Omega Healthcare Investors, Inc.

Good day, ladies and gentlemen, and welcome to the Omega Healthcare Investors Incorporated Second Quarter Earnings Conference Call. All lines have been placed on a listen-only mode, and the floor will be open for questions and comments following the presentation. If you should require assistance throughout the conference, please press star zero on your telephone keypad to reach a live operator. At this time, it is my pleasure to turn the floor over to your host, Michelle Reber. Ma'am, the floor is yours. I think you're on mute.

Thank you, and good morning. With me today are Omega's CEO, Taylor Pickett, COO, Dan Booth, CFO, Bob Stevenson, and Megan Kroll, Senior Vice President of Operations. Comments made during this conference call that are not historical facts may be forward-looking statements, such as statements regarding our financial projections, dividend policy, portfolio restructuring, rent payments, financial condition or prospects of our operators, contemplated acquisitions, dispositions or transitions, and our business and portfolio outlook generally. These forward-looking statements involve risks and uncertainties which may cause actual results to differ materially. Please see our press releases and our filings with the Securities and Exchange Commission, including, without limitation, our most recent report on Form 10-K, which identifies specific factors that may cause actual results or events to differ materially from those described in forward-looking statements. During the call today, we will refer to some non-GAAP financial measures, such as NAREID FFO, adjusted FFO, FAD, and EBITDA. Reconciliations of these non-GAAP measures to the most comfortable measure under generally accepted accounting principles, as well as an explanation of the usefulness of the non-GAAP measures, are available under the financial information section of our website at www.omegahealthcare.com. And in the case of NAREID FFO and adjusted FFO, in our recently issued press release, In addition, certain operator coverage and financial information that we discuss is based on data provided by our operators that has not been independently verified by Omega. I will now turn the call over to Taylor.

Thanks, Michelle. Good morning, and thank you for joining our second quarter 2023 earnings conference call. Today I will discuss our second quarter financial results and certain key operating trends. Second quarter FAT, funds available for distribution, of 70 cents per share significantly exceeded the first quarter FAT of 60 cents per share, comfortably ahead of our 67 cents per share dividend. The FAT dividend payout ratio is 96%. The large increase in FAT is primarily due to the resumption or increase in rent from cash basis operators. One operator, LaVie, paid partial rent April and full rent in May and June. which resulted in a three and a half cent increase in FAT quarter over quarter. As Dan will discuss, levy is still being restructured and we have agreed to partial rent payments of two and a half million per month for the third quarter, which will reduce FAT by three and a half cents from Q2 to Q3. When the levy restructuring is completed, we expect a significant increase in cash rents from the current agreed upon partial rent payments. In addition, during the second quarter, we issued 6.6 million shares of common stock to fund our pipeline and de-lever. These additional shares will put some modest pressure on our future FAD per share. Turning to positive operating trends. First quarter EBITDA coverage, excluding CARES Act support, continues to improve, increasing to 1.15 times versus 1.09 times in the prior quarter. This level of coverage reflects continued occupancy improvement, strong state reimbursement rates, and some moderation in the still difficult labor market. The under 1.0 times EBITDA operators represent 29.9% of total rent. We can break the 29.9% into a handful of buckets. Operators representing 6.2% of the 29.9% are sitting on extremely strong balance sheets, and therefore payment of rent should not be an issue. Operators representing 8.1% have first quarter EBITDA coverage above 1.0 times. 9.5% represents Levy. Levy's first quarter EBITDA coverage when excluding the anticipated sale or transition of 23 facilities, is also above 1.0 times. That leaves operators representing 6.1%, of which operators representing 3.5% are in active restructurings or were recently transitioned, which leaves a balance of 2.6, representing eight small operating relationships. I will now turn the call over to Bob.

