customer, which we refer to as a private mausoleum or it may be a larger building that serves multiple customers, which we refer to as a community mausoleum. Cremation niches are spaces in which the ashes remaining after cremation are stored. Cremation niches are often part of community mausoleums; although we sell a variety of cremation niches to accommodate our customers’ preferences.

Grave markers, monuments and memorials are above ground products that serve as memorials by showing who is remembered, the dates of birth and death and other pertinent information. These markers, monuments and memorials include simple plates, such as those used in a community mausoleum or cremation niche, flush-to-the-ground granite or bronze markers, headstones or large stone obelisks.

One of the principal services we provide at our cemeteries is an "opening and closing," which is the digging and refilling of burial spaces to install the vault and place the casket into the vault. With pre-need sales, there are usually two openings and closings, where permitted by applicable law. During the initial opening and closing, we install the burial vault in the burial space. Where permitted by applicable law, we usually perform this service shortly after the customer signs a pre-need contract. Advance installation allows us to withdraw the related funds from our merchandise trusts, making the amount in excess of our cost to purchase and install the vault available to us for other uses and eliminates future merchandise trusting requirements for the burial vault and its installation. During the final opening and closing, we remove the dirt above the vault, open the lid of the vault, place the casket into the vault, close the vault lid and replace the ground cover. With at-need sales, we typically perform the initial opening and closing at the time we perform the final opening and closing. Our other services include the installation of other cemetery merchandise and the perpetual care related to interment rights.

Funeral Home Operations

As of December 31, 2021, we owned, operated or managed 69 funeral homes, 33 of which are located on the grounds of cemetery properties that we own. Our funeral homes offer a range of services to meet a family’s funeral needs, including family consultation, final expense insurance products, the removal and preparation of remains, provision of caskets and related funeral merchandise, the use of funeral home facilities for visitation, worship and performance of funeral services and transportation services. Funeral Home Operations primarily generate revenues from at-need sales.

Cremation Products and Services

We operate crematories at some of our cemeteries or funeral homes, but our primary crematory operations are sales of receptacles for cremated remains, such as urns, and the inurnment of cremated remains in niches or scattering gardens. Cremation products and services usually cost less than traditional burial products and services and take up less space than burials. We sell cremation products and services on both a pre-need and an at-need basis.

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Seasonality

Although the death care business is relatively stable and predictable, our results of operations may be subject to seasonal fluctuations in deaths due to weather conditions, illness and public health crises, such as the COVID-19 Pandemic. Generally, more deaths occur during the winter months, primarily resulting from pneumonia and influenza. In addition, we generally perform fewer initial openings and closings in the winter, as the ground is frozen in many of the areas in which we operate. We may also experience declines in contracts written during the winter months due to increased inclement weather during which our sales staff would be unable to meet with customers.

Sales Contracts

Pre-need products and services are typically sold on an installment basis. At-need products and services are generally required to be paid for in full in cash by the customer at the time of sale. As a result of our pre-need sales, the backlog of unfulfilled pre-need performance obligations recorded in deferred revenues was $1,056.3 million and $949.2 million at December 31, 2021 and 2020, respectively, excluding amounts classified as held for sale.

Trusts

Sales of cemetery products and services are subject to a variety of state regulations. In accordance with these regulations, we are required to establish and fund two types of trusts: merchandise trusts and perpetual care trusts, to ensure that we can meet our future obligations. Our funding obligations are generally equal to a percentage of the sales proceeds or costs of the products and services we sell.

Human Capital

We recognize that our success depends upon the services and capabilities of all of our people. It is built upon our dedicated, passionate and diverse employees who work and live in the communities we serve. Our goal is to provide a working environment that is welcoming and inclusive, offers competitive pay and benefits, supports the growth and development of our employees and affirms our corporate values and mission. We are committed to ensuring equal employment opportunity and that all of our employment decisions, policies and practices are in accordance with applicable federal, state and local anti-discrimination laws. Our Human Resources team, with oversight from our Board of Directors and its committees, develops and executes programs for compensation and benefits, onboarding and training and performance management.

All full-time employees are eligible for competitive health and welfare benefits, including medical, dental, vision, disability, life insurance and other benefits. Full-time employees in the U.S. can participate in our defined contribution plan under Section 401(k) of the Internal Revenue Code, which provides for a matching contribution of 25 percent of the first three percent of an employee’s contribution. The Company also has a similar type plan for its Puerto Rico employees.

As of December 31, 2021, we employed 1,831 full-time, 146 part-time and 4 temporary employees. 46 of these full-time employees are represented by unions in Illinois, New Jersey and Pennsylvania and are subject to collective bargaining agreements that have expiration dates ranging up to September 2024. We believe that our relationship with our employees is generally favorable. The average tenure of our employees is 5.5 years.

Our current CEO has been in place since July 2018 and our current CFO has been in place since September 2019, following several years of frequent changes in these positions. Our compensation programs are designed to attract, motivate and retain high quality executive officers who will advance our overall business strategies and goals to create and return value to our stockholders. Our compensation programs include short-term elements, such as annual base salaries and cash bonuses, as well as longer term elements such as equity-based awards. We have designed our compensation programs to align the interests of our management and our stockholders.

Our ability to attract and retain a qualified sales force and other personnel is an important factor in achieving success. Buying cemetery and funeral home products and services, especially at-need products and services, is very emotional for most customers, so our sales force must be particularly sensitive to our customers’ needs.

As of December 31, 2021, we employed 373 full-time commissioned salespeople, 48 sales trainees, two part-time commissioned salespeople, 77 salaried sales managers, 15 commission-only sales managers, 37 outside sales counselors and four full-time sales support employees. We had two divisional vice presidents and two divisional vice presidents of operations who report directly to our two divisional presidents. Individual salespersons are typically located at the cemeteries they serve and report directly to the

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cemetery sales manager. Our compensation programs for sales staff are comprised of various plans designed to motivate through a variety of compensation components including base wages, commissions, bonuses and overrides. Performance is evaluated according to location budget or individual quotas.

We have made a commitment to the ongoing education and training of our sales force and to salesperson retention in order to provide our customers high quality customer service and in an effort to comply with all applicable laws and requirements. Our salespeople are trained to prioritize our customers’ needs and sell merchandise and services that are in our customers’ best interests. Our training program includes classroom training at regional training locations, field training, web-based modules and participation in industry seminars. Additionally, we place special emphasis on training property sales managers, who are key elements to a successful pre-need sales program.

Marketing

We generate sales leads through various methods including digital marketing, direct mail, websites, funeral follow-up and sales force cold calling, with the assistance of database mining and other marketing resources. Our marketing department provides sophisticated marketing techniques to focus more effectively on our lead generation and to direct sales efforts. Sales leads are referred to the sales force to schedule an appointment, either at the customer’s home or at the cemetery location. In addition, our marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that we can continue to connect with and meet our customers’ needs in a safe, effective and productive manner. Some of our locations are providing live video streaming of their funeral and burial services to customers or providing other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

Competition

Our cemeteries and funeral homes generally serve customers that live within a 10 to 15-mile radius of a property’s location. We face competition from other cemeteries and funeral homes located within this localized area. Most of these cemeteries and funeral homes are independently owned and operated, and most of these owners and operators are smaller than we are and have fewer resources than we do. We have historically faced limited competition from the two larger publicly held death care companies that have U.S. operations — Service Corporation International and Carriage Services, Inc. — as they do not directly operate cemeteries in the same local geographic areas in which we operate. Furthermore, these companies have historically generated the majority of their revenues from funeral home operations. Based on the relative levels of cemetery and funeral home operations of these publicly traded death care companies, which are disclosed in their filings with the Securities and Exchange Commission (the “SEC”), we believe that we are the only publicly held death care company that focuses a majority of its efforts on Cemetery Operations.

Within a localized area of competition, we compete primarily for at-need sales because, in general, many of the independently owned, local competitors may not have pre-need sales programs. The number of customers that cemeteries and funeral homes are able to attract is largely a function of reputation and heritage, although competitive pricing, professional service and attractive, well-maintained and conveniently located facilities are also important factors. The sale of cemetery and funeral home products and services on a pre-need basis has increasingly been used by many companies as an important marketing tool. Due to the importance of reputation and heritage, increases in customer base are usually gained over a long period of time.

Competitors within a localized area have an advantage over us if a potential customer’s family members are already buried in the competitor’s cemetery. If either of the two publicly held death care companies identified above operated, or in the future were to operate, cemeteries within close proximity of our cemeteries, they may offer more competition than independent cemeteries and may have a competitive advantage over us to the extent they have greater financial resources available to them due to their size and access to the capital markets.

REGULATION

Our funeral operations are regulated by the Federal Trade Commission (the “FTC”) under Section 5 of the Federal Trade Commission Act and a trade regulation rule for the funeral industry promulgated thereunder referred to as the “Funeral Rule.” The Funeral Rule defines certain acts or practices as unfair or deceptive and contains certain requirements to prevent these acts or practices. The preventive measures require a funeral provider to give consumers accurate, itemized price information and various other disclosures about funeral merchandise and services and prohibit a funeral provider from: (i) misrepresenting legal, crematory and cemetery requirements; (ii) embalming for a fee without permission; (iii) requiring the purchase of a casket for direct cremation; (iv) requiring consumers to buy certain funeral merchandise or services as a condition for furnishing other

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funeral merchandise or services; (v) misrepresenting state and local requirements for an outer burial container; and (vi) representing that funeral merchandise and services have preservative and protective value. Additionally, the Funeral Rule requires the disclosure of mark-ups, commissions, additional charges and rebates related to cash advance items. Our operations are also subject to regulation, supervision and licensing under numerous federal, state and local laws and regulations, including those that impose trusting requirements

Our operations are subject to federal, regional, state and local laws and regulations related to environmental protection, such as the federal Clean Air Act, Clean Water Act, Emergency Planning and Community Right-to-Know Act and Comprehensive Environmental Response (“EPCRA”), Compensation, and Liability Act, that impose legal requirements governing air emissions, waste management and disposal and wastewater discharges.

