AdCare Regroups After Accounting Woes, Expects More M&A

After accounting errors forced AdCare to redo its financial statements for all of 2012, delay earnings reports in 2013, and freeze its M&A program, the company has taken several steps to improve its systems and financial controls moving forward including a new chief financial officer and external auditor. 

The company’s second quarter earnings call featured comments from several shareholders questioning the status of former AdCare chief acquisition officer Chris Brogdon’s planned tender offer; the performance of the current management team in terms of delivering shareholder value; and the possibility of breaking up the company and selling assets in sale-leaseback transactions. 

In April 2013, AdCare’s former CFO, Martin Brew, resigned from his position in relation to extensive accounting errors that impacted the company’s financial statements for 2012. 


AdCare subsequently hired Ron Fleming as its new CFO and announced Sheryl Wolf as vice president, controller, and chief accounting officer. Fleming and his team did an “extraordinary job” of completing the company’s financial restatement in a timely manner, said president and CEO Boyd Gentry during the company’s second quarter earnings call on Wednesday. 

“In a short time, Ron and Sheryl have brought about a complete metamorphosis of our back-office operations. And I can say with confidence that the efforts of the newly reconstituted finance group has given us the appropriate team to support our business model,” Gentry said. “We now have solid financial controls in place and significantly improved systems, all of which are needed to effectively and efficiently run this organization now and into the future.”

AdCare reported revenues of $56.4 million in the second quarter, up 20.3% from the same period in 2012. The increase was attributed to acquisitions completed since April 2012 as part of the company’s M&A program. The company experienced a loss from operations of $0.2 million. 


Occupancy of facilities AdCare acquired and operated increased to 78.4% as of June 20, 2013, compared to 77.5% one year prior. 

AdCare incurred expenses in the second quarter of 2013 related to the audit review and restatement process of approximately $848,000, along with a year-over-year decrease in income from operations due to an increased cost of services for applied facilities and professional services costs.  

The company is taking steps to streamline its corporate function and is looking to “eliminate some redundancy at the corporate level” with finalized plans to reduce corporate expenses by about $700,000 a year.

The result of all the company’s initiatives to cut costs are expected to reduce future expenses by $1 million a year. However, AdCare still expects to incur up to $400,000 of additional costs in the third quarter related to investigation expenses. 

Executives said they had no information on the planned tender offer Brogdon Family LLC  announced in April with intentions to gain a majority stake in AdCare. Brogdon resigned his previous role in January but remained the company’s vice chairman and serves as a consultant overseeing M&A activity. He was not part of the second quarter earnings call. 

The company has pursued an aggressive M&A campaign and continues to identify and evaluate possible acquisitions, but expects to move more selectively. 

“We did really close down the [M&A] program beginning in late January and so we are kind of spooling it back up,” Gentry said. “We’ve got a couple of it are under consideration, but we’re somewhat early in that process. So I would hope that we can spool something up and close something before year end.”

On June 30, AdCare sold off two skilled nursing facilities in Georgia that had “lackluster financial results.” The company has no current plans to divest more properties but didn’t rule it out for facilities that don’t make financial progress in the next few months. 

“Coupled with our new financial team, we now have the resources and systems to support our current operations and the expected growth,” Gentry said. “I’m proud of the progress that we’ve made, and my confidence in the future of AdCare has never been greater.” 

Written by Alyssa Gerace

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