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Thursday May 3, 5:20 pm Eastern Time
TheStandard.com
PurchasePro's Woes
By Cory Johnson
There is an order to Wall Street, an expected procession of events that follow each other as dependably as summer follows spring. And in this year's ugly climate, "pre-announcement season" - during which public companies warn of poor results - is followed weeks later by "earnings season." Last week, that order was upset: PurchasePro jumped straight from spring to fall, and Wall Street punished the business-to-business exchange as only Wall Street can.
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On Wednesday morning, the day PurchasePro was to release earnings, the company warned it would badly miss expectations. Then late in the afternoon, PurchasePro said it wasn't ready to report earnings after all: Another day was needed to get the books organized. That was all the Street needed; the stock was sold off massively.
The next morning, before the markets opened, the company revealed the nature of the earnings shortfall in a conference call with investors. PurchasePro's CEO, Charles "Junior" Johnson, said that "complex" accounting had drawn the ire of the firm's outside auditors, Arthur Andersen. Wall Street had been expecting revenue of $41 million for the quarter, and PurchasePro threw in every last item to come close to that number. The accountants weren't having it and insisted the company defer some revenue into coming quarters. In the end, PurchasePro came up with just $29.8 million in revenue. In two days, Wall Street clipped over half the company's value, and the stock was down to $3 a share.
It was a big step down for PurchasePro. Based in Las Vegas, the firm famously boasted of its ability to be bigger than rivals Ariba and Commerce One, despite a management team that knew little about the software business. The blond-haired, muscle-bound Johnson ran some video stores and a gym in his native Louisville, Ky., before launching PurchasePro.
Johnson's swagger is legendary. At Credit Suisse First Boston's technology conference last fall, Johnson wore a gold pinkie ring, gold Rolex and black alligator-skin boots. During his presentation, one hedge-fund manager leaned over to me to say, "I'd short the stock if I wasn't afraid Junior would come over here and kick my ass."
Johnson's confidence didn't end with his wardrobe. In the face of the economic slowdown, PurchasePro reaffirmed its earnings guidance in early March, forecasting $42 million in quarterly revenue. The stock soared 14 percent after the announcement.
But just five days later, Junior admitted he was going to sell massive quantities of stock. PurchasePro underwriters CS First Boston had given him a $100 million personal line of credit. Now Johnson said that CS First Boston was forcing him to sell stock to back the loan. According to InsiderScores.com, Junior sold $15.9 million in PurchasePro stock on March 6 and 7 alone.
This is the backdrop to the mess over PurchasePro's revenues. Analysts say the company is overly reliant on one customer, Hilton Hotels, and on deals offered via AOL - deals, they say, that are not likely to be renewed. Some were done in exchange for PurchasePro warrants, a once-valuable commodity but now virtually worthless.
More warning signs: Last year, the company refiled certain results because of revenue recognition problems. The company had been operating without a chief financial officer after burning through four CFOs in less than five years. (CFO No. 5 signed on last week.)
Like Gateway and Lucent, PurchasePro is suffering less from the slow economy than from its own missteps. These are not the failures of the new economy - these are the failures of weak management, bad decisions and shoddy accounting.
B-to-b marketplaces may rise again. But don't cite PurchasePro's failings as anything but PurchasePro's failings.
Related stories at TheStandard.com:
Thursday May 3, 5:20 pm Eastern Time
TheStandard.com
PurchasePro's Woes
By Cory Johnson
There is an order to Wall Street, an expected procession of events that follow each other as dependably as summer follows spring. And in this year's ugly climate, "pre-announcement season" - during which public companies warn of poor results - is followed weeks later by "earnings season." Last week, that order was upset: PurchasePro jumped straight from spring to fall, and Wall Street punished the business-to-business exchange as only Wall Street can.
ADVERTISEMENT
On Wednesday morning, the day PurchasePro was to release earnings, the company warned it would badly miss expectations. Then late in the afternoon, PurchasePro said it wasn't ready to report earnings after all: Another day was needed to get the books organized. That was all the Street needed; the stock was sold off massively.
The next morning, before the markets opened, the company revealed the nature of the earnings shortfall in a conference call with investors. PurchasePro's CEO, Charles "Junior" Johnson, said that "complex" accounting had drawn the ire of the firm's outside auditors, Arthur Andersen. Wall Street had been expecting revenue of $41 million for the quarter, and PurchasePro threw in every last item to come close to that number. The accountants weren't having it and insisted the company defer some revenue into coming quarters. In the end, PurchasePro came up with just $29.8 million in revenue. In two days, Wall Street clipped over half the company's value, and the stock was down to $3 a share.
It was a big step down for PurchasePro. Based in Las Vegas, the firm famously boasted of its ability to be bigger than rivals Ariba and Commerce One, despite a management team that knew little about the software business. The blond-haired, muscle-bound Johnson ran some video stores and a gym in his native Louisville, Ky., before launching PurchasePro.
Johnson's swagger is legendary. At Credit Suisse First Boston's technology conference last fall, Johnson wore a gold pinkie ring, gold Rolex and black alligator-skin boots. During his presentation, one hedge-fund manager leaned over to me to say, "I'd short the stock if I wasn't afraid Junior would come over here and kick my ass."
Johnson's confidence didn't end with his wardrobe. In the face of the economic slowdown, PurchasePro reaffirmed its earnings guidance in early March, forecasting $42 million in quarterly revenue. The stock soared 14 percent after the announcement.
But just five days later, Junior admitted he was going to sell massive quantities of stock. PurchasePro underwriters CS First Boston had given him a $100 million personal line of credit. Now Johnson said that CS First Boston was forcing him to sell stock to back the loan. According to InsiderScores.com, Junior sold $15.9 million in PurchasePro stock on March 6 and 7 alone.
This is the backdrop to the mess over PurchasePro's revenues. Analysts say the company is overly reliant on one customer, Hilton Hotels, and on deals offered via AOL - deals, they say, that are not likely to be renewed. Some were done in exchange for PurchasePro warrants, a once-valuable commodity but now virtually worthless.
More warning signs: Last year, the company refiled certain results because of revenue recognition problems. The company had been operating without a chief financial officer after burning through four CFOs in less than five years. (CFO No. 5 signed on last week.)
Like Gateway and Lucent, PurchasePro is suffering less from the slow economy than from its own missteps. These are not the failures of the new economy - these are the failures of weak management, bad decisions and shoddy accounting.
B-to-b marketplaces may rise again. But don't cite PurchasePro's failings as anything but PurchasePro's failings.
Related stories at TheStandard.com:
