PurchasePro founder leaves firm

Kevin Ferguson

Monday, May 21, 2001 | 10:56 a.m.

The founder of PurchasePro, Las Vegas' largest technology company and a once high-flying darling of the Internet industry, has abruptly resigned as chairman and chief executive officer, the company said this morning.

Charles Johnson Jr., an entrepreneur who launched the company in fall 1996, has come under sharp criticism by financial analysts and the media in the past several months over the business-to-business e-commerce company's accounting practices, a recent last-minute announcement of an earnings shortfall and a delay in the reporting of earnings.

The company said PurchasePro board member R. Todd Bradley was named Johnson's successor as chairman, but it has not yet found a new chief executive. Besides resigning as chairman, Johnson resigned from the PurchasePro board.

In a statement, the board said that Johnson resigned on his own.

"It was Mr. Johnson... who recognized that there is a critical time in the successful life of every entrepreneur, the founder, the visionary, the executive relinquishes his executive authority and remands it to a seasoned operational team," the statement said.

PurchasePro, which employs 500-plus people, develops marketplaces for companies to buy and sell products on the Internet. The company has strategic partnerships with companies like Home Depot, and AOL Time Warner.

Johnson's departure marks the end of an era for PurchasePro, financial analysts say.

"You have to recognize the credibilty was gone, based on the revenues being missed in the first quarter and the way the earnings release was handled, as well as issues with (its) accounting," said George Santana, an analyst with Wedbush Morgan Securities. "It's been a string of significant dissappointments."

Disappointing events include the company badly missing first quarter earnings, due to deferring as much as $10 million in revenues to the next quarter. The company reported a loss of 26 cents a share, far below analyst average estimates of a profit of 8 cents per share.

Despite all the turmoil the company has been through lately, Santana said it's difficult to speculate if Johnson was orderd by the board to resign.

"You can only wonder. It's a tough call for the board. Here's the guy who founded the company," Santana said.

Analysts have also criticized the company for relying on software swaps with strategic partners, and counting it as revenue.

Analysts were also very critical of the company's months-long search for a chief financial officer, a position that was recently filled by Richard Clemmer, a former CFO of Quantum Corp.

There were a lot of high hopes for PurchasePro, which completed a $48 million initial public offering in September 1999.

The shares opened trading on the Nasdaq at $27.75 per share, a 131 percent premium over its IPO price of $12.

Such huge gains, however, were common among IPOs of Internet companies at the time. The shares rose as high as $175 a share by the end of 1999.

But a long with the burst of the Internet bubble in the past year, PurchasePro's value has severely been deflated. Its stock has hovered below $5 since April 25, when the company delayed its first quarter earnings to the next day, raising concerns of the company's management among many investors.

Analysts and local business executives say Johnson's departure may be an opportunity to straighten the company's struggling path to profitability.

"Today's news has the potential to be a long-term positive as the company now has a chance to bring in a more experienced and credible management team," states a report by Wedbush Morgan Securities. "However, in the near-term, we believe PurchasePro may stall for three to six months while it straightens itself out."

Sommer Hollingsworth, president of Nevada Development Authority, said its important for Las Vegas that PurchasePro succeeds.

"I hope it doesn't mean anymore than Junior just resigning," Hollingsworth said. "With all the time and effort they spent to build this company, it's one of those companies you want to see survive. It was a home grown company."

PurchasePro stock was up 39 cents or 15 percent this morning on the news.