Thanks, Taylor, and good morning. Turning to our financials for the second quarter. Revenue for the second quarter was $250 million before adjusting for certain non-recurring items compared to $245 million for the second quarter of 2022. The year-over-year increase is primarily the result of timing related to operator restructurings. Revenue from new investments completed in 2022 and 2023, partially offset by assets asset sales completed during that time same time frame excuse me our navy ffo for the second quarter was 155 million dollars or 63 cents per share as compared to 161 million dollars or 66 cents per share for the second quarter of 2022. our adjusted ffo was 183 million dollars or 74 cents per share for the quarter and our fad was 173 million dollars or 70 cents per share and an outline in our adjusted FFO and Fed reconciliation to net income found in our earnings release, as well as our second quarter financial supplemental posted to our website. As Taylor mentioned, the 70 cents of Fed for the second quarter was 10 cents greater than our first quarter Fed. This increase was primarily driven by incremental revenue from liquidity, the completion of workout arrangements, and timing of payments from other task basis operators. partially offset by additional weighted average shares. In the second quarter, we closed on $270 million in new investments. These second quarter new investments, the majority of which were completed in April, are expected to produce incremental contractual rent and interest, or FAD, of approximately $1.3 million in the third quarter. We have a number of operators on a cash basis for revenue recognition. including Levy, which is projected at $2.5 million per month. We will only record FAD from our cash-based operators to the extent payments are received or security deposits are applied. It's important to note that our third quarter FAD will also be impacted by the increase in the weighted average shares outstanding as we issued 6.6 million shares for proceeds of approximately $200 million in June. For every 6 million shares issued, our quarterly FAD is negatively impacted by approximately 1.5 cents per share until the cash is put back to work in new investments. In summary, consistent with the commentary provided last quarter, we still expect Q4 FAD payout ratio to approximately cover our 67-cent dividend with a path to return to a normalized payout ratio in the high 80s to low 90s in 2024. our balance sheet continues to remain strong. In the second quarter, we issued 6.6 million shares for $200 million of equity, and we also terminated our $400 million in Treasury locks, which generated $93 million of cash gained, leaving us with $350 million in cash at June 30th. On August 1st, we used the balance sheet cash to repay a $350 million bond maturity. Looking forward, based on the current capital markets, our active pipeline, and an April 1, 2024, $400 million bond maturity, we expect to continue to be opportunistic in the equity capital markets while targeting leverage in the low fives. At June 30, 99% of our $5.3 billion in debt was at fixed rates, and our net funded debt to annualize adjusted normalized EBITDA was 5.1 times. and our fixed charge coverage ratio was 4.1 times. I'll now turn the call over to Dan.

Thanks, Bob, and good morning, everyone. As of June 30, 2023, Omega had an operating asset portfolio of 893 facilities with approximately 88,000 operating vets. These facilities were spread across 66 third-party operators and located within 42 states and the United Kingdom. Trailing 12-month operator EBITDA coverage for our core portfolio as of March 31st, 2023, increased to 1.1 times versus 1.04 times for the trailing 12-month period into December 31st, 2022. During the first quarter of 2023, our operators cumulatively recorded approximately $5.8 million in federal STEMIUS funds, as compared to approximately $20 million recorded during the fourth quarter. Trailing 12-month operator EBITDAR coverage would have increased during the first quarter of 2023 to 1.02 times as compared to 0.92 times for the fourth quarter when excluding the benefit of any federal stimulus funds. EBITDA coverage for the standalone core ended March 31, 2023. For a core portfolio, it was 1.8 times, including federal stimulus, and 1.15 times, excluding the $5.8 million for federal stimulus funds. This compares favorably to the standalone fourth quarter of 1.19 times and 1.09 times with and without the $20 million in federal stimulus funds, respectively. Occupancy for our overall core portfolio has continued to recover from a low of 74.6% in January of 2022 to 79.6% as of mid-July of 2023, based on preliminary reporting from Iraq. Turning to portfolio matters. Levy, as previously mentioned, Omega and Levy are in the process of restructuring their portfolio by transitioning certain underperforming facilities, most located in the state of Florida. To date, 13 facilities have been divested. Currently, Omega is in the process of selling or releasing an additional 23 facilities, most of which are expected to be transferred throughout the fourth quarter of 2023. During the second quarter of 2023, Levine paid partial rent in April of $2.5 million and full contractual rent for May and June of $7.2 million each month. In anticipation of the future transition of 23 additional facilities, Omega has agreed to allow Levine to short pay rent by approximately 66% during the third quarter of 2023. Maplewood. In the second quarter, Maplewood short paid its contractual June and July rent by $1 million per month. We currently are working with Maplewood and the estate of Greg Smith to address these shortfalls. Based on Maplewood's latest cash flow projections, which incorporate anticipated January rate increases and improved census at the Second Avenue facility in Manhattan, Maplewood believes there is a path forward to meet its full contractual rental obligations in the first quarter of 2024. In August, we drew on a $4.8 million security deposit and will be applying the security deposit to any rental shortfalls realized in the third quarter. In addition to the aforementioned restructurings and transitions, Omega is working with several other relatively small operators on various restructurings. Turning to new investments. As previously announced, on April 14, 2023, Omega closed on a $219 million transaction, which consisted of a $114.8 million purchase lease transaction for four facilities in West Virginia and a $104.6 million in mezzanine financing. Concurrently with these acquisitions, Omega amended an existing operator's master lease to include the four facilities and an initial cash yield of 9.5% with 2.5% annual escalators. The mezzanine financing was given to the same existing operator bearing an interest rate of 12% and was part of the capital stack to purchase 13 additional facilities in West Virginia. Also, as previously announced, on May 1 of 2023, Omega purchased one additional facility in West Virginia for $13.7 million. The facility was added to an existing operator's master lease with an initial cash yield of 10% with 2.5% annual escalators. Additionally, on June 30 of 2023, Omega closed on a $10 million mezzanine loan to an existing operator The mezzanine loan bears an interest rate of 11% as a five-year term and was part of a capital stack to purchase 12 facilities in Pennsylvania. Omega closed on a total of $270 million in new investments in the second quarter of 2023, including $17 million in capital expenditures. Year-to-date, Omega has closed on $313 million of new investments, including $29 million in capital expenditures. Turning to dispositions. During the second quarter of 2023, Omega divested 10 facilities for a total of $45 million in proceeds. Year to date, Omega has divested 12 facilities for a total of $62 million in proceeds. I will now turn the call over to Megan.

