American Renal Associates Holdings Inc. said on March 28 that an audit committee review indicates the dialysis provider will need to restate its yearly financial statements dating back to 2014. The announcement sent the company’s stock down to $6.01 per share – a 38% drop since March 8, when it first reported that it was delaying fourth-quarter and year-end financial results.
The company’s chief financial officer (CFO) Jason Boucher has resigned, and Mark Herbers has been appointed interim CFO and chief accounting officer, according to a company press release.
The company reported on March 8 that it would have to delay the filing of its fourth-quarter and full-year earnings for fiscal year 2018 because it was reviewing reserve computations and other accounting practices that may have an impact on the company’s accounts receivable and revenue for the year. The company said it was also looking at similar computations for fiscal years 2014 to 2017.
The company also acknowledged that the Securities and Exchange Commission had made a request in October 2018 for documents concerning American Renal Associate’s revenue recognition practices, collections and other related matters.
“Following receipt of the SEC request, the company responded by producing documents and information to the staff and expects to continue to cooperate with the SEC by providing additional documents and information to the staff in the future,” the company said in the press release.
The company said it found discrepancies between revenue based on expected payments from third-party payers vs. what was collected by the company.
“The company did not appropriately reconcile its contractual allowance estimates for discounts and price concessions with cash subsequently received in respect of prior period patient claims,” American Renal Associates said in the release.
Based on its review to date, the company “currently estimates that the cumulative, net impact of these matters on operating income and income before income taxes over the non-reliance periods as a whole will be between negative $5 million and positive $5 million ... There will likely be a negative $13 [million] to $23 million for the fiscal year ended Dec. 31, 2018, which has not yet been reported, and negative $15 to $25 million for the previously reported 9 months ended Sept. 30, 2018.”
The company also estimates a negative $10 to $20 million for the fiscal year ended Dec. 31, 2017; a positive $16 million to $26 million for the fiscal year ended Dec. 31, 2016; a positive $8 million to $18 million for the fiscal year ended Dec. 31, 2015; and a relatively neutral impact for the fiscal year ended Dec. 31, 2014.
The findings of the audit committee’s review are also expected to require revised calculations of related metrics such as revenue per treatment and days sales outstanding throughout the non-reliance periods, American Renal Associates said in its release. – by Mark E. Neumann