We are subject to the requirements of the Occupational Safety and Health Act (“OSHA”) and comparable state statutes. OSHA’s regulatory requirement, known as the Hazard Communication Standard, and similar state statutes require us to provide information and training to our employees about hazardous materials used or maintained for our operations. We may also be subject to Tier 1 or Tier 2 Emergency and Hazardous Chemical Inventory reporting requirements under the EPCRA, depending on the amount of hazardous materials maintained on-site at a particular facility. We are also subject to the federal Americans with Disabilities Act and similar laws, which, among other things, may require that we modify our facilities to comply with minimum accessibility requirements for disabled persons.

We take various measures to comply with the Funeral Rule and all other laws and regulations to which we are subject, and we believe we are substantially in compliance with these existing laws and regulations.

Federal, state and local legislative bodies and regulatory agencies frequently propose new laws and regulations, some of which could have a material effect on our operations and on the deathcare industry in general. We cannot accurately predict the outcome of any proposed legislation or regulation or the effect that any such legislation or regulation might have on us.

Available Information

We file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports with the SEC. The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC, including us.

We maintain an Internet website with the address of http://www.stonemor.com. The information on this website is not, and should not be considered, part of this Annual Report and is not incorporated by reference into this Annual Report. This website address is only intended to be an inactive textual reference. Copies of our reports filed with, or furnished to, the SEC on Forms 10-K, 10-Q and 8-K, and any amendments to such reports, are available for viewing and copying at such Internet website, free of charge, as soon as reasonably practicable after filing such material with, or furnishing it to, the SEC.

ITEM 1A. RISK FACTORS

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions that we believe are reasonable regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. All statements, other than statements of historical information, should be deemed to be forward-looking statements. The words “may,” “will,” “estimate,” “believe,” “expect,” “anticipate,” “plan,” “intend,” “foresee,” “should,” “would,” “could” or other similar expressions are intended to identify forward-looking statements, which are generally not historical in nature. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements.

Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, the risks set forth below. The risks described below are those that we have identified as material and is not an exhaustive list of all the risks we face. There may be others that we have not identified or that we have deemed to be immaterial. All forward-looking statements made by us or on our behalf are qualified by the risks described below. If any events occur that give rise to the following risks, our business, financial condition or results of operations could be materially and adversely impacted. These risk factors, some of which are beyond our control or not readily predictable, should be read in conjunction with other information set forth in this Annual Report, including our consolidated financial statements and the related notes. Investors are cautioned not to put undue reliance on our forward-looking statements.

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RISKS RELATED TO OUR INDEBTEDNESS

Our level of indebtedness could adversely affect our financial condition and prevent us from fulfilling our debt obligations.

As of December 31, 2021, we had $400.8 million of total debt (not including capital lease obligations), consisting of $400.0 million of the 2029 Notes and $0.8 million of financed insurance and vehicles. Our indebtedness requires significant interest and principal payments. Subject to certain limitations and the satisfaction of certain conditions contained in the 2029 Indenture, we may also be permitted to incur substantial additional debt from time to time to finance working capital, capital expenditures, investments or acquisitions, or for other purposes. If we do so, the risks related to our high level of debt could increase.

Our level of indebtedness could have important consequences to us, including:

In addition, the 2029 Indenture prevents us from incurring additional debt or liens for working capital expenditures, acquisitions or other purposes (subject to very limited exceptions). Our ability to make payments on and to refinance our indebtedness will depend on our ability to generate cash in the future from operations, financings or asset sales. Our ability to repay our indebtedness and comply with the restrictive covenants will be dependent on, among other things, the successful execution of our strategic plans. If we require additional capacity under the restrictive covenants to successfully execute our strategic plans, we will need to seek the required consent from a majority of the holders of the 2029 Notes. No assurances can be given that we will be successful in obtaining such consent, and any failure to do so will have a material adverse effect on our business operations and our financial results.

Our ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control. We may not generate sufficient funds to service our debt and meet our business needs, such as funding working capital or the expansion of our operations. If we are not able to repay or refinance our debt as it becomes due, we may be forced to take certain actions, including reducing spending on day-to-day operations, reducing future financing for working capital, capital expenditures and general corporate purposes, selling assets or dedicating an unsustainable level of our cash flow from operations to the payment of principal and interest on our indebtedness. The trustee or the holders of the 2029 Notes could also accelerate amounts due in the event that we default, which could potentially trigger a default or acceleration of the maturity of our debt.

In addition, our ability to withstand competitive pressures and to react to changes in our industry could be impaired, and our leverage could put us at a competitive disadvantage compared to our competitors that are less leveraged, as these competitors could have greater financial flexibility to pursue strategic acquisitions and secure additional financing for their operations. Our leverage could also impede our ability to withstand downturns in our industry or the economy in general.

Despite our current indebtedness level, we and any of our existing or future subsidiaries may still be able to incur substantially more debt, which could exacerbate the risks associated with our substantial leverage.

We and any of our existing and future subsidiaries may be able to incur substantial additional indebtedness in the future. Although the terms of the 2029 Indenture contains limitations on our ability to incur additional indebtedness, these restrictions will be subject to a number of qualifications and exceptions We have the ability under the 2029 Indenture to incur up to $40 million of additional senior secured debt and we anticipate entering into a revolving credit facility in that amount in the second quarter of 2022. If new debt is added to our or any of our existing and future subsidiaries’ current debt levels, the related risks that we now face could be exacerbated.

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We may not be able to generate sufficient cash to service all of our indebtedness or repay such indebtedness when due, including the 2029 Notes, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations, including the 2029 Notes, depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control, including the effects of the COVID-19 Pandemic. We cannot assure you that our business will generate sufficient cash flows from operating activities, or that future borrowings will be available in an amount sufficient to enable us to pay the principal of, and premium, if any, and interest on, our indebtedness, including the 2029 Notes, or any portion of any of the foregoing, or to fund our other liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness, including the 2029 Notes. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of the 2029 Indenture restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The 2029 Indenture restricts our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

The 2029 Indenture imposes significant operating and financial restrictions, which may prevent us from pursuing certain business opportunities and taking certain actions.

The 2029 Indenture contains various covenants that limit our ability to engage in specified types of transactions. These covenants limit our and our restricted subsidiaries’ ability to, among other things:

Our ability to comply with these covenants can be affected by events beyond our control, and we may not be able to satisfy them.

OTHER FINANCIAL RISKS

Pre-need sales typically generate low or negative cash flow in the periods immediately following sales, which could adversely affect our liquidity and cash flow.

When we sell cemetery merchandise and services on a pre-need basis, upon cash collection, we pay commissions on the sale to our salespeople and are required by state law to deposit a portion of the sales proceeds into a merchandise trust. In addition, most of our customers finance their pre-need purchases under installment contracts payable over a number of years. Depending on the

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trusting requirements of the states in which we operate, the applicable sales commission rates and the amount of the down payment, our cash flow from sales to customers through installment contracts is typically negative until we have collected the related receivable or until we purchase the products or perform the services and are permitted to withdraw funds we have deposited in the merchandise trust. To the extent we increase pre-need sales, state trusting requirements are increased or we delay the performance of the services or delivery of merchandise we sell on a pre-need basis, our cash flow from pre-need sales may be further reduced, and our liquidity could be adversely affected.

We have identified material weaknesses in our internal control over financial reporting and determined that our disclosure controls and procedures were not effective which could, if not remediated, result in additional material misstatements in our financial statements and may adversely affect our liquidity, the market for our common shares and our business.

Our management is responsible for establishing and maintaining adequate disclosure controls and procedures and internal control over our financial reporting, as defined in Rules 13a- 15(e) and 13a-15(f), respectively, under the Exchange Act. Effective internal controls are necessary for us to provide timely, reliable and accurate financial reports, identify and proactively correct any deficiencies, material weaknesses or fraud and meet our reporting obligations. As disclosed in Part II, Item 9A. Controls and Procedures of this Annual Report, management identified material weaknesses in our internal control over financial reporting and concluded our disclosure controls and procedures were not effective as of December 31, 2021. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our independent registered public accounting firm also expressed an adverse opinion on the effectiveness of our internal control over financial reporting.

As discussed in Part II, Item 9A. Controls and Procedures of this Annual Report, our remediation efforts to address the material weaknesses in internal control over financial reporting and ineffective disclosure controls and procedures are ongoing and had been delayed primarily due to management turnover and the impact of the COVID-19 Pandemic. We currently expect the remediation of the identified material weaknesses to be completed during 2022. If our planned remediation actions are not successfully implemented or we encounter other difficulties, we might incur significant unexpected expenses in order to perform the Section 404 evaluation and our ability to file timely with the SEC may be adversely impacted. In addition, if our remedial measures are insufficient, or if additional material weaknesses or significant deficiencies in our internal controls occur in the future, we could be required to further restate our financial results, which could materially and adversely affect our business, results of operations and financial condition, restrict our ability to access the capital markets, require us to expend significant resources to correct the material weaknesses or deficiencies, harm our reputation or otherwise cause a decline in investor confidence.

The financial condition of third-party insurance companies that fund our pre-need funeral contracts and the amount of benefits those policies ultimately pay may impact our financial condition, results of operations or cash flows.