Thanks, Dan, and good morning, everyone. We continue to see slow positive momentum in occupancy with the number of core facilities now recovered at 35%, up slightly from the 33% reported in the fourth quarter. Additionally, 25% of core facilities that have not yet fully recovered are at or above 84% occupancy. Staffing shortages, while continuing to moderate, persist, delaying overall recovery and continuing to vary by market. In June, OCRA released the results of a survey of 425 nursing home providers, results of which showed that 52% are still limiting new admissions due to staffing shortages. Agency expense on a per patient day basis for our core portfolio for first quarter 2023 remained at five times where it was in 2019, which, while consistent with last quarter, did show modest month-over-month improvement, helping to offset some of these persistent expense increases. On the rate-setting front, Justice League CMS issued its final 2024 payment rule, resulting in a net increase of 4% for approximately $1.4 billion. which is slightly better than the 3.7% provided for in the proposed rule. This included a 6.4% net market basket update consisting of a 3% market basket increase plus a 3.6% market basket forecast error adjustment, offset by a 0.2% productivity adjustment, as well as the remaining 2.3% PDPM parity adjustment recalibration. And on the state side, While the magnitude of certain rate increases is not exactly what we had hoped for in certain areas, it is still moving in the right direction. Texas, of note, provided for at least the $19.63 COVID FMET add-on to be included in its permanent rate setting starting September 1st, in addition to a small increase above that. And Florida provided for up to a 5% rate increase starting October 1st. While much of the Florida rate is based on quality indicators, meaning that not all operators will see this large of an increase, it does represent somewhat of a trend in rate setting, where more and more states are tying reimbursement increases to quality measures. Assuming this is done in a thoughtful manner, this is something that we welcome. However, it should never fully replace increases tied to the inflationary environment. I will now open the call up for questions.

Thank you, the floor is now open for questions. If you do have a question, you may press star one on your telephone keypad at this time. If your question has been answered, you can remove yourself from the queue by pressing one. Again, ladies and gentlemen, it's star one. Our first question is from Tal Q from Brunberg, go ahead.

Hey, good morning, everyone. So, La Vie was a positive surprise this quarter. Appreciate the cut on the 3.5 cents step down for the next quarter. I think there are a few additional puts and takes for the next quarter. I think Maplewood was below expectations. You still have security deposit to apply. I think there's one more month of rent coming from healthcare homes. The share count is higher. I'm just wondering if you could help us bridge to the third quarter on the flat number.

I think you hit them. The only other component to look at, I did mention the incremental revenue related to acquisitions completed in a quarter, and then also Taylor and I both mentioned that the shares issued were issued late in the quarter, so you're going to have some modest impact based on the weighted average shares.

