Cautionary Tale for a Gilded Age
SAN FRANCISCO -- Ahead of a secondary offering expected to price this week, shares of
rose as high as 175 today before closing up 9.8% at 158 3/8. PurchasePro.com shares are now up an astronomical 808% since the company's 4 million-share IPO on Sept. 14.
In the past, you'd expect a stock like PurchasePro.com's to fall ahead of a secondary -- the B2B e-commerce firm plans to offer between 3 million and 3.45 million shares -- especially so soon after the company's 3-for-2 stock split, which was announced on Nov. 18 and took effect on Dec. 20. But while PurchasePro.com's stock screams "new era," amendments to its S-1 filing with the
Securities and Exchange Commission
yesterday suggest the old rules still apply, providing another reminder to executives, lawyers, venture capitalists and investors who may think otherwise.
In the amended S-1, PurchasePro.com added disclaimers to prior statements made about some of its business prospects, including statements made to this reporter (a.k.a. "me"). The SEC declined to comment (as it always does) on whether it is investigating PurchasePro.com for possible violations of quiet-period guidelines that apply around earnings and merger announcements, and so-called "follow-on" offerings as well as IPOs. But it's almost unheard of for a company to amend its filings without prompting from the agency or a material change to its business outlook.
Specifically, the amended filing refers to comments made by Charles Johnson, PurchasePro.com's chairman and CEO, in a Dec. 3 press release announcing the company's "strategic alliance" with
. "Although there is no guarantee, we anticipate generating up to $40 million in net annualized recurring revenue with this agreement," Johnson said in the release.
Apparently, that "no guarantee" comment was not enough of a disclaimer for the SEC, PurchasePro.com's lawyers (who did not return phone calls seeking comment) or anyone else involved.
In the amended S-1, PurchasePro.com explained the $40 million figure was based on "management's internally prepared projections," saying they were forecast to be realized in the second quarter of