Allowance for Doubtful Accounts

3 Months Ended

Mar. 31, 2024

Note 5—Allowance for Doubtful Accounts

In making the Company’s credit evaluations, management considers the general collection risk associated with trends in the long-term care industry. The Company establishes credit limits through payment terms with customers, performs ongoing credit evaluations and monitors accounts on an aging schedule basis to minimize the risk of loss. Despite the Company’s efforts to minimize credit risk exposure, customers could be adversely affected if future industry trends, including those related to COVID-19, change in such a manner as to negatively impact their cash flows. As a result, the Company’s future collection experience could differ significantly from historical collection trends. If the Company’s customers experience a negative impact on their cash flows, it could have a material adverse effect on the Company’s results of operations and financial condition.

The Company evaluates its accounts and notes receivable for expected credit losses quarterly. Accounts receivable are evaluated based on internally developed credit quality indicators derived from the aging of receivables. Notes receivable are evaluated based on internally developed credit quality indicators derived from Management’s assessment of collection risk. At the end of each period, the Company sets a reserve for expected credit losses on standard accounts and notes receivable based on the Company’s historical loss rates. Accounts and notes receivable with an elevated risk profile, which are from customers who have filed bankruptcy or are subject to collections activity, are aggregated and evaluated to determine the total reserve for the class of receivable. Additionally, for notes receivable, management evaluates standard receivables based on whether the customer is current (paying within 60 days of terms) or delinquent (paying outside of 60 days of terms). As of March 31, 2024, the delinquent notes receivable loss pool includes the balance of notes receivable due from Genesis.

ASC 326 permits entities to make an accounting policy election not to measure an estimate for credit losses on accrued interest if those entities write-off accrued interest deemed uncollectible in a timely manner. The Company follows an income recognition policy on all interest earned on notes receivable. Under such policy the Company accounts for all notes receivable on a non-accrual basis and defers the recognition of any interest income until receipt of cash payments. This policy was established based on the Company’s history of collections of interest on outstanding notes receivable, as we do not deem it probable that we will receive substantially all interest on outstanding notes receivable. Accordingly, the Company does not record a credit loss adjustment for accrued interest. Interest income from notes receivable for the three months ended March 31, 2024 and 2023 was $1.1 million and $0.6 million, respectively.

The following table presents the Company’s three tiers of notes receivable further disaggregated by year of origination as of March 31, 2024 and write-off activity for the three months ended March 31, 2024.


	Notes receivable
	Amortized cost basis by origination year
	2024		2023		2022		2021		2020		Prior		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	3,732	$	10,759	$	21,828	$	—	$	—	$	—	$	36,319
Delinquent notes receivable	$	—	$	5,700	$	1,946	$	855	$	1,529	$	21,057	$	31,087
Elevated risk notes receivable	$	—	$	—	$	—	$	7,322	$	—	$	—	$	7,322

Current-period gross write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Current-period recoveries	—		—		—		—		—		—		—
Current-period net write-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—

The following table provides information as to the status of payment on the Company’s notes receivable which were past due as of March 31, 2024.


	Age analysis of past-due notes receivable as of March 31, 2024
	0 - 90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	519	$	—	$	—	$	519
Delinquent notes receivable	$	1,274	$	4,677	$	11,473	$	17,424
Elevated risk notes receivable	$	569	$	569	$	1,518	$	2,656
	$	2,362	$	5,246	$	12,991	$	20,599

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the three months ended March 31, 2024 and 2023. Delinquent notes receivable were not considered a separate portfolio segment at December 31, 2023. The amount presented in the table below for the allowance for doubtful accounts for delinquent notes receivable was included within the standard notes receivable portfolio at December 31, 2023.


	Allowance for doubtful accounts
Portfolio Segment:	December 31, 20231		Write-Offs2		Bad Debt Expense		March 31, 2024
	(in thousands)
Accounts receivable	$	80,819	$	(1,033)	$	4,301	$	84,087

Notes receivable
Standard notes receivable	$	3,510	$	—	$	(463)	$	3,047
Delinquent notes receivable	2,615		—		1,083		3,698
Elevated risk notes receivable	4,755		—		—		4,755
Total notes receivable	$	10,880	$	—	$	620	$	11,500
Total accounts and notes receivable	$	91,699	$	(1,033)	$	4,921	$	95,587

1.The December 31, 2023 balance includes transfers of $2.6 million from the standard notes receivable portfolio segment to the delinquent notes receivable portfolio segment.

2.Write-offs are shown net of recoveries. During the three months ended March 31, 2024, the Company collected less than $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio segment:	December 31, 2022		Write-Offs1		Bad Debt Expense		March 31, 2023
	(in thousands)
Accounts receivable	$	66,601	$	(3,453)	$	5,259	$	68,407

Notes receivable
Standard notes receivable	$	6,052	$	—	$	373	$	6,425
Elevated risk notes receivable	811		(51)		1,275		2,035
Total notes receivable	$	6,863	$	(51)	$	1,648	$	8,460
Total accounts and notes receivable	$	73,464	$	(3,504)	$	6,907	$	76,867

1.Write-offs are shown net of recoveries. During the three months ended March 31, 2023, the Company collected less than $0.1 million of accounts and notes receivable which had previously been written-off as uncollectible.