Okay. And just one follow-up, you know, we got the 4% Medicare rate update earlier this week, and thanks for the comments about, you know, Texas and, you know, Florida. I think California is also pretty well-known. I'm just wondering if you could walk us through some of your other big markets, for example, Indiana, North Carolina, Pennsylvania, and what are you seeing in those states in terms of the 2024 Medicaid reimbursement rates?

Yeah, some of them are a little bit too early to tell. Indiana, I think that they're still hoping for an inflationary increase somewhere in the 3% to 4% range, but I don't think that's been finalized quite yet. But remember, in Indiana, we've got the UPL, too, so that Medicaid rate setting doesn't necessarily impact our coverages the same way. Pennsylvania, I think there was a little bit of a rate reduction, actually, in July. just a small one due to there was a budget factor rate decrease related to the January 1st increase. And they're hoping that gets reversed in January, but again, way too soon to tell for Pennsylvania. They had that really large increase last year, so I think they're pretty well set for the moment. And then North Carolina, you know, that's one we've really been watching, and they were supposed to, they thought they would get their budget approved earlier, but they haven't yet. They have a which they've been trying to get into the race. They think it's likely to happen. That's what the operators are pushing for at the moment because the state has pushed that $37 or most of it out at least through August right now until they finalize the budget, but they're hopeful that they get that put in.

Thank you. Please ask one question and one follow-up question. Our next question comes from Jonathan Hughes from Raymond James. Go ahead, Jonathan.

Hi. Good morning. Thank you for the time. I was hoping you could dig a little deeper on LaVie. I know that restructuring has been ongoing for some time now and that they paid more rent than expected in May and June, but I guess why did they pay more rent if they didn't necessarily have to?

You know, it really boils down to cash on hand. They were a little bit more liquid in the second quarter than they anticipated, and so they were able to make full rent payments for May and June. You know, we've got some transitions coming up, so the expectation is that their cash and their liquidity is going to go down until those transitions occur. Like with any transition that involves a sale, they take a while. There's a lot of lead time running up to that. There's a lot of third parties that we have no control over. So the expectation, at least for right now, is that third quarter we'll see that reduced rent amount.

Okay. And then maybe my follow-up, and I realize we're still waiting on this, but any views or updated expectations just on the staffing mandate that we've all been waiting for it for a few months now. I think one of the operators said hopefully we can have it by the end of the month, but just any views there would be helpful. Thank you.

You know, honestly, we don't have that crystal ball at the moment. I mean, we hear the same things that I'm sure you guys hear. I think, you know, we view the fact that this hasn't come out yet, despite the fact that it should have come out in April as a positive, that hopefully, you know, CMS has gotten a ton of comments related to this in terms of don't have a one-size-fits-all mandate, and hopefully push it out until there isn't a staffing crisis. And we're hopeful that they'll take a balanced approach, you know, based on how long they're using. But we still don't have any clarity as to when it will come out. But remember, as well, that it's going to come out as a proposed rule, right? So there's going to be a comment period. And so ACCA has historically been very good at getting things more beneficial than what it first comes out as.

Thank you. And our next question comes from Connor Silverski from Wells Fargo. Go ahead.

Good morning. Thanks for having me on the call. I would like to dig into Maplewood. And apologies if I missed this in Dan's remarks, but could you quantify at all what that cash flow ramp looks like from today through the end of 2023 between the lease up of 2nd Avenue and potential rate increases at the end of the year? Or worded differently, I mean, how much EBITDA could we see from 2nd Avenue how much from rate increases, and do you think that would cover the rent shortfall?

Yeah, I'm going to make this a relatively longer answer, Connor, just because I think the context is important. So if you look at Maplewood as a whole, the core portfolio, excluding 2nd Avenue, is performing very well. Their occupancy is at pre-COVID levels. They have significant cash flow. And then you look at 2nd Avenue, which is in fill up, it's 61% occupied. It has now positive cash flow pre-rent. So incremental occupancy is just going to add to that cash flow and we expect another 10% of incremental occupancy. So from 131 residents to 151 by year end. And obviously that has a lot of power in terms of cash to the bottom line. On the flip side, rate increases happen typically in January. So you do have whatever inflationary impact between now and the end of the year that will cut into a little bit into that cash flow. So to get you a precise number is difficult. It probably doesn't change much from the million dollar deficit we're seeing today. But then just to close the loop on the rate increase piece of the puzzle, Maplewood's total revenue is about $200 million. So when you think about last year's rate increases, which were high single, low double digit, with the expectation in the industry of something similar for high-end properties, that's really meaningful in terms of the amount of top-line revenue to overcome the cash deficit we have today. So long answer to your question, but I think that context is important.

