After closing the books on the third quarter, executives of the consulting firm

MarchFirst

(MRCH)

have spent the last few weeks promising Wall Street that the numbers looked fine. On Tuesday, they instead issued a report that showed $45 million, more than 10% of revenue, had vanished.

The disclosure infuriated analysts and sparked a plunge in the once-high-flying stock's value.

Writing off as bad debt two accounts worth $45 million, Chicago-based MarchFirst missed earnings predictions by a wide margin. The professional services company's stock was down $7.06, or 60%, to $4.75 in afternoon trading after hitting a 52-week low of $4.59. Analysts said the money had seemingly vanished and, more disturbingly, would apparently continue to do so based on guidance company officials offered in a conference call.

The company, which gained fame earlier this year with its own marketing campaign based around the gimmick of beginning operations on March 1, once carried a market capitalization of more than $12 billion. It was formed from the merger of

Whittman-Hart

, a computer consulting company based in Chicago, and

USWeb/CKS

, a San Francisco-based company specializing in Internet design and marketing strategy, in a stock swap valued at around $5.87 billion.

It was MarchFirst's misfortune to begin operations in nearly direct synchronicity with a plunge in the valuation of Internet stocks. But while Robert Bernard, the company's chief executive, blamed the downturn in the Internet sector for the bulk of their troubles, it was the write-off that took Wall Street by surprise.

"The environment for professional services over the past few months has been challenging," Bernard said in a statement. "A number of factors have created this environment including the downturn in the market, changing e-commerce priorities and the weakness of the euro. During this same period, MarchFirst laid the foundation for long-term growth by completing our extensive integration process."

For the third quarter ended Sept. 30, MarchFirst said supplemental net income was $2 million, or a penny a diluted share, compared to $9.9 million, or 16 cents a diluted share, in the comparable quarter last year. Those figures do not include merger, stock compensation or amortization costs. Analysts polled by

First Call/Thomson Financial

had predicted earnings of 20 cents a share. Revenue increased 24% to $369.4 million from $297.2 million in the year-earlier period.

Without all the merger costs, which analysts in the survey had expected, the company reported a net loss of $437 million, or $2.86 a diluted share.

"There is at least a significant portion of this which is internal," said Mark Wolfenberger, analyst for

Credit Suisse First Boston

. "Clearly they've got issues that are beyond those of this sector."

In a conference call with analysts and investors Tuesday, Peter Murphy, who was promoted last month to chief financial officer, offered a limited explanation. Murphy, who built a career at the accounting firm

Coopers & Lybrand

and served as an executive at

Moore

(MCL)

and

Kraft General Foods

, said that in August the company began investigating two key accounts worth $45 million in revenue.

The company determined that the accounts, which Murphy did not name, should be written off as bad debt. According to the company, $25 million from one account was attributed on balance sheets to goodwill and $20 million from the other account went to general and administrative expenses.

"How do you let that large a receivable go out to a client when you're not sure you're going to be able to collect it?" asked Steven Birer, analyst for

Robertson Stephens

, which co-managed a secondary public offering for MarchFirst. Birer rated the stock a buy until Tuesday, and he was unsure whether he would alter his rating based on the new information. "Where'd the money go?"

Perhaps more importantly, Birer added, it seemed unclear where the money would continue to go. In the conference call, company officials said revenue would be flat in the fourth quarter and the first quarter of 2001, with 20% growth overall for next year. But that would seemingly contradict company officials' promises that they would continue to grow the consulting staff and attract more business, Birer said. And while the company called half of the deferred revenue an equity investment, it said it might recognize the other half in coming quarters, he noted, wondering why that factor would not boost revenues above flat.

In the call, MarchFirst officials said they will likely need another stock or debt offering to raise capital. They predicted earnings of 10 to 15 cents a share in the fourth quarter, compared to First Call's current consensus of 21 cents a share. For next year, they predicted earnings of 60 to 65 cents a share, compared to the First Call consensus of $1.05.

But after failing to pre-announce the missing revenue and telling analysts just weeks ago that the quarter was on track, the company, which has never missed estimates in 16 quarters as a publicly traded entity, lacked credibility on Wall Street.

"I don't have any faith in management right now," said Drake Johnstone, analyst for

Davenport & Co.

who rates the stock a hold and whose firm has not done underwriting for MarchFirst. "Given that Robert Bernard was the one on the Street giving this guidance, the best thing the company could do would be to fire him."