Where permitted, customers may arrange their pre-need funeral contract by purchasing a life insurance or annuity policy from third-party insurance companies. The customer/policy holder assigns the policy benefits to our funeral home to pay for the pre-need funeral contract at the time of need. For the sales of pre-need funeral contracts funded through life insurance policies, we receive commissions from third-party insurance companies. Additionally, there is a death benefit associated with the contract that may vary over the contract life. There is no guarantee that the value of the death benefit will increase or cover future increases in the cost of providing a funeral service. If the financial condition of the third-party insurance companies were to deteriorate materially because of market conditions or otherwise, there could be an adverse effect on our ability to collect all or part of the proceeds of the life insurance or annuity policy, including any increase in the death benefit. Failure to collect such proceeds could have a material adverse effect on our financial condition, results of operations or cash flows.

Our liquidity may be impacted by our ability to negotiate bonding arrangements with third-party insurance companies.

Where permitted, we have entered into and may continue to enter into bonding arrangements with insurance companies, whereby pre-need performance obligations otherwise required to be trusted may be insured through a process called bonding. In the event that we are unable to deliver on bonded pre-need contract sales at the time of need, the insurance company will provide cash sufficient to deliver goods for the respective pre-need sale item. On an ongoing basis, we must negotiate acceptable terms of these various bonding arrangements, and the insurance companies have required us to provide cash collateral from time to time under certain circumstances. To the extent we are unable to negotiate acceptable terms for such arrangements and thus are no longer able to maintain existing bonds, we would need to deposit the corresponding amounts in the merchandise trusts. We may be required to provide additional cash collateral from time to time under certain circumstances. Any of these actions would have an adverse impact on our liquidity.

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Our ability to use our Net Operating Losses and other tax assets is uncertain.

As of December 31, 2021, we had net operating loss (“NOL”) carryforwards of approximately $477.0 million for U.S. federal income tax purposes and substantially similar tax assets at the federal and state levels. Along with other previous transfers of our interests, we believe that certain recapitalization transactions completed in 2019 (the “Recapitalization Transactions”) caused a “change of control” for income tax purposes, which may significantly limit our ability to use NOLs and certain other tax assets to offset future taxable income, possibly reducing the amount of cash available to us to satisfy our obligations. The “change of control” rules limit the annual net operating loss deduction in a given year to an amount based on the value of the Company on the change date multiplied by the federal tax exempt bond rate. This makes it more likely for the Company to pay some amount of income tax in the years it has positive taxable income. This limitation also makes it more likely for NOL carryovers to expire unutilized.

If the IRS makes audit adjustments to the Partnership’s income tax returns for 2018 or 2019 tax years, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us, in which case our financial condition could be adversely affected.

Pursuant to the Bipartisan Budget Act of 2015, for our 2018 and 2019 tax years, if the IRS makes audit adjustments to the Partnership’s income tax returns, it (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustment directly from us. To the extent possible under the new rules, we may elect to either pay the taxes (including any applicable penalties and interest) directly to the IRS or, if we are eligible, issue a revised Schedule K-1 to each holder of the Partnership’s common units during the applicable year with respect to an unaudited and adjusted return. Although we may elect to have such unitholders take such audit adjustment into account in accordance with their interests in the Partnership during the tax year under audit, there can be no assurance the election will be practical, permissible or effective in all circumstances. As a result, StoneMor Inc. may be required to pay the necessary taxes, which would mean that our current stockholders may indirectly bear some or all of the impact of the tax liability resulting from such audit adjustment, even if they did not own units in us during the tax year under audit. If, as a result of any such audit adjustment, we are required to make payments of taxes, penalties and/or interest, our financial condition could be adversely affected. These rules were not applicable for tax years beginning on or prior to December 31, 2017.

Because fixed costs are inherent in our business, a decrease in our revenues can have a disproportionate effect on our cash flow and profits.

Our business requires us to incur many of the costs of operating and maintaining facilities, land and equipment regardless of the level of sales in any given period. For example, we must pay salaries, utilities, property taxes and maintenance costs on our cemetery properties and funeral homes regardless of the number of interments or funeral services we perform. If we cannot decrease these costs significantly or rapidly when we experience declines in sales, declines in sales can cause our margins, profits and cash flow to decline at a greater rate than the decline in our revenues.

Economic, financial and stock market fluctuations could affect future potential earnings and cash flows and could result in future intangible asset and long-lived asset impairments.

In addition to an annual review, we assess the impairment of our intangible assets and other long-lived assets whenever events or changes in circumstances indicate that the carrying value may be greater than fair value and therefore not fully recoverable. Recoverability of these assets is measured by a comparison of the carrying amount of the assets to the future net cash flow, undiscounted and without interest, expected to be generated by the assets. Factors that could trigger an interim impairment review include, but are not limited to, a significant decline in the market value of our stock or debt values, significant under-performance relative to historical or projected future operating results, and significant negative industry or economic trends. Based on the results of our impairment tests of our long-lived assets throughout 2021, we concluded that none of our long-lived assets were impaired.

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OPERATIONAL RISKS

Cemetery burial practice claims could have a material adverse impact on our financial results, and unfavorable publicity resulting from claims, or otherwise, could affect our reputation and business.

Our cemetery practices have evolved and improved over time. Most of our cemeteries have been operating for decades and some have in the past used practices and procedures that are outdated in comparison to today’s standards. When cemetery disputes occur, we have in the past been, and may in the future be, subject to litigation and liability for improper burial practices, including:

In addition, since we acquired most of our cemeteries from third parties, we have in the past been, and may in the future be, subject to litigation and liability based upon actions or events that occurred before we acquired or managed the cemeteries. Claims or litigation based upon our cemetery burial practices could have a material adverse impact on our financial condition, results of operations and cash flows.

Since our operations relate to life events that are emotionally stressful for our client families, our business is dependent on customer trust and confidence. Unfavorable publicity about our business generally or in relation to any specific location could affect our reputation and customers’ trust and confidence in our products and services, thereby having an adverse impact upon our sales and financial results.

Our business may be affected by rising inflation and other issues that affect consumer spending.

Our results of operations are affected by the level of consumer spending and, therefore, by changes in the economic factors that impact consumer spending. Although the rate of inflation has been low in recent years, we are currently experiencing a significant rise in inflation. This and other economic conditions or events, such as a contraction in the financial markets, higher interest rates, high unemployment levels, decreases in consumer disposable income, unavailability of consumer credit, higher consumer debt levels, higher fuel, energy and other commodity costs and product cost increases, could reduce or shift consumer spending generally, which could cause our customers to spend less on the merchandise and services they purchase from us. Reduced consumer spending may also result in reduced demand for our pre-need products and services. A reduction or shift in consumer spending could negatively impact our business, results of operations and financial condition.

Our ability to generate pre-need sales depends on a number of factors, including sales incentives and local and general economic conditions.

Significant declines in pre-need sales would reduce our backlog and revenue and could reduce our future market share. On the other hand, a significant increase in pre-need sales could have a negative impact on cash flow as a result of commissions and other costs incurred initially without corresponding revenue.

We are continuing to refine the mix of service and product offerings in both our funeral and cemetery segments, including changes in our sales commission and incentive structure. These changes could cause us to experience declines in pre-need sales in the short-run. In addition, economic conditions at the local or national level could cause declines in pre-need sales either as a result of less discretionary income or lower consumer confidence. Declines in pre-need cemetery property sales reduce current revenue, and declines in other pre-need sales would reduce our backlog and future revenue and could reduce future market share.

Our failure to attract and retain qualified sales personnel and management could have an adverse effect on our business and financial condition.

Our ability to attract and retain a qualified sales force and other personnel is an important factor in achieving future success. Buying cemetery and funeral home products and services, especially at-need products and services, is very emotional for most customers, so our sales force must be particularly sensitive to our customers’ needs. We cannot assure our stockholders that we will be successful in our efforts to attract and retain a skilled sales force. If we are unable to maintain a qualified and productive sales force, our revenues may decline and our cash available for distribution may decrease.

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Our success also depends upon the services and capabilities of our management team. Management establishes the “tone at the top” by which an environment of ethical values, operating style and management philosophy is fostered. The inability of our senior management team to maintain a proper “tone at the top” or the loss of services of one or more members of senior management, as well as the inability to attract qualified managers or other personnel could have a material adverse effect on our business, financial condition and results of operations. We may not be able to locate or employ on acceptable terms qualified replacements for senior management or key employees if their services were no longer available. We do not maintain key employee insurance on any of our executive officers.

We rely significantly on information technology and any failure, inadequacy, interruption or security lapse of that technology, including any cybersecurity incidents, could harm our ability to operate our business effectively.

Our ability to manage and maintain our internal reports effectively and integrate new business acquisitions depends significantly on our operational technology platform and other information systems. Some of our information technology systems may experience interruptions, delays or cessations of service or produce errors in connection with ongoing systems implementation work. Cybersecurity attacks in particular are evolving and include, but are not limited to, malicious software, attempts to gain unauthorized access to data and other electronic security breaches that could lead to disruptions in systems and corruption of data. The failure of our systems to operate effectively or to integrate with other systems or a breach in security or other unauthorized access of these systems may also result in reduced efficiency of our operations and could require significant capital investments to remediate any such failure, problem or breach and to comply with applicable regulations, all of which could adversely affect our business, financial condition and results of operations.

Any failure to maintain the security of the information relating to our customers, their loved ones, our employees and our vendors could damage our reputation, cause us to incur substantial additional costs and make us subject to litigation, all of which could adversely affect our operating results, financial condition or cash flow.

In the ordinary course of our business, we receive certain personal information, in both physical and electronic formats, about our customers, their loved ones, our employees and our vendors. In addition, our online operations depend upon the secure transmission of confidential information over public networks, including information permitting electronic payments. We maintain security measures and data backup systems to protect, store and prevent unauthorized access to such information. However, it is possible that computer hackers and others (through cyberattacks, which are rapidly evolving and becoming increasingly sophisticated, or by other means) might defeat our security measures in the future and obtain the personal information of customers, their loved ones, our employees and our vendors that we hold. In addition, our employees, contractors or third parties with whom we do business may attempt to circumvent our security measures to misappropriate such information and may purposefully or inadvertently cause a breach, corruption or data loss involving such information. A breach of our security measures or failure in our backup systems could adversely affect our reputation with our customers and their loved ones, our employees and our vendors, as well as our operations, results of operations, financial condition and cash flow. It could also result in litigation against us or the imposition of penalties. Moreover, a security breach could require that we expend significant additional resources to upgrade further the security measures that we employ to guard such important personal information against cyberattacks and other attempts to access such information and could result in a disruption of our operations.