Great. Appreciate the color, Taylor. That's helpful. And then just as it relates to the line of credit and the building deferral balance, I mean, what does the total tab to OHI look like currently? How big do you expect that to get? And then is there a threshold that you wouldn't want to cross?

So we're at 270 million round numbers, and we don't expect to fund any additional cash into that line. And remember, we have interest that we're on a cash basis with Omega, so we continue to accrue interest. That obligation continues to run to Maplewood. But from a cash perspective, we're done funding that one.

Great. Thank you. I'll hop back in the queue.

And our next question comes from Michael Griffin from Citi. Go ahead, Michael.

Great, thanks. Just maybe circling up on labor availability, you know, in conversations with your operators, do you have a sense of kind of where agency labor utilization is trending, expectations for the back half of the year, and kind of where do you need to see occupants to get to to really ease a lot of those labor pressures?

I mean, from an agency perspective, it's definitely improving. That's what we're hearing anecdotally from our operators, and certain operators are able to get out of it completely, but it's really geographically based. I mean, Florida tends to be one of the states that's having severe staffing shortages, so it really just depends on where you are. And in terms of occupants, we always talk about that magical 84% and getting back up close to there. I mean, we're close to that 80%. But with agencies still high, you know, we just need to work through some of those staffing issues to solve all those problems.

Great. That's helpful. And then maybe switching to external growth opportunities, can you give us a sense of what the forward pipeline is looking like? You know, you've done a number of investments year to date. Just kind of, you know, can you quantify maybe that opportunity set and where yields have gone relative to where they might have been previously?

So I don't want to necessarily quantify, but I will say it's quite active. You know, we're looking at a fair number of deals, both here in the States and abroad in the U.K. I'd say the U.K. is particularly active. We're seeing some opportunistic transactions here in the States, and we're going to try to take advantage of some of those. You know, I think what we've done year to date is pretty good proxy for what we hope to do in the next latter half of the year. As far as rates go, yeah, we're seeing cap rates move up. We're starting to bid our deals, as you've seen, you know, high nines, low tens.

Great. That's it for me. Thanks for the time.

Thank you. And our next question comes from Joshua Dennerlin from Bank of America. Go ahead, Joshua.

Yeah, thanks, guys. I hope everyone's doing well. In the opening remarks, you mentioned there was a certain subset of the portfolio still covering below one times. I didn't hear them now. But just curious, is there any kind of big picture theme that's causing that part of the portfolio to lag versus like the overall at 1.15%?

I don't know that there's necessarily a theme. When you break down those buckets, well, V is a big piece, obviously. We talked about that. We're fixing that. But then you have another significant piece of that 1.0 that we have pretty good visibility that they'll climb out of that below one bucket. And then you get back to But the handful of operators where there's not a lot of visibility, they're small, it's under 3%. And that's where we've run historically for many, many years. So I think there's a pathway, honestly, to look at that below one times bucket. And it's going to take a little while where we climb out of that bucket and get back into the less than 5% of our portfolio there. It's not going to be next quarter, but we have some visibility. It's pretty good.

Okay, awesome. And maybe just the part of the bucket that you expect to climb out of that, any kind of timeframe on that? Yeah, I guess maybe just timeframe, just trying to think through it.

Well, I think I give you the big two examples. LaVey is just subject to finishing the restructuring. And as Dan mentioned, it's taken longer than any of us on either side of the restructuring table, but it'll happen this year. And then you have 8.1% that are running currently above one times. So that's just a question in terms of how we report waiting for the trailing 12 to catch up. So you've got almost... you've got almost 18% right there in those two buckets. And then you have some restructuring activities. So I think a lot of this will have reporting visibility going into Q1 that will make a lot of people more comfortable.

Okay, great. Thank you.

Thank you. And our next question comes from Steve Valquist from Barclays. Go ahead, Steve.

Hi, this is Amin Jazieri on for Steve Valliquette. First question would be, just wanted to kind of get a sense of how the ending of the PHE back in May has affected the business in June, July, or most recently, let's say. Just to kind of quantify or get a sense of how that's been impacted, and then I just also wanted to kind of touch on the previous question. Assuming LaVie is the operator that's closest to completion, would you still say that it's in line with reducing the number of operators with an EBITDA coverage ratio below one time down to that 20% range? And just to confirm that LaVie is the operator that's closest to being fully restructured. Thank you.

