No truth to rumors of improper accounting, says Apria chief

By KAREN PIHL-CAREY
HHBR Staff Writer

In an apparent attempt to discredit Apria Healthcare Group’s (Costa Mesa, CA) recent return to profitability, rumors of accounting irregularities caused the company’s stock price to drop 11% last Wednesday.

But Apria’s top official called the rumors ridiculous. The company’s turnaround can be attributed to smart managing, not number tinkering, said CEO Philip Carter.

At issue is the company’s lowest ever write-off for accounts receivable. The provision for doubtful accounts in 1Q99 ended March 31 was $8.6 million, compared with $13.8 million in 1Q98.

The lower figure is not the result of fooling with the numbers, Carter told Dow Jones Business News. It is "the fruit of the work that I was brought in here to do," he said. "This is what I do for a living."

Carter took the job as CEO a year ago to help the struggling company return to profitability following deep losses. The company has struggled with board battles, legal troubles, computer glitches, and the losses since its inception in 1995 when Homedco Group and Abbey Healthcare Group merged to form Apria. Carter’s immediate goal when taking office was to get the company out of any unprofitable businesses, setting a deadline to return to profitability in summer 1999.

It happened earlier than expected, however, when the company posted a 4-cent profit in 4Q98 ended Dec. 31. It was the company’s first quarterly profit in a year, and it boosted Apria stock 31% in late March to $10.94. Apria stock hit a low of below $3 per share about nine months ago.

The stocks rose even more in late April when the company posted its results for 1Q99 ended March 31. The quarter saw a net profit of $15.6 million, 30 cents per share, compared to a net loss of $6.6 million, 13 cents per share in 1Q98. The company’s gross profit margin increased to 71.1%, compared to 65.7% in 1Q98.

"The increase in revenues and gross margin percent demonstrated real topline growth over the previous quarter," Carter said. "The increase in net revenues is in spite of continuing to exit unprofitable infusion business in the fourth quarter of 1998, and absorbing an additional 5% cut in reimbursement from Medicare."

The company initially said it expected a 25-cent profit in 1Q99, while analysts expected it would be more like 4 cents per share. Now, analysts surveyed by First Call are giving a mean estimate for 2Q99 earnings of 33 cents per share, a figure that Carter feels comfortable with, reported Dow Jones.

Apria’s stock is now running at about $19 to $20, near its 52-week high of $22.06, which is still far below the company’s best mark of $35.25 in April 1996.

Rumors of accounting irregularities were spread last week, Carter said, by short-sellers or investors betting the company’s stock would decline. It dipped on Wednesday by $2.39 to $19.125, although it had been as low as $17.875 that day. On Friday, shares also closed at $19.125.

Following the company’s posting of its 4Q98 and 1Q99 results, analysts issued "strong buy" ratings on Apria. Carter said the company now plans to focus on acquisitions targeting the respiratory therapy business.

"We plan to do $60 million in acquisitions in 1999 and expect that it would be considerably higher in 2000," Carter told the Orange County (CA) Business Journal.