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Internet Security Systems'


efforts Thursday to quell market rumors about management departures didn't have their intended consequence.

Shares of the heavily shorted Atlanta software maker fell to their session lows right after the company told a special conference call that turnover hasn't been out of the ordinary. In particular, the company said stories that its head of sales, Larry Costanza, had left were flat-out wrong.

The stock, which headed up before the call, closed down 8.7% to $23.71, moderately above its worst levels of the day.


"Perhaps some investors were speculating that management would have given a more granular level of detail on the conference call," said Stephen Sigmond, an analyst at RBC Capital Markets. "But they didn't say who or how many people have left the company."

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On the call, which lasted only a few minutes, the company reaffirmed its guidance for the first quarter, saying it expects $58 million to $60 million in revenue, and pro forma earnings of 10 cents to 11 cents a share.

"It was an odd call because the company didn't give investors any incremental data to make them feel more confident," said Eugene Munster, an analyst at U.S. Piper Bancorp Jaffray.

About a week ago, hedge funds started rumbling about sales-force departures at ISSX. "There's been some turnover, but the attrition has been normal," said Bob Lam, an analyst at Bear Stearns.


In a research note on Wednesday, Thomas Weisel Partners also said it wasn't concerned about staff issues. "We don't see any unusual patterns at ISSX, and furthermore, would expect the company to continue to experience some turnover every quarter," said Tim Klasell, an analyst at Weisel.

After Sept. 11, shares of Internet Security Systems, which makes software that allows users to look for security problems in their networks, ran up sharply. The stock is still up 160% since a September low.

"This is a volatile group, which has become expensive over the last few weeks," said Christopher Russ, an analyst at Wachovia Securities. "The shorts are taking advantage of excessive valuations."