Previously publicized troubles in accounting for sales of physician practice management software to middlemen forced NDCHealth on Monday to discount its fiscal third-quarter earnings, announce it was upping its estimate of inventory held by middlemen and increasing the age of debts they owed the company.
Despite the bad news, NCDHealth reported a profit for the quarter, compared with a loss for the period a year ago.
The company reported net income for the quarter at $9.3 million, or $0.26 per diluted share on revenues of $116.1 million. That compares with a net loss of $3.7 million, or a loss of $0.11 per diluted share on revenue of $109 million during the third quarter of 2003.
The 2003 numbers included $18.7 million in pretax write-offs, including investment losses on MedUnite, a troubled claims clearinghouse venture founded in 2000 by seven of the nation?s largest health insurers. The insurers wrote off their investments in MedUnite in January 2003 when they sold the company to ProxyMed, of Fort Lauderdale, Fla., which entered into a partnership with NDCHealth.
NDCHealth had twice delayed earnings reports this quarter, saying it was due to accounting problems in the physician software division. The bulk of sales within the division are to about 1,000 middlemen known as value added resellers, or VARs, who typically buy, resell and install NDCHealth software as well as provide IT services at physician practices, according to the company.
NDCHealth claims it provides software to 140,000 physicians, mostly in solo and small group practices, yet that part of its business traditionally provides only about 8% of the company's total revenue and 6.5% of its total operating income, according to earlier company statements.
Following the work of a committee of outside board members and independent legal counsel and auditors, the company announced it would delay recognition of $2.3 million of third-quarter revenue on sales to VARs, which negatively impacted third-quarter net income by $800,000, or $0.04 per diluted share.
In addition, the company increased its accounts receivable reserves in the unit by $900,000, increased the age on those receivables and said it had increased its estimate of inventory already in the hands of VARs.
The company also said it would not provide earnings and cash-flow projections to stock analysts due in part to the "possible sales impact in the physician unit" that was the subject of the audit.
Robert Borchert, a company spokesman, said there was no timetable set for releasing the earnings or cash-flow updates.
The company also provides data backbones and claims-processing services for the pharmacy industry as well as data-mining for the pharmaceutical industry.
Its stock (NYSE:NDC) closed Tuesday at $22.66, down nearly 10%, or $2.50 on the day, but well above its 52-week low of $17.27.