Neoforma, San Jose, Calif., reported strong operations in its second quarter and upped its guidance for the rest of the year, but its stock value tumbled as the company also disclosed that past financial results may have to be restated because of accounting questions raised by the firm's new auditor.
The complex questions concern the application of two accounting principles under the previous auditor, Andersen, related to shares Neoforma issued to its strategic partners in July 2000. Neoforma is the e-commerce partner of group purchasing giant Novation, which is the joint GPO of VHA and University HealthSystem Consortium.
The questions arose as Deloitte and Touche, the new auditor since June, conducted a general review of the company's accounting and business, officials said. Because of Neoforma's relationship with Novation and the GPO's owners, Neoforma officials said they believe it would be "prudent" to also discuss the matter with the Securities and Exchange Commission. The SEC has been encouraging companies to consult with it "on complex and evolving matters of this type," the officials said.
The questions were forwarded to the SEC yesterday, the same day Neoforma released its preliminary second-quarter results, officials said during a hastily rescheduled conference call late yesterday afternoon. The company previously had been scheduled to disclose its earnings this morning.
"Neoforma management has always taken full responsibility for our accounting, and we are working hard to make sure that we apply the most appropriate accounting treatment in our financial statements," company officials said in a written statement.
Specifically, the accounting principles in question relate to the timing of the capitalization of the stock issued to VHA and also to the amortization of the equity issued to VHA and UHC. Ultimately in both cases, a restatement of the financial results would not affect net income or cash flow, officials said. Indeed, Neoforma would have achieved profitability excluding interest, taxes and amortization even sooner. Under the present accounting methods, the company reached that milestone in the first quarter of this year.
Meanwhile, Neoforma preliminarily reported a net loss of $20.8 million, or $1.25 per share, for its second quarter ended June 30. Net revenue was $17.6 million, a 21% increase over the first quarter. Excluding interest, taxes, depreciation and amortization, second-quarter cash operating income was $4.6 million, compared with $2.3 million in the prior quarter. As of June 30, the gross volume of transactions processed in the second quarter was $422.8 million, a 23% increase from the first quarter.
Neoforma officials said they expect continued growth throughout the year, with electronic marketplace transactions totaling as much as $4.3 billion in 2002 and net revenue as high as $75.1 million. As of June 30, Neoforma had contracted with 792 hospitals. Of those, 563 hospitals were connected to [email protected]