Allowance for Doubtful Accounts

9 Months Ended

Sep. 30, 2023

Note 4—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 can 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. The Company manages the accounts and notes receivable portfolios using a two-tiered approach by disaggregating standard receivables, which are invoices or promissory notes in good standing, from those who have been identified by Management as having an elevated credit risk profile due to a triggering event such as bankruptcy. 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, are subject to collections activity or are slow payers that are experiencing financial difficulties, are aggregated and evaluated to determine the total reserve for the class of receivable.

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 September 30, 2023 and 2022 was $0.7 million and $0.2 million, respectively. Interest income from notes receivable for the nine months ended September 30, 2023 and 2022 was $2.0 million and $1.0 million, respectively.

The following table presents the Company’s two tiers of notes receivable further disaggregated by year of origination as of September 30, 2023 and write-off activity for the nine months ended September 30, 2023.


	Notes receivable
	Amortized cost basis by origination year
	2023		2022		2021		2020		2019		Prior		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	20,657	$	27,457	$	2,943	$	1,537	$	53	$	21,031	$	73,678
Elevated risk notes receivable	$	—	$	—	$	7,190	$	—	$	—	$	—	$	7,190

Current-period gross write-offs	$	—	$	189	$	—	$	—	$	—	$	2,346	$	2,535
Current-period recoveries	—		—		—		—		—		—		—
Current-period net write-offs	$	—	$	189	$	—	$	—	$	—	$	2,346	$	2,535

The following table provides information as to the status of payment on the Company’s notes receivable which were past due as of September 30, 2023.


	Age analysis of past-due notes receivable as of September 30, 2023
	0 - 90 Days		91 - 180 Days		Greater than 181 Days		Total
	(in thousands)
Notes receivable
Standard notes receivable	$	4,059	$	1,196	$	5,837	$	11,092
Elevated risk notes receivable	569		569		379		1,517
	$	4,628	$	1,765	$	6,216	$	12,609

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 September 30, 2023 and 2022.


	Allowance for doubtful accounts
Portfolio Segment:	June 30, 2023		Write-Offs1		Bad Debt Expense		September 30, 2023
	(in thousands)
Accounts receivable	$	70,420	$	(1,039)	$	9,648	$	79,029

Notes receivable
Standard notes receivable	$	7,008	$	(1,529)	$	1,208	$	6,687
Elevated risk notes receivable	2,234		(793)		3,314		4,755
Total notes receivable	$	9,242	$	(2,322)	$	4,522	$	11,442
Total accounts and notes receivable	$	79,662	$	(3,361)	$	14,170	$	90,471

1.Write-offs are shown net of recoveries. During the three months ended September 30, 2023, the Company collected less than $0.1 million of accounts and notes receivables which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio segment:	June 30, 2022		Write-Offs1		Bad Debt Expense		September 30, 2022
	(in thousands)
Accounts receivable	$	62,603	$	(5,145)	$	7,863	$	65,321

Notes receivable
Standard notes receivable	$	12,606	$	(6,718)	$	(1,545)	$	4,343
Elevated risk notes receivable	811		—		—		811
Total notes receivable	$	13,417	$	(6,718)	$	(1,545)	$	5,154
Total accounts and notes receivable	$	76,020	$	(11,863)	$	6,318	$	70,475

1.Write-offs are shown net of recoveries. During the three months ended September 30, 2022, the Company collected less than $0.1 million of accounts and notes receivables which had previously been written-off as uncollectible.

The following tables provide a summary of the changes in the Company’s allowance for doubtful accounts on a portfolio segment basis for the nine months ended September 30, 2023 and 2022.


	Allowance for doubtful accounts
Portfolio segment:	December 31, 2022		Write-Offs1		Bad Debt Expense		September 30, 2023
	(in thousands)
Accounts receivable	$	66,601	$	(12,798)	$	25,226	$	79,029

Notes receivable
Standard notes receivable	$	6,052	$	(1,689)	$	2,324	$	6,687
Elevated risk notes receivable	811		(846)		4,790		4,755
Total notes receivable	$	6,863	$	(2,535)	$	7,114	$	11,442
Total accounts and notes receivable	$	73,464	$	(15,333)	$	32,340	$	90,471

1.Write-offs are shown net of recoveries. During the nine months ended September 30, 2023, the Company collected $0.1 million of accounts and notes receivables which had previously been written-off as uncollectible.


	Allowance for doubtful accounts
Portfolio segment:	December 31, 2021		Write-Offs1		Bad Debt Expense		September 30, 2022
	(in thousands)
Accounts receivable	$	50,794	$	(11,195)	$	25,722	$	65,321

Notes receivable
Standard notes receivable	$	13,607	$	(6,773)	$	(2,491)	$	4,343
Elevated risk notes receivable	1,183		(483)		111		811
Total notes receivable	$	14,790	$	(7,256)	$	(2,380)	$	5,154
Total accounts and notes receivable	$	65,584	$	(18,451)	$	23,342	$	70,475

1.Write-offs are shown net of recoveries. During the nine months ended September 30, 2022, the Company collected $0.2 million of accounts and notes receivables which had previously been written-off as uncollectible. Adjustments include a reduction of $8.0 million of allowance for doubtful accounts which related to a customer concession granted during the nine months ended September 30, 2022.