PurchasePro answers critics with blowout quarter, stellar outlook

PurchasePro.com easily hurdled analysts' estimates in its fourth quarter Monday, raking in $7.6 million, or 11 cents a share, on sales of $33.6 million. It also raised its estimates for first-quarter and fiscal 2001 sales and earnings.

First Call Corp. consensus expected it to lose a penny a share in the quarter on sales of $33.6 million.

PurchasePro.com (Nasdaq: PPRO) shares closed up $1.44 to $15.94 ahead of the earnings report before shooting up to $17.65 in after-hours trading. The company is an application service provider of e-commerce products for small- to medium-sized businesses.

The $33.6 million in sales marks a 1,160 percent surge from the year-ago quarter when it posted a loss of $6 million, or 11 cents a share, on sales of $2.7 million.

On a pro forma basis, it earned 10 cents a share.

PurchasePro.com shares lost more than 42 percent of their value last week after Barron's questioned the company's business model and valuation and Prudential Securities downgraded the stock from a "strong buy" rating to "accumulate."

Susan LaCerra, an analyst at Jefferies & Co., predicted the business-to-business services provider would earn a penny a share in the quarter on sales of $30 million.

"We're expecting a good quarter," she said ahead of the earnings report. "What's happened lately, to me, looks like a case of a lot of shorts running scared."

During a conference call with analysts, Chief Executive Officer Charles Johnson, Jr. said he was "extremely proud of these results," noting the company managed to generate more than $10.3 million in positive cash flow in the quarter.

"We're just beginning to realize the potential of this business model," he said.

Johnson told analysts to expect sales of $42 million in its first quarter, more than 20 percent above most analysts' estimates. He said the company will post a profit of 9 cents a share in the first quarter, well above the 2 cents currently forecast by First Call.

Fiscal 2001 sales and earnings are expected to jump to $225 million and 59 cents a share, respectively, considerably higher than current estimates of $165 million and 37 cents a share.

"By all accounts, this was a great quarter for us," said Chief Financial Officer James Clough. "We continue to see strong demand for all of our marketplaces."

In the quarter, network access fees accounted for $10.2 million in sales, or roughly 30 percent of the company's total sales in the quarter. Licensing sales jumped 95 percent from the third quarter to more than $22 million, while advertising sales improved 72 percent sequentially to $1.1 million.

"We believe advertising sales will be an area of rapid growth as this market matures," Clough said.

Patrick Walravens, an analyst at Lehman Brothers, said the earnings surprise and upbeat conference call, which featured comments from some of the company's partners, reinforced his optimistic outlook.

"Following the lawsuit and the Barron's article, they needed to go above and beyond the usual earnings call," he said. "It's hard to argue with 94 percent gross profit margins."

Walravens rates the stock a "strong buy" and has a 12-month price target of $60 a share.

"Barron's has been very accurate in naming the dot-coms that were going to go bust," he said. "On this one, it looks like they got it wrong."

In the fiscal year, PurchasePro.com posted a loss, excluding charges, of $12.6 million, or 20 cents a share, on sales of $65 million compared to a loss of $15.2 million, or 44 cents a share, on sales of $6 million in fiscal 1999.

Last quarter, it beat the Street when it posted a loss of $4.7 million, or 7 cents a share, on sales of $17.3 million.

The stock moved as high as $82 in March before collapsing to a low of $9.19 in May.

Eight of the 10 analysts tracking the stock rate it either a "buy" or "strong buy."