Financial News from Provider Community

Peregrine lowers revenues by half-billion dollars for past three years; SciQuest seeks reverse stock split

Tempe, AZ Ñ March 4, 2003 Ñ The latest financial news out of the solution provider community includes reports that Peregrine Systems showed sharply reduced revenues in newly filed audited financial statements for its last three full fiscal years and that SciQuest is seeking to effect a reverse stock split.

Peregrine, the San Diego-based provider of enterprise asset management solutions, reduced revenues by nearly 40 percent over the three fiscal years ended March 31, 2002, with the largest component of the half-billion dollar reduction due to "non-substantiated transactions," or deals that were booked improperly.

In the audited financial statements filed with the U.S. Bankruptcy Court and the Securities and Exchange Commission (SEC), Peregrine reduced previously reported revenue of $1.34 billion by $509 million, Of that reduction, $259 million was for non-substantiated transactions, $70 million was reversed and used to reduce acquisition or investment costs, and the remaining $180 million is to be reported as revenue in future periods, assuming all relevant criteria for revenue recognition are eventually satisfied.

Completion of the audited statements marks the culmination of a financial review that Peregrine's board of directors and new management initiated after accounting irregularities were discovered in May 2002. The company hired new senior management in June and replaced its independent accountants with PricewaterhouseCoopers. Peregrine filed for bankruptcy in September and subsequently sold off several of the businesses it had acquired in recent years (see related story).

"Peregrine's commitment to putting our financial house in order gave rise to an exhaustive review to ensure the accuracy and reliability of financial results for the three fiscal years," said Gary Greenfield, Peregrine's CEO, who joined the company in June. "We conducted a thorough investigation, identified issues and have taken corrective measures to prevent or detect future occurrences. The restatement is behind us, and we are now creating a foundation to ensure that the company's financial policies and practices meet the highest standards in the future."

The total revenue reported from continuing operations for the three fiscal years was $441.2 million for fiscal 2002, $213.4 million for fiscal 2001 and $131.6 million for fiscal 2000.

The results exclude revenue from Peregrine's Supply Chain Enablement (SCE) business of $123.9 million and $97.2 million for fiscal 2002 and 2001, respectively. The SCE business, which was acquired in June 2000 when Peregrine bought Harbinger Corp. and sold in June 2002, was treated as a discontinued operation in the audited financial statements.

For fiscal 2002, the company posted a loss from continuing operations of $1.5 billion, compared with a loss of $374.8 million in fiscal 2001. The loss from continuing operations for fiscal 2000 was $217.4 million. A substantial portion of these losses resulted from one-time acquisition costs, non-cash impairment charges for long-term assets related to acquisitions and amortization of stock-based compensation, according to the company.

"Our license fee revenue in our ongoing business grew substantially during the period, climbing by about 50 percent from fiscal 2000 to 2001 and approximately 75 percent between 2001 and 2002," said Greenfield. "This growth in revenue during the audited period, along with recent business activity, gives us confidence in our ongoing business. The company continues to perform well against the operating plan adopted last September, and we are on track to expand our leadership in consolidated asset and service management software."

In October 2002, Peregrine adopted a corporate compliance policy, with the intent of creating a companywide environment in which Peregrine and anyone acting on behalf of the company adheres to the highest standards of conduct in complying with the laws, regulations and accounting principles that govern business practices on a global basis.

To implement the compliance policy, Peregrine's board established two new positions: a corporate compliance officer, a senior-level position reporting directly to the board's audit committee, and an internal auditor, whose role is to assist in compliance activities related to the company's financial and operating condition.

"This marks the beginning of a new chapter in Peregrine's history," said Greenfield. "We have already taken many concrete steps to help ensure that our business practices are strong, professional and above reproach, and there are more initiatives to come. It's our intent to rebuild trust and renew confidence in our company as we leverage Peregrine's heritage of innovation and thought leadership as a strategic enterprise software vendor."

Meanwhile, SciQuest, a provider of e-procurement solutions to the life sciences, research and higher education markets, has filed a preliminary proxy statement with the SEC proposing that the board of directors be allowed to effect a reverse stock split of the provider's common stock.

The reverse stock split proposal will be voted on by shareholders at the SciQuest annual meeting on April 30. An affirmative vote by shareholders would permit the board to choose to effect a reverse stock split at a ratio of one for five, one for seven and one-half, or one for ten, at any time prior to April 30, 2004, or to choose to not implement the split. The ratio would be chosen by the board and would be expected to result in a common share price in the range of $3.00 to $6.00.

"We believe that this proposal is in the best interest of the company and our shareholders," said Stephen Wiehe, CEO of SciQuest, whose share price has hovered below $1 since June. "With the shareholders' approval, the board of directors will have the flexibility to enact the most prudent strategy to maintain our listing on the Nasdaq stock market. We also feel that by positioning our securities in a higher trading range, we can create increased visibility for the company, enabling us to reach a wider range of potential investors that may ultimately improve the trading liquidity and valuation of our common stock."

SciQuest reported a net loss, in line with generally accepted accounting principles, of $70.8 million for 2002, on revenues of $7.2 million. The company has announced recent deals to provide solutions to the University of Arizona and Emory University, and it has sought to expand its offering with the February launch of a supplier enablement solution intended to help organizations bring a critical mass of suppliers online.