Litigation or legal proceedings could expose us to significant liabilities and damage our reputation.

From time to time, we are party to various claims and legal proceedings, including, but not limited to, claims and proceedings regarding employment, cemetery or burial practices and other litigation. As set forth more fully in Part I, Item 3. Legal Proceedings and Part II, Item 8. Financial Statements and Supplementary Data, Note 14 Commitments and Contingencies of this Annual Report, we are currently subject to state law claims that certain of our officers and directors breached their fiduciary duty to the Company. We could also become subject to additional claims and legal proceedings relating to the factual allegations made in these actions. We are also subject to class or collective actions under the wage and hours provisions of the Fair Labor Standards Act and state wage and hour laws, including, but not limited to, national and state class or collective actions, or putative class or collective actions.

Adverse outcomes in some or all of our pending cases may result in significant monetary damages or injunctive relief against us, as litigation and other claims are subject to inherent uncertainties. Any such adverse outcomes, in pending cases or other lawsuits that may arise in the future, could have a material adverse impact on our financial position, results of operations and cash flow. While we hold insurance policies that may reduce cash outflows with respect to adverse outcomes of certain litigation matters, these insurance policies exclude certain claims, such as claims arising under the Fair Labor Standards Act.

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In addition, litigation claims and legal proceedings could demand substantial amounts of our management’s time, resulting in the diversion of our management resources from effectively managing our business operations, and costs to defend litigation claims and legal proceedings could be material. Any adverse publicity resulting from allegations made in litigation claims or legal proceedings may also adversely affect our reputation. All these factors could negatively affect our business and results of operations.

Broad-based business or economic disruptions caused by global health concerns, including the COVID-19 Pandemic, and other crises could adversely affect our business, financial condition, profitability or cash flows.

Global health concerns, such as the COVID-19 Pandemic, could result in social, economic and labor instability that adversely affect our employee and customer relationships, pre-need sales activity, the value of our trust investments and associated funding obligations, and in so doing adversely affect our business, financial condition, results of operations and cash flows. For example, governmental actions restricting public gatherings and interaction may result in our customers deferring making purchase decisions regarding pre-need arrangements or delaying holding funeral services and may result in our inability to operate our cemeteries and funeral homes, which would have an adverse impact on our business, financial condition, results of operations and cash flows. Although our cemeteries and funeral homes have largely remained open and available to serve our families in all the locations in which we operate to the extent permitted by local authorities, throughout the COVID-19 Pandemic, this may not continue. We have experienced limited location closures due to COVID-19 cases, required quarantines and cleanings. In addition, our pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic. Having to adjust our policies and practices to respond to global health concerns could also result in increased operating expenses. We continue to monitor this ongoing public health crisis and its impact on our employees, customers and vendors and the overall economic environment within the U.S. and worldwide, but we cannot presently predict the full scope and severity of the disruptions caused by the COVID-19 Pandemic on our business, financial condition, results of operations and cash flows.

We are subject to legal restrictions on our marketing practices that could reduce the volume of our sales, which could have an adverse effect on our business, operations and financial condition.

The enactment or amendment of legislation or regulations relating to marketing activities may make it more difficult for us to sell our products and services. For example, the federal “do not call” legislation has adversely affected our ability to market our products and services using telephone solicitation, by limiting whom we may call and increasing our costs of compliance. As a result, we rely heavily on direct mail marketing and telephone follow-up with existing contacts. Additional laws or regulations limiting our ability to market through direct mail, over the telephone, through Internet and e-mail advertising or door-to-door may make it difficult to identify potential customers, which could increase our costs of marketing. Both increases in marketing costs and restrictions on our ability to market effectively could reduce our revenues and could have an adverse effect on our business, operations and financial condition, as well as our ability to generate cash to pay our debts.

STRATEGIC RISKS

Our ability to execute our strategic plans depends on many factors, some of which are beyond our control.

Our strategic plans are focused on efforts to revitalize the business, grow our revenue and manage our operating and non-recurring operating expenses. Many of the factors that impact our ability to execute our strategic plans, such as the number of deaths and general economic conditions, are beyond our control. Changes in operating conditions, such as supply disruptions and labor disputes, could negatively impact our operations. If we are unable to leverage scale to drive cost savings, productivity improvements, pre-need production or anticipated earnings growth, or if we are unable to deploy capital to maximize stockholder value, our financial performance could be affected. If we are unable to identify acquisitions and/or divestitures as planned or to realize expected synergies and strategic benefits, our financial performance could also be affected. We cannot give assurance that we will be able to execute any or all of our strategic plans. Failure to execute any or all of our strategic plans could have a material adverse effect on our financial condition, results of operations, and cash flows. Refer to “General Trends and Outlook” of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of our business strategies.

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Failure to effectively identify and manage acquisitions and divestitures could have an adverse effect on our results of operations.

We continue to evaluate acquisition opportunities that could strategically fit our business objectives. Refer to “Recent Events” of Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations for a discussion of our recently completed acquisitions. However, we may not be successful in identifying and acquiring additional cemeteries or funeral homes on terms favorable to us or at all and may face competition from other death care companies in making acquisitions. In addition, if we complete acquisitions, we may encounter various associated risks, including:

These risks could have a material adverse effect on our operations and financial performance. Moreover, if we acquire cemeteries that do not have an existing pre-need sales program or a significant amount of pre-need products and services that have been sold but not yet purchased or performed, the operation of the cemetery and implementation of a pre-need sales program after acquisition may require significant amounts of working capital. Additionally, we could incur impairment losses on goodwill and intangible assets with an indefinite life or restructuring charges as a result of acquisitions we make.

In addition, during 2021 and 2020, we completed several divestitures as part of an asset sale program designed to divest assets at attractive multiples, reduce debt levels and improve cash flow and liquidity. However, we may not be successful in identifying additional divestiture opportunities on terms acceptable to us and the gains or losses on the divestiture of, or lost operating income from, such assets may affect our earnings. For the year ended December 31, 2021, our Loss from continuing operations before income taxes included a Loss on sale of business and other impairments of $2.3 million.

If our execution and implementation of acquisitions and divestitures is unsuccessful, our financial condition, results of operations and cash flow could be adversely affected. We may also incur asset impairment charges related to divestitures or acquisitions that would reduce our earnings.

RISKS RELATED TO TRUST FUNDS

Our merchandise and perpetual care trust funds own investments in equity securities, fixed income securities, mutual funds and master limited partnerships, which are affected by financial market conditions that are beyond our control.

Pursuant to state law, a portion of the proceeds from pre-need sales of merchandise and services is put into merchandise trusts until such time that we meet the requirements for releasing trust principal, which is generally delivery of merchandise or performance of services. In addition, the 2029 Indenture also provides certain limitations on how the assets in the merchandise trusts may be invested. Generally, a majority of the investment earnings generated by the assets in the merchandise trusts, including realized gains and losses, are deferred until the associated merchandise is delivered or the services are performed.

Also, pursuant to state law, a portion of the proceeds from the sale of cemetery property is required to be paid into perpetual care trusts. The perpetual care trust principal does not belong to us and must remain in this trust in perpetuity while interest and dividends may be released and used to defray cemetery maintenance costs.

These trust assets are managed by a trustee, which is advised by Cornerstone, our registered investment adviser subsidiary, all under the oversight of the Trust and Compliance Committee of our Board. Cornerstone has engaged three sub-advisers, including Axar, to assist Cornerstone in providing investment recommendations with respect to certain trust assets, on a non-discretionary basis. There is no guarantee that the trustee will achieve its objectives and deliver adequate returns, and the trustee’s investment choices may result in losses. In addition, our returns on these investments are affected by financial market conditions that are beyond our control. If the investments in our trust funds experience significant declines, there could be insufficient funds in the

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trusts to cover the costs of delivering services and merchandise. Pursuant to state law, we may be required to cover any such shortfall in merchandise trusts with cash flows from operations, which could have a material adverse effect on our financial condition, results of operations or cash flows. A substantial portion of our revenue is generated from investment returns that we realize from merchandise and perpetual care trusts. Unstable economic conditions have, at times, caused us to experience declines in the fair value of the assets held in these trusts. Moreover, future cash flows could be negatively impacted if we are forced to liquidate any such investments that are in an impaired position.

If the fair market value of these trusts, plus any other amount due to us upon delivery of the associated contracts, were to decline below the estimated costs to deliver the underlying products and services, we would be required to record a charge to earnings to record a liability for the expected losses on the delivery of the associated contracts.

For more information related to our trust investments, see Note 6 Merchandise Trusts and Note 7 Perpetual Care Trusts to our consolidated financial statements in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report.

We may be required to replenish our funeral and cemetery trust funds in order to meet minimum funding requirements, which would have a negative effect on our earnings and cash flow.

In certain states, we have withdrawn allowable distributable earnings from our merchandise trusts, including gains prior to the maturity or cancellation of the related contract. Additionally, some states have laws that either require replenishment of investment losses under certain circumstances or impose various restrictions on withdrawals of future earnings when trust fund values drop below certain prescribed amounts. In the event of realized losses or market declines, we may be required to deposit portions or all of these amounts into the respective trusts in some future period. As of December 31, 2021, we had unrealized losses of approximately $0.5 million in the various trusts within these states, of which $0.4 million were in merchandise trust accounts and $0.1 million were in perpetual care trust accounts. To date, we have not been required to make such deposits; however one state has restricted us from withdrawing otherwise distributable earnings from the perpetual care trust until the accounts recover from losses.

