PurchasePro reports wider than expected second quarter loss

Kevin Ferguson

Wednesday, Aug. 8, 2001 | 11:09 a.m.

Las Vegas-based software firm PurchasePro, under a new executive watch for the first full quarter since its 1996 founding, reported a wider than expected loss than consensus estimates for the second quarter due partly to charges related to restructuring its business.

The company reported Tuesday a "pro forma" loss of $22.6 million, or 31 cents a share, in the quarter ended June 30. That excluded a non-cash charge of $38.5 million related to a 50 percent workforce reduction and associated costs.

The second quarter compared to a pro forma loss of $7.1 million, or 11 cents a share in the comparable quarter of last year.

PurchasePro was expected to report for the recent second quarter a loss of 10 cents per share, based on a consensus estimate of six analysts polled by Thomson Financial/First Call.

PurchasePro shares were down 7 cents a share to 90 cents in mid-morning trading this morning.

The company's second quarter net loss including the special charges was $61.1 million, or 84 cents per share, compared to a loss of $12.2 million, or 19 cents a share in the comparable quarter last year.

Chief Executive Richard Clemmer, who came on board in May as chief financial officer and was elevated to the helm weeks later, said he has refocused, realigned and downsized the company to put it on a smoother path to profitability.

The struggling business-to-business e-commerce company is expected to generate the bulk of its revenue in the next few quarters through e-Source, a new reverse auction software. The company will be less reliant on revenue from Internet hosting and transaction fees, Clemmer said.

PurchasePro in the second quarter reported revenues of $16.8 million, compared to $9.5 million in the comparable quarter last year.

In June Clemmer predicted revenue would be about $18 million.

About $9 million of those revenues were generated through a partnership with America Online, the Internet division of media giant AOL/Time Warner.

These non-recurring revenues were from a prepaid subscription service to the Netscape Netbusiness Marketplace, which was co-developed by AOL and PurchasePro.

PurchasePro had agreed to pay AOL $20 million in cash spread over the next three to four quarters. But Clemmer said PurchasePro has told AOL that future payments will not be coming because the Las Vegas firm needs the cash for operating.

Clemmer said AOL is still committed to the partnership. AOL spokesman Jim Whitney could not be reached for comment.

"PurchasePro had to do something about those payments becasue they were sucking the life out of that partnership," said analyst George Santana of Wedbush Morgan Securities.

Santana issued a report this morning reiterating a sell rating on PurchasePro stock.

Clemmer said PurchasePro will continue to operate in the red for the next two quarters and expects to be cash-positive by the end of the year.

"This is a new watch at PurchasePro... with an experienced realigned management team," Clemmer told investors and financial analysts in a Tuesday conference call via webcast.

Clemmer became CEO shortly after company founder Charles "Junior" Johnson quit or was fired by the board in May. That followed a disasterous first quarter plagued by accounting problems that led to the company revising its earnings downward twice.

Those events have led to at least 28 lawsuits filed against PurchasePro by disgruntled investors alleging the company made false statements about its financial condition to artificially inflate PurchasePro's stock price.

In June Clemmer vowed to run a much leaner, cost-controlled ship, leading to the slashing of 50 percent of its staff, reducing the headcount to below 300.

That also included the departure of several executives, such as President Shawn McGhee and Chief Technology Officer Mike Kennedy.

After Tuesday's conference call, PurchasePro spokesman Steve Stern said the headcount is around 250. He said no more layoffs are expected.

But the company is still in the process of implementing additional cost-cutting measures that -- when fully effected in the fourth quarter -- will reduce PurchasePro's cash expense run rate between $10 million and $12 million per quarter, Clemmer said.

Since implementing e-Source in May, PurchasePro clients conducted 234 e-Source auctions purchasing about $110 million in products and services from nearly 1,800 suppliers, PurchasePro said.

Clemmer said PurchasePro expects to generate between $3 million and $8 million in the third quarter from sales through e-Source, and $2.5 million and between $3 million from network access and maintenance fees.

In the second quarter PurchasePro generated network access, service and advertising revenue of $2.9 million, compared with $5.5 million from in last year's second quarter.