On the public health emergency, I would say there hasn't been a very large impact. Obviously, the feeling in place is gone, but a lot of that was kind of tapered off anyway, so it's not a huge impact. The other piece of it is really the FMAP, which we've gone over some of these states that had large FMAP increases, and most of them, like California, put that through the end of the year, and hopefully next year that will get added on permanently. Texas is going to have their FMAP rate in their permanent rate as well. So most of these states have either dealt with it or are about to deal with it. So I'd say, you know, not much of an impact at this point.

And then the second half of the question, yes, Levis, the 9.5% of the 29.9%. So when Levis restructured your call at 20%, and then you have the two buckets of operators with very, very strong balance sheet, which is 6.2%. And then you have the 8.1% bucket of operators that had Q1 Avidar above one time. So that's another 14%. And I think we'll have visibility around all of that, again, not next quarter, but by the time we roll into 2024, I think we'll have very good visibility That gets you down to 6%, and we're working a big chunk of that 6%. So the numbers should get down to historical levels, sub-5, if things continue as they're trending today.

All right. And super quickly, do you still intend on being net acquirers for the year?

That would be the expectation, yes. given what we have held for sale, which is the minimus, and what we're restructuring, which other than the restructuring around LaVie, we don't have anything big out there.

All right, thanks so much for the caller. Appreciate it.

Again, ladies and gentlemen, it's star one to ask a question. Our next question comes from Vikram Prasad. Mahotra from Mizuno. Go ahead.

Thanks for taking the question. Maybe just first one, I wanted to clarify, you mentioned the share count impacting, you know, maybe the 3Q fad run rate. I just wanted to clarify, it reminded me last quarter, I thought you had said you were hoping to hit sort of a 70% fad number by 4Q. And I think now you're saying you're probably more approximating to the dividends. Is it just the shares? I just want to clarify, it's just the capital raise and nothing else on the tenant front that you're baking in to get to that 80% coverage in now 2024?

Well, the shares absolutely have an impact. And again, getting in 2024, it's also getting LeVie restructured, the big P to that as well.

Okay, that's helpful. And then just thinking about the outcome eventually of sort of the minimum staffing rule, whenever it comes, I'm just wondering if you sort of looked at, you know, a couple of scenarios where they require sort of the 4.1 hours, but the timeline is maybe sooner than you anticipated versus a relatively long period to adhere to the standard. In a more... call it negative scenario, is there an assessment you've done on how coverages may be impacted for operators?

You know, we haven't just because it's way too soon, given that nothing's come out yet. And we think, look, you're probably, if this comes out, you know, for proposed rule tomorrow, you probably wouldn't have it come into place if it could next year, right? And so, but we're hopeful it gets pushed out until the staffing shortages improve. But there's really no good way to drill down into that. You know, ACA had put out something saying if you had 4.1, it would cost the industry something like $10 billion. But to get there, I mean, it's really difficult to figure out how that would affect the operators on a daily basis. They can't do something so draconian that it puts everybody out of business.

Got it. Makes sense. Thank you.

And our next question comes from Wes Galladay from BARD. Go ahead, Wes.

Hey, good morning, everyone. Just a quick question on the staffing. I guess what is the dynamic there? Are you seeing lower turnover or is there still a lot of churn, a lot of new hires and a lot of people quitting?

I think folks are doing a better job at lowering the turnover, certainly, and finding folks out there. I think the turnover is getting better. There's also some operators who've been successful with bringing folks in from international areas to help bolster that as well.

Okay, and then you mentioned the $93 million gain. Can you remind us, what is the plan, I guess, from a financing perspective? Is there a certain time period where if you were to roll that gain into a new offering, it could reduce your interest expense and maybe the accounting behind that?

Yeah, basically we have until mid-2025 to roll that into. a debt offering of at least five years or longer and then we'll amortize it over the new offering from a P&L standpoint.

Great. Thanks, everyone.

Thank you. That is the last question for today. At this time, I would like to turn the call back over to Taylor Pickett for any closing remarks.

Thanks, everybody, for joining us today. As always, we're available for any follow-up questions. Have a great day.

Thank you. This does conclude today's conference. We thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.