Any reductions in the earnings of the investments held in merchandise and perpetual care trusts could adversely affect our revenues and cash flow.

We invest our trust assets primarily for generation of realized income. We rely on the earnings, interest and dividends paid by the assets in our trusts to provide both revenue and cash flow. Interest income from fixed-income securities is particularly susceptible to changes in interest rates and declines in credit worthiness while dividends from equity securities are susceptible to the issuer’s ability to make such payments. Declines in earnings from perpetual care trust funds would cause a decline in current revenue, while declines in earnings from other trust funds could cause a decline in future cash flows and revenue.

COMPETITIVE AND MARKET RISKS IN THE DEATHCARE INDUSTRY

The cemetery and funeral home industry continues to be competitive, and if we are not able to respond effectively to changing consumer preferences, our market share, revenues and profitability could decrease.

Our ability to compete successfully depends on our management’s forward vision, timely responses to changes in the business environment and the ability of our cemeteries and funeral homes to maintain a good reputation and high professional standards as well as offer products and services at competitive prices. If we are unable to compete successfully, our financial condition, results of operations and cash flows could be materially adversely affected.

We experience price competition from independent funeral service location and cemetery operators, monument dealers, casket retailers, low-cost funeral providers and other nontraditional providers of merchandise and services. New market entrants tend to attempt to build market share by offering lower cost alternatives. In the past, this price competition has resulted in our losing market share in some markets. In other markets, we have had to reduce prices or offer discounts, thereby reducing profit margins in order to retain or recapture market share. Independent competitors tend to be aggressive in distinguishing themselves by their independent ownership, and they promote their independence through television, radio and print advertising, direct mailings and personal contact. Increasing pressures from new market entrants and continued advertising and marketing by competitors in local markets could cause us to lose market share and revenue. In addition, competitors may change the types or mix of products or services offered. These changes may attract customers, causing us to lose market share and revenue as well as to incur costs in response to this competition. Increased use of the internet by customers to research and/or purchase products and services could also have an adverse impact upon our sales and financial results.

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Future market share, revenues and profits will depend in part on our ability to anticipate, identify and respond to changing consumer preferences ahead of and/or better than our competitors. In addition, any strategies we may implement to address these trends may prove incorrect or ineffective.

If the trend toward cremation in the U.S. continues, our revenues may decline, which could have an adverse effect on our business and financial condition.

We and other deathcare companies that focus on traditional methods of interment face competition from the increasing number of cremations in the U.S. Industry statistics compiled by the Cremation Association of North America indicate that the percentage of cremations has steadily increased. In 2020, the U.S. cremation rate was 56.1%, with an annual growth rate per year over 2015 to 2020 of 1.5%. The cremation rate is projected to increase to 65.2% by 2025 and 72.8% by 2030. Because the products and services associated with cremations, such as niches and urns, produce lower revenues than the products and services associated with traditional interments, a continuing trend toward cremation may reduce our revenues. For the years ended December 31, 2021 and 2020, sales related to cremations represented approximately 5.8% and 7.1%, respectively, of our consolidated revenues.

Declines in the number of deaths in our markets can cause a decrease in revenues.

Declines in the number of deaths could cause at-need sales of cemetery and funeral home merchandise and services to decline and could cause a decline in the number of pre-need sales, both of which could decrease revenues. Changes in the number of deaths can vary among local markets and from quarter to quarter, and variations in the number of deaths in our markets or from quarter to quarter are not predictable. Generally, the number of deaths may fluctuate depending on weather conditions and illness.

Risks associated with our supply chain could materially adversely affect our financial performance.

We are dependent on our supply chain to supply merchandise to our cemetery and funeral home locations. If our fulfillment network does not operate properly, if a supplier fails to deliver on its commitments, or if delivery networks have difficulty providing capacity to meet demands for their services, we could experience merchandise delivery delays or increased delivery costs, which could lead to lost sales and decreased customer confidence and adversely affect our results of operations. Changes in the costs of procuring commodities used in our merchandise or the costs related to our supply chain, due to inflation or other matters, could adversely affect our results of operations.

Regulation and compliance could have a material adverse impact on our financial results.

Our operations are subject to regulation, supervision and licensing under numerous federal, state and local laws, ordinances and regulations, including extensive regulations concerning trusts/escrows, pre-need sales, cemetery ownership, funeral home ownership, marketing practices, crematories, environmental matters and various other aspects of our business. For example, the funeral industry is regulated at the federal level by the FTC, which requires funeral service locations to take actions designed to protect consumers. Our facilities are also subject to stringent health, safety, and environmental regulations. Our pay practices, including wage and hour overtime pay, are also subject to federal and state regulations. Violations of applicable laws could result in fines or sanctions against us. We may experience significant increases in costs as a result of business regulations and laws, which are beyond our control, including increases in the cost of health care. Although we seek to control increases in these costs, continued upward pressure on costs could reduce the profitability of our business.

State laws impose licensing requirements and regulate pre-need sales. As such, we are subject to state trust fund and pre-need sales practice audits, which could result in audit adjustments as a result of non-compliance. In addition, we assume the liability for any audit adjustments for our acquired businesses for periods under audit prior to our ownership of these acquired businesses. These audit adjustments could have a material adverse impact on our financial condition, results of operations and cash flow.

In addition, from time to time, governments and agencies propose to amend or add regulations or reinterpret existing regulations, which could increase costs and decrease cash flows. For example, foreign, federal, state, local, and other regulatory agencies have considered and may enact additional legislation or regulations that could affect the deathcare industry. These include regulations that require more liberal refund and cancellation policies for pre-need sales of products and services, limit or eliminate our ability to use surety bonding, require the escheatment of trust funds, increase trust requirements, require the deposit of funds or collateral to offset unrealized losses of trusts, and/or prohibit the common ownership of funeral service locations and cemeteries in the same market. If adopted by the regulatory authorities of the jurisdictions in which we operate, these and other possible proposals could have a material adverse effect on our financial condition, results of operations, and cash flows.

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Compliance with laws, regulations, industry standards, and customs concerning burial procedures and the handling and care of human remains is critical to the continued success of our business. We continually monitor and review our operations in an effort to ensure that we take the right actions necessary to remaining in compliance with these laws, regulations and standards. However, litigation and regulatory proceedings regarding these issues could have a material adverse effect on our financial condition, results of operations and cash flow.

For additional information regarding the regulation of the funeral and cemetery industry, see Part I, Item 1. Business, Regulation of this Annual Report.

RISKS RELATED TO OUR COMMON STOCK

Axar holds a majority of the voting power of our common stock.

Axar beneficially owns approximately 74.9% of our outstanding common stock and as a result, has the ability, subject to certain restrictions in a voting agreement, to elect all of the members of our Board of Directors. In addition, subject to certain restrictions in that voting agreement, it will be able to determine the outcome of all other matters requiring stockholder approval, including certain mergers and other material transactions, and will be able to cause or prevent a change in the composition of our Board of Directors or a change in control of our Company that could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our Company. So long as Axar continues to own a significant amount of our outstanding shares, even if such amount is less than 50%, it will continue to be able to strongly influence all matters requiring stockholder approval, regardless of whether or not other stockholders believe that the transaction is in their own best interests. Axar’s ownership interest also makes us a “controlled company” within the meaning of the New York Stock Exchange (the “NYSE”) listing standards. Our Corporate Governance Guidelines, consistent with the listing standards applicable to companies that are not controlled companies, require that a majority of our directors and all of the members of our Compensation, Nominating and Governance Committee be independent within the meaning of those standards. However, we can amend our Corporate Governance Guidelines in our Board’s discretion, and as a controlled company, we are not subject to the requirement that a majority of our directors and all of the members of our Compensation, Nominating and Governance Committee be independent.

We do not expect to pay dividends on our common stock for the foreseeable future.

The 2029 Indenture governing our 2029 Notes prohibits us from paying any dividends with limited exceptions.

GENERAL RISKS

A number of years may elapse before particular tax matters, for which we have established accruals, are audited and finally resolved.

We are subject to federal income tax laws and state tax laws. The number of tax years open to audit varies depending on the tax jurisdiction. The federal statutes of limitations have expired for all tax years prior to 2016, and we are not currently under audit by the Internal Revenue Service (“IRS”). Various state jurisdictions are conducting sales tax audits from years 2015 to 2019 and escheat audits from year 2005 to present day. While it is often difficult to predict the final outcome or the timing of resolution of any particular tax matter, we believe that our accruals reflect the probable outcome of known tax contingencies. However, unfavorable settlement of any particular issue may reduce a deferred tax asset or require the use of cash, which may have a material adverse impact to our financial statements. Favorable resolution could result in reduced income tax expense reported in the financial statements in the future. For further details, see Part II, Item 8. Financial Statements and Supplementary Data, Note 12 Income Taxes of this Annual Report.

Changes in taxation as well as the inherent difficulty in quantifying potential tax effects of business decisions could have a material adverse effect on the results of our operations, financial condition, or cash flows.

We make judgments regarding the utilization of existing income tax credits and the potential tax effects of various financial transactions and results of operations to estimate our obligations to taxing authorities. Tax obligations include income, franchise, real estate, sales and use and employment-related taxes. These judgments include reserves for potential adverse outcomes regarding tax positions that have been taken. Changes in federal, state, or local tax laws, adverse tax audit results, or adverse tax rulings on positions taken could have a material adverse effect on the results of our operations, financial condition or cash flow.

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ITEM 1B. UNRESOLVED STAFF COMMENTS

Not applicable.

