PurchasePro CFO vows to clean up accounting procedures

Ross Snel

Friday, June 1, 2001 | 10:47 a.m.

After a series of earnings adjustments that tarnished its credibility and sank its stock price, PurchasePro executives say the Las Vegas company's accounting woes are likely behind it.

But Wall Street analysts remain skeptical about the business-to-business services company.

In an interview with Dow Jones Newswires Thursday, Richard Clemmer, PurchasePro's new chief financial officer and acting senior executive, said the company has cleared up the revenue recognition problems that delayed its first-quarter filing. He said management is putting in place a process to prevent future problems.

"My intent is that we won't go through a quarter again like we did in this last period," Clemmer said. "We're very focused on that."

But Prudential's Tim Getz and other analysts say it's going to take some time before Wall Street can forget the events of the past month at PurchasePro.

"I'm waiting until I can have more visibility into the company overall," said Getz, who has a sell rating on the stock. "It's going to take a few quarters for PurchasePro to get its credibility back."

Analysts will have to wait for PurchasePro to provide fresh estimates of future results.

In its first-quarter conference call in late April, PurchasePro told Wall Street to expect quarterly revenues roughly flat with the $29.8 million it initially reported. Since then, however, the company has slashed its quarterly revenue nearly in half, putting the guidance into question.

"My position was that we needed to be more meticulous in going through the details for the (first) quarter before we provided guidance," Clemmer said. "I wouldn't anticipate us doing anything over the next couple of weeks."

Clemmer did offer an update, however, on when PurchasePro would record some of the first-quarter revenue it was forced to defer when it filed its 10-Q earlier this week.

About $9 million would be recognized during the current quarter, Clemmer said. That revenue came from a contract signed under a marketing arrangement PurchasePro has with AOL Time Warner Inc.

Executives originally thought the contract had been signed before the end of the quarter, but later discovered it had not.

Misunderstandings between PurchasePro and another customer caused the deferral of another $3.7 million. Clemmer said that revenue would now be recognized over an "extended" period of time.

Prudential's Getz said the company's ability to recognize that revenue is perhaps the only bright spot for PurchasePro this week.

But doubts remain among some investors and analysts about PurchasePro's reliance on partner AOL.

George Santana, an analyst at Wedbush Morgan Securities, described that reliance as "unhealthy." He added, "Even with the reduced revenues from AOL, AOL still accounted for 41 percent of total revenues in the March 2001 quarter."

Santana also questioned AOL's future loyalty to its strategic marketing agreement with PurchasePro, because the media giant may be losing its incentive to refer customers to PurchasePro.

The recent 10-Q disclosed that AOL had earned all of the stock warrants it had received from PurchasePro.

AOL "will have little incentive to refer additional business to PurchasePro and scale down resources devoted to the relationships," Santana said.

Clemmer said, however, that he believes AOL is as committed to the relationship as it's ever been.

"They're focused on how they can provide their net marketplace, and the backbone that we provide for that marketplace is crucial to it," the executive said.

Clemmer, who joined PurchasePro only last month, declined to comment on speculation that he would take over the reins as the company's chief executive. He said the board was working hard to nail down a new executive roster soon.

PurchasePro's latest problems began at the end of April. On the day it had scheduled its first-quarter earnings announcement, the company announced results would fall short of the optimistic estimates offered by recently departed Chief Executive Charles 'Junior' Johnson. It also postponed releasing the numbers until the following day.

PurchasePro ended up reporting a net loss of 26 cents a share and a cash loss of 2 cents a share on revenue of $29.8 million. The results were much worse than Johnson's guidance for cash earnings of more than 10 cents a share on revenue of $42 million. The company attributed the changes to the deferral of revenue.

The events pressured PurchasePro's share price, prompted several analyst downgrades and sparked a slew of class-action shareholder lawsuits.

But that wasn't the company's last word on its quarterly results. It delayed filing its 10-Q with the Securities and Exchange Commission, putting it at risk of Nasdaq delisting. Then last week, it sharply revised its results to a loss of 47 cents a share on revenue of $17.1 million.

The numbers on the 10-Q, which the company at last filed this week, were even lower. PurchasePro said it lost 49 cents a share on $16 million in revenue.

PurchasePro shares traded this morning at $1.84, up 11 cents from Thursday.