ITEM 2. PROPERTIES

CEMETERIES AND FUNERAL HOMES

The following table summarizes the distribution of our cemetery and funeral home properties by state as of December 31, 2021 as well as the average estimated remaining sales life in years for our cemeteries based upon the number of interment spaces sold during the most recent three years:

We calculated estimated remaining sales life for each of our cemeteries by dividing the number of unsold interment spaces as of December 31, 2021 by the average number of interment spaces sold at that cemetery in the three most recent fiscal years. For purposes of estimating remaining sales life, we defined unsold interment spaces as unsold burial lots and unsold spaces in existing mausoleum crypts as of December 31, 2021. We defined interment spaces sold in the three most recent fiscal years as:

We count the sale of a double-depth burial lot as the sale of two interment spaces since a double-depth burial lot includes two interment rights. For the same reason we count an unsold double-depth burial lot as two unsold interment spaces. Because our sales of cremation niches were immaterial, we did not include cremation niches in the calculation of estimated remaining sales life. When calculating estimated remaining sales life, we did not take into account any future cemetery expansion. In addition,

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sales of an unusually high or low number of interment spaces in a particular year affect our calculation of estimated remaining sales life. Future sales may differ from previous years’ sales, and actual remaining sales life may differ from our estimates. We calculated the average estimated remaining sales life by aggregating unsold interment spaces and interment spaces sold on a state-by-state or company-wide basis. Based on the average number of interment spaces sold in the last three fiscal years, we estimate that our cemeteries have an aggregate average remaining sales life of 282 years.

The following table shows the cemetery properties that we owned or operated as of December 31, 2021, grouped by estimated remaining sales life:

We believe that we have either satisfactory title to or valid rights to use all of our cemetery properties. The 29 cemetery properties that we manage or operate under long-term lease, operating or management agreements have nonprofit owners. We believe that these cemeteries have either satisfactory title to or valid rights to use these cemetery properties and that we have valid rights to use these properties under the long-term agreements. Although title to the cemetery properties is subject to encumbrances, such as liens for taxes, encumbrances securing payment obligations, easements, restrictions and immaterial encumbrances, we do not believe that any of these burdens should materially detract from the value of these properties or from our interest in these properties nor should these burdens materially interfere with the use of our cemetery properties in the operation of our business as described above. Many of our cemetery properties are located in zoned regions, and we believe that cemetery use is permitted for those cemeteries: (i) as expressly permitted under applicable zoning ordinances; (ii) through a special exception to applicable zoning designations; or (iii) as an existing non-conforming use.

OTHER

In November 2020, we terminated the lease of our 57,000 square foot corporate office in Trevose, PA. Simultaneously, we executed a new lease of approximately 16,000 square feet for a new corporate office in Bensalem PA, with a new landlord for an eight year term commencing April 1, 2021. In the interim, the new landlord provided a temporary office space at the same location of approximately 5,500 square feet to use during the buildout of the new office space.

We are also tenants under various leases covering office spaces other than our corporate headquarters.

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ITEM 3. LEGAL PROCEEDINGS

For information regarding our significant pending administrative and judicial proceedings involving regulatory, operating, transactional, environmental, and other matters, see Part II, Item 8. Financial Statements and Supplementary Data—Notes to the Consolidated Financial Statements—Note 14 Commitments and Contingencies.

We and certain of our subsidiaries are parties to legal proceedings that have arisen in the ordinary course of business. We do not expect such matters to have a material adverse effect on our consolidated financial position, results of operations or cash flows. We carry insurance with coverage and coverage limits that we believe to be customary in the cemetery and funeral home industry. Although there can be no assurance that such insurance will be sufficient to protect us against such contingencies, we believe that our insurance protection is reasonable in view of the nature and scope of our operations.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock is listed on the NYSE under the symbol “STON”.

HOLDERS

As of March 23, 2022, there were approximately 10,990 holders of record of our common stock.

EQUITY COMPENSATION PLAN

For equity compensation plan information, see Part III, Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters of this Annual Report.

PERFORMANCE GRAPH

As a smaller reporting company, we have elected not to provide the performance graph otherwise required by this Item.

ISSUER PURCHASES OF EQUITY SECURITIES

ITEM 6. [RESERVED]

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Management’s discussion and analysis presented below provides information to assist in understanding the Company’s financial condition and results of operations and should be read in conjunction with the Company’s consolidated financial statements included in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report.

Certain statements contained in this Annual Report, including, but not limited to, information regarding our operating activities, the plans and objectives of our management and assumptions regarding our future performance and plans are forward-looking statements. When used in this Annual Report, the words “believes,” “anticipates,” “expects” and similar expressions are intended to identify forward-looking statements. Forward-looking statements are based on management’s expectations and estimates. These statements are neither promises nor guarantees and are made subject to certain risks and uncertainties that could cause actual results to differ materially from the results stated or implied in this Annual Report. We believe the assumptions underlying the consolidated financial statements are reasonable.

Our risks and uncertainties are more particularly described in Part I, Item 1A. Risk Factors of this Annual Report. You should not place undue reliance on forward-looking statements included in this Annual Report, which speak only as of the date the statements were made. Except as required by applicable laws, we undertake no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

BUSINESS OVERVIEW

We are one of the leading providers of funeral and cemetery products and services in the death care industry in the United States (“U.S.”). As of December 31, 2021, we operated 300 cemeteries in 24 states and Puerto Rico, of which 271 were owned and 29 were operated under leases, operating agreements or management agreements. We also owned, operated or managed 69 funeral homes in 15 states and Puerto Rico.

Our revenue is derived from our Cemetery Operations and Funeral Home Operations segments. Our Cemetery Operations segment principally generates revenue from sales of interment rights, cemetery merchandise, which includes markers, bases, vaults, caskets and cremation niches and our cemetery services, which include opening and closing (“O&C”) services, cremation services and fees for the installation of cemetery merchandise. Our Funeral Home Operations segment principally generates revenue from sales of funeral home merchandise, which includes caskets and other funeral related items and service revenues, which include services such as family consultation, the removal of and preparation of remains and the use of funeral home facilities for visitation and prayer services. These sales occur both at the time of death, which we refer to as at-need, and prior to the time of death, which we refer to as pre-need. Our Funeral Home Operations segment also include revenues related to the sale of term and whole life insurance on an agency basis, in which we earn a commission from the sales of these insurance policies.

The pre-need sales enhance our financial position by providing a backlog of future revenue from both trust and insurance-funded pre-need funeral and cemetery sales. We believe pre-need sales add to the stability and predictability of our revenues and cash flows. Pre-need sales are typically sold on an installment plan. While revenue on the majority of pre-need funeral sales is deferred until the time of need, sales of pre-need cemetery property interment rights provide opportunities for full current revenue recognition when the property is available for use by the customer.

We also earn investment income on certain payments received from customers on pre-need contracts, which are required by law to be deposited into the merchandise and service trusts. Amounts are withdrawn from the merchandise and service trusts when we fulfill the performance obligations. Earnings on these trust funds, which are specifically identifiable for each performance obligation, are also included in the total transaction price. For sales of interment rights, a portion of the cash proceeds received are required to be deposited into a perpetual care trust. While the principal balance of the perpetual care trust must remain in the trust in perpetuity, we recognize investment income on such assets as revenue, excluding realized gains and losses from the sale of trust assets. Pre-need contracts are subject to financing arrangements on an installment basis, with a contractual term not to exceed 60 months. Interest income is recognized utilizing the effective interest method. For those contracts that do not bear a market rate of interest, we impute such interest based upon the prime rate at the time of origination plus 150 basis points in order to segregate the principal and interest components of the total contract value.

Our revenue depends upon the demand for funeral and cemetery services and merchandise, which can be influenced by a variety of factors, some of which are beyond our control including demographic trends, such as population growth, average age, death rates and number of deaths. Our operating results and cash flows could also be influenced by our ability to remain relevant to the

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customers. We provide a variety of unique product and service offerings to meet the needs of our customers’ families. The mix of services could influence operating results, as it influences the average revenue per contract. Expense management, which includes controlling salaries, merchandise costs, corporate overhead and other expense categories, could also impact operating results and cash flows. Lastly, economic conditions, legislative and regulatory changes and tax law changes, all of which are beyond our control, could impact our operating results and cash flows.

For further discussion of our key operating metrics, see our Results of Operations and Liquidity and Capital Resources sections below.

RECENT EVENTS

The following are key events and transactions that have occurred since January 1, 2021 that were material to us and/or facilitate an understanding of our consolidated financial statements contained in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report:

The Conflicts Committee may at any time determine to resume such negotiations, but there can be no assurance that even if such negotiations are resumed, any agreement with respect to a take-private transaction will be executed or that this or any other transaction will be approved or consummated. The Company does not undertake any obligation to provide any updates with respect to these matters except as required under applicable law.

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In connection with these changes, we are now using our own equipment to service these locations and rehired the employees Moon had previously hired from us upon execution of the MSAs. These employees are providing certain burial and grounds services for us at these locations using the equipment previously leased to Moon. We are outsourcing substantially all of the landscaping and other maintenance services previously provided by Moon to other vendors who had previously been subcontractors to Moon. We do not anticipate that these changes will have any material impact on the cost of providing the services compared to the amounts that we would have paid to Moon under the MSAs.

On August 12, 2021, Moon and certain of its affiliates filed a petition under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”). On October 7, 2021, Moon and the Company entered into a summary of terms (the “Term Sheet”) pursuant to which (a) Moon would file a motion with the Bankruptcy Court to assume the MSAs, (b) the aggregate amounts due to the Company from Moon under the MSAs for periods prior to the initial bankruptcy filing (the “Pre-Petition Cure Amount”) was at least $5.1 million, (c) the aggregate amount due to the Company from Moon under the MSAs for periods after such filing were at least $572,605 (the “Post-Petition Cure Amount”), (d) payment of the Pre-Petition Cure Amount would be deferred until a later date, but not later than the effective date of any approved reorganization plan, (e) the Company was permitted to set off $42,500 from each bi-weekly payment to Moon under the MSAs as payment against the Post-Petition Cure Amount, with any unpaid balance being paid when the Pre-Petition Cure Amount was paid, (f) upon Bankruptcy Court approval of Moon’s motion to assume the MSAs, the Company would exercise its right to modify the MSAs by taking back responsibility for ground and maintenance services at an additional 53 locations but would otherwise agree not to further exercise such right for a period of 60 days after such approval absent certain breaches by Moon. On October 14, 2021, Moon filed a motion with the Bankruptcy Court seeking approval to assume the MSAs subject to the terms and conditions of the Term Sheet. After a hearing before the Bankruptcy Court on November 4, 2021, the Bankruptcy Court granted Moon’s motion to assume the MSAs, which would normally include an obligation to repay in full both the Pre-Petition Cure Amount and the Post-Petition Cure Amount as a priority claim in the bankruptcy case. However, in its order, the Bankruptcy Court reserved decision on whether the Pre-Petition Cure Amount would be entitled to such priority treatment notwithstanding the assumption of the MSAs, and all interested parties, including the Company, reserved their respective rights with respect to that decision.

Management believes the impact on the Company of Moon’s bankruptcy filing has been partially mitigated because, over a period of time, we have taken back the responsibilities under the MSAs for all of the locations managed by Moon. However, in the interim, we have continued to experience performance issues and other disruptions in operations at those locations. In addition, from time to time, on the behalf of Moon, we have incurred a higher level of expenses relating to services covered by the MSAs, including location materials and supplies, uniforms, repair of marker damage, customer refunds and payments to third party landscapers and repair shops. These additional payments, which were in addition to the payments specified in the MSAs, were recorded as cemetery operating expenses in the relevant periods and as of December 31, 2021 aggregated $6.0 million. While we have the ability to seek reimbursement from Moon for these additional payments as outlined in the MSAs, we do not expect to recover any material portion of these amounts.

On February 9, 2022, the Bankruptcy Court converted all of the Debtors’ cases (except the case for Moon Nurseries Inc. (“Moon Nurseries”)) to cases proceeding under Chapter 7 of the Bankruptcy Code, and such conversions occurred on February 11, 2022. The Bankruptcy Court found Moon Nurseries to be a “farmer,” as that term is defined within the Bankruptcy Code, and thus it could not convert that case without the Debtor’s consent. On March 9, 2022, the trustee in the Moon Nurseries case filed a motion to convert that case to a case proceeding under Chapter 7. The Bankruptcy Court granted the trustee’s motion on March 22, 2022 and entered an order on March 31, 2022 converting the Moon Nurseries case to a case proceeding under Chapter 7. In light of the conversion of these cases, we do not believe it is likely that we will be able to obtain reimbursement of the Pre-Petition Cure Amount or the Post-Petition Cure Amount in full.

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On April 2, 2021, we completed the Clearstone Sale for a net cash purchase price of $6.2 million, subject to certain adjustments. We redeemed an additional $6.7 million of principal amount of the 2024 Notes in accordance with the terms of the 2024 Indenture. The Clearstone Agreement to sell the Clearstone Assets, together with the other divestitures completed in 2020, represented a strategic exit from the West Coast. Therefore, the results of operations of the Clearstone Assets, and of the businesses sold in 2020 for the period before their respective sales, have been presented as discontinued operations on the accompanying consolidated statements of operations for the years ended December 31, 2021 and 2020. Additionally, all of the assets and liabilities associated with the Clearstone Assets have been classified as held for sale on the accompanying consolidated balance sheet at December 31, 2020.

On January 31, 2022, we acquired two cemeteries in Virginia for cash consideration of $5.1 million, pursuant to a definitive agreement signed on March 23, 2021 with Daly Seven, Inc. to acquire four cemeteries for a total purchase price of $5.4 million, subject to customary working capital adjustments. The remaining two cemeteries, which are located in North Carolina, are expected to close in the second quarter of 2022.

On March 1, 2022, the Company acquired one funeral home in Florida for a cash purchase price of $1.7 million and on March 15, 2022, the Company acquired one combination cemetery and funeral home, a separate cemetery and a separate funeral home in West Virginia for a cash purchase price of $11.3 million, in each case subject to customary working capital adjustments.

GENERAL TRENDS AND OUTLOOK

We expect our business to be affected by key trends in the deathcare industry, based upon assumptions made by us and information currently available. Deathcare industry factors affecting our financial position and results of operations include, but are not limited to, death rates, the ongoing COVID-19 Pandemic, per capita disposable income, demographic trends in terms of number of adults aged 65 and older, cremation rates and trends and e-commerce sales. The number of deaths which is related to the age structure of the population, mortality rates, disease prevalence, natural disasters, sudden accidents, suicides and other causes drives industry revenue. With the aging of the U.S. population, the number of deaths is expected to increase over the next several years.

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Cremations typically cost significantly less than traditional burial services and bring in significantly less revenue and profit for cemeteries and funeral homes. The rising demand for cremations due to cost considerations, increased mobility of the population, environmental reasons, religious considerations and changing consumer preferences present a potential threat to the cemetery services and funeral homes industries. According to the National Funeral Directors Association’s 2021 Cremation & Burial Report, in 2021, the projected burial rate is 36.6%, down from 37.5% in 2020, and the projected cremation rate is 57.5%, up from 56.0% in 2020.

Funeral homes have traditionally benefited from limited competition for industry products, such as caskets and urns; however, online retailers are beginning to encroach on this market sector by offering these products to consumers at more cost-effective prices.

In addition, we are subject to fluctuations in the fair value of equity and fixed-maturity debt securities held in our trusts. These values can be negatively impacted by contractions in the credit market and overall downturns in economic activity. Our ability to make payments on our debt depends on our success at managing operations with respect to these industry trends. To the extent our underlying assumptions about or interpretations of available information prove to be incorrect, our actual results may vary materially from our expected results.

COVID-19 Pandemic

The COVID-19 Pandemic poses a significant threat to the health and economic wellbeing of our employees, customers and vendors. Our operations are deemed essential by the state and local governments in which we operate, with the exception of Puerto Rico, and we have been working with federal, state and local government officials to ensure that we continue to satisfy their requirements for offering our essential services.

Our top priority is the health and safety of our employees and the families we serve. Since the start of the outbreak in the U.S., our Company’s senior management team has taken actions to protect our employees and the families served, and to support our field locations as they adapt and adjust to the circumstances resulting from the COVID-19 Pandemic. The operation of all of our

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facilities is critically dependent on the employees who staff these locations. To ensure the wellbeing of our employees and their families, we provided all of our employees with detailed health and safety literature on COVID-19, such as the CDC’s industry-specific guidelines for working with the deceased who were or may have been infected with COVID-19. In addition, our procurement and safety teams have consistently secured and distributed supplies to ensure that our locations have appropriate personal protective equipment (“PPE”) and cleaning supplies to provide our essential services, as well as updated and developed new safety-oriented guidelines to support daily field operations. These guidelines include reducing the number of staff present for a service and restricting the size and number of attendees. We also implemented additional safety and precautionary measures as it concerns our businesses’ day-to-day interaction with the families and communities we serve. Our corporate office employees began working from home in March 2020 consistent with CDC guidance to reduce the risks of exposure to COVID-19 while still supporting our field operations. We did not experience any significant disruptions to our business as a result of the work from home policies in our corporate office and employees have returned on a hybrid basis. We monitor the CDC guidance on a regular basis, continually review and update our processes and procedures and provide updates to our employees as needed to comply with regulatory guidelines.

Our marketing and sales team quickly responded to the sales challenges presented by the COVID-19 Pandemic by implementing virtual meeting options using a variety of web-based tools to ensure that we can continue to connect with and meet our customers’ needs in a safe, effective and productive manner. Some of our locations provide live video streaming of their funeral and burial services to our customers or providing other alternatives that respect social distancing, so that family and friends can connect during their time of grief.

Like most businesses world-wide, the COVID-19 Pandemic has impacted us financially. At the start of the COVID-19 Pandemic in early 2020, we saw our pre-need sales and at-need sales activity decline as Americans practiced social distancing and crowd size restrictions were put in place. However, since May 2020, we have experienced at-need sales growth, and since late 2020, we have experienced pre-need sales growth. We believe the implementation of our virtual meeting tools early on in the COVID-19 Pandemic was one of several key steps to mitigate this disruption. Throughout the COVID-19 Pandemic, our cemeteries and funeral homes have largely remained open and available to serve our families in all the locations in which we operate to the extent permitted by local authorities, and we expect that this will continue. We have leveraged the relationships we have made with the families we have served during our response to the COVID-19 Pandemic, which has directly resulted in new sales leads and the increase in pre-need sales activity. In addition, as community restrictions have eased and the COVID-19 vaccine became widely available, we have experienced growth in our pre-need cemetery sales, see “Results of Operations” section below.

We expect the COVID-19 Pandemic could have an adverse effect on our future results of operations and cash flows depending on COVID-19 variants and case counts. However we cannot presently predict, with certainty, the scope and severity of that impact. In the event there are confirmed diagnoses of COVID-19 within a significant number of our facilities, we may incur additional costs related to the closing and subsequent cleaning of these facilities and the ability to adequately staff the impacted sites. In addition, our pre-need customers with installment contracts could default on their installment contracts due to lost work or other financial stresses arising from the COVID-19 Pandemic. Alternatively, in the event that COVID-19 case counts continue to normalize and variants become less severe, we would expect to see a reduction in the demand for at-need products and services as well as a reduction in pre-need turning to at-need.

Business Strategies

Our management identified key areas of strategic improvement as part of its turnaround strategy in 2018, which has allowed us to realize upside in our operational and financial performance. We believe that the implementation of these key strategic initiatives allowed us to succeed during the tumultuous environment associated with the COVID-19 Pandemic. The key pillars of the turnaround strategy included:

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We are poised to execute on a targeted, long-term growth strategy to reduce leverage and increase the sustainability of our operations. We have identified the following pathway to additional growth:

RESULTS OF OPERATIONS

We have two distinct reportable segments, Cemetery Operations and Funeral Home Operations, which are supported by corporate costs and expenses.

Cemetery Operations

Overview

We are currently one of the largest owners and operators of cemeteries in the United States of America. As of December 31, 2021, we operated 300 cemeteries in 24 states and Puerto Rico. We own 271 of these cemeteries, and we manage or operate the remaining 29 under leases, operating agreements or management agreements. Revenues from our Cemetery Operations segment accounted for approximately 86% and 85% of our consolidated revenues during the years ended December 31, 2021 and 2020, respectively.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table presents operating results for our Cemetery Operations segment for the years ended December 31, 2021 and 2020 (in thousands):

Cemetery interments revenues were $85.7 million for the year ended December 31, 2021, an increase of $17.9 million and 26% from $67.9 million for the year ended December 31, 2020. The increase in cemetery interments revenues resulted from an increase in pre-need revenues of $15.9 million due to improved productivity of the salesforce and an increase in at-need revenues of $2.7 million primarily related to increases in death rates associated with the COVID-19 Pandemic and the aging Baby Boomer generation, offset by an increase in cancellations and promotional discounts of $0.7 million.

Cemetery merchandise revenues were $68.1 million for the year ended December 31, 2021, an increase of $7.5 million and 12% from $60.6 million for the year ended December 31, 2020. The increase in cemetery merchandise revenues resulted from an increase of $5.2 million in at-need revenues and an increase in pre-need turning at-need revenues of $2.4 million, both of which were positively impacted by increased burial and death rates associated, in part, with the COVID-19 Pandemic, offset by an increase in cancellations and promotional discounts of $0.1 million.

Cemetery services revenues were $70.3 million for the year ended December 31, 2021, an increase of $4.6 million and 7% from $65.7 million for the year ended December 31, 2020. The increase in cemetery services revenues resulted from an increase of $2.8 million in at-need revenues and an increase in pre-need turning at-need revenues of $1.9 million, both of which were positively impacted by the increased burial and death rates associated, in part, with the COVID-19 Pandemic, offset by an increase of $0.1 million associated with cancellations and promotional discounts.

Investment and other income was $46.4 million for the year ended December 31, 2021, an increase of $10.4 million and 29% from $36.0 million for the year ended December 31, 2020. The increase was driven by increases in investment income associated with the merchandise trust and the perpetual care trust of $4.6 million and $3.2 million, respectively. Additionally, there was an increase of $2.2 million in RIA fees earned and a $0.4 million increase in other revenues.

Cost of goods sold was $51.7 million for the year ended December 31, 2021, an increase of $11.6 million and 29% from $40.1 million for the year ended December 31, 2020. The increase was primarily the result of increased revenue recognized, the rising costs of vaults and markers associated with supply chain constraints and a result of casket inventory impairment of $1.8 million. Cost of goods sold, as a percentage of cemetery interments, merchandise and services revenues, increased to 23.1% for the year ended December 31, 2021 compared to 20.7% for the year ended December 31, 2020.

Cemetery expenses, which include maintenance and landscaping costs as well as certain facility related expenses, were $76.5 million for the year ended December 31, 2021, an increase of $7.8 million and 11% from $68.7 million for the year ended December 31, 2020. The increase was driven by an increase of $2.9 million in repairs and maintenance expenditures, representing strategic re-investment into the cemetery properties. The remaining increase of $4.9 million was primarily related to additional costs associated with the transition of cemetery maintenance back from Moon, including costs related to subcontracted landscapers and third-party interment companies, rental equipment and marker repairs, all driven by the under-performance of Moon.

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Selling expenses were $59.0 million for the year ended December 31, 2021, an increase of $9.3 million and 19% from $49.7 million for the year ended December 31, 2020. An increase of $2.4 million was related to strategic targeted advertising spend utilized to drive revenue and sales production growth, and the remaining increase of $6.9 million was primarily related to increases in cemetery revenues. Selling expenses as a percentage of cemetery interments, merchandise and services revenues increased to 26.3% for the year ended December 31, 2021, compared to 25.6% for the year ended December 31, 2020.

General and administrative expenses were $42.0 million for the year ended December 31, 2021, an increase of $4.0 million and 11% from $38.0 million for the year ended December 31, 2020. The increase was primarily the result of a $1.8 million increase in insurance costs, a $1.2 million increase in payroll and related costs, primarily associated with enhanced bonus programs for general managers and regional administration, a $0.5 million increase in credit card processing fees associated with increased revenues and a $1.1 million increase in other miscellaneous expenses. Those increases were offset by a $0.6 million decrease in spend associated with one-time purchases of personal protective equipment in 2020.

Depreciation and amortization expenses were $6.0 million for the year ended December 31, 2021, a decrease of $0.5 million and 7% from $6.5 million for the year ended December 31, 2020. The change was due to routine depreciation and amortization of the associated asset base.

Funeral Home Operations

Overview

As of December 31, 2021, we owned, operated or managed 69 funeral homes located in 15 states and Puerto Rico. Revenues from Funeral Home Operations accounted for approximately 14% and 15% of our consolidated revenues during the years ended December 31, 2021 and 2020, respectively.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

The following table presents operating results for our Funeral Home Operations for the years ended December 31, 2021 and 2020 (in thousands):

Funeral home merchandise revenues were $22.9 million for the year ended December 31, 2021, an increase of $1.3 million and 6% from $21.6 million for the year ended December 31, 2020. The increase resulted from a $1.4 million increase in at-need revenues offset by a $0.1 million decrease in pre-need turned at-need revenue.

Funeral home services revenues were $20.9 million for the year ended December 31, 2021, an increase of $0.9 million and 5% from $20.0 million for the year ended December 31, 2020. The increase was associated primarily with a $0.5 million increase in income recognized on merchandise trust, a $0.1 million increase in at-need revenues, a $0.1 million increase in pre-need turned at-need revenues and a $0.2 million increase in other funeral home revenues.

Funeral home total expenses were $40.2 million for the year ended December 31, 2021, an increase of $3.6 million and 10% from $36.6 million for the year ended December 31, 2020. Funeral home service costs increased $1.2 million or 7%, driven largely by enhanced compensation plans for general managers and funeral sales teams, along with increased overtime costs and contract removal costs as death rates grew. Additionally, other funeral costs increased $2.1 million, which included a $0.4 million increase in insurance costs, a $0.3 million increase in repairs and maintenance associated with strategic investment into our funeral homes and a $1.4 million increase in other facility related expenditures, such as utilities, supplies and landscaping.

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Corporate

Operating Results

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Corporate Overhead

Corporate overhead expense was $39.9 million for the year ended December 31, 2021, an increase of $4.0 million and 11% from $36.0 million for the year ended December 31, 2020. The change was due to the following:

Loss on Sale of Business and Other Impairments

For the year ended December 31, 2021, we recorded a loss of $2.3 million which consisted of a loss of $1.8 million in connection with the Missouri Sale in May 2021 and an impairment of $0.5 million related to property and equipment held for sale. For the year ended December 31, 2020, there were no such transactions.

Other (Losses) Gains, Net

Other losses, net were $1.0 million for the year ended December 31, 2021, compared to other gains, net of $0.1 million for the year ended December 31, 2020. Other losses, net for the year ended December 31, 2021 primarily consisted of a $0.5 million impairment related to the termination of a management agreement and a $0.5 million impairment of vaults.

Interest Expense

Interest expense was $39.0 million for the year ended December 31, 2021, a decrease of $6.6 million and 14% from $45.5 million for the year ended December 31, 2020. The change was due to a decrease of $5.1 million related to a lower interest rate on the 2029 Notes and a decrease of $1.5 million due to lower amortization of deferred financing fees.

Loss on Debt Extinguishment

For the year ended December 31, 2021, we recorded a loss of $40.1 million related to the full redemption of the 2024 Notes, which was comprised of an early redemption fee of $18.5 million and the write-off of deferred financing fees and original issue discount of $21.6 million. For the year ended December 31, 2020, there was no loss on debt extinguishment.

Income Tax Benefit

Income tax benefit was $18.4 million for the year ended December 31, 2021 compared to $4.9 million for the year ended December 31, 2020. The income tax benefit for the year ended December 31, 2021 was primarily related to tax benefits realized due to the loss from operations and the 2021 debt refinancing transaction. The income tax benefit for the year ended December 31, 2020 was primarily related to changes in projected federal deferred tax savings related to filing a consolidated federal return.

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LIQUIDITY AND CAPITAL RESOURCES

General

Our primary sources of liquidity are cash generated from operations, proceeds from asset sales and the remaining proceeds from the sale of the 2029 Notes. In addition, we anticipate entering into a $40 million senior secured revolving credit facility in the second quarter of 2022 to provide additional liquidity. Our primary cash requirements, in addition to normal operating expenses, are for capital expenditures, net contributions to the merchandise and perpetual care trust funds, debt service and acquisitions. Amounts contributed to the merchandise trust funds will be withdrawn at the time of the delivery of the product or service sold to which the contribution related, which will reduce the amount of additional borrowings or asset sales needed.

While we rely heavily on our available cash and cash flows from operating activities to execute our operational strategy and meet our financial commitments and other short-term financial needs, we cannot be certain that sufficient capital will be generated through operations or be available to us to the extent required and on acceptable terms. Based on our forecasted operating performance and the issuance of the 2029 Notes and the redemption of the 2024 Notes, we believe that we will be able to continue as a going concern for the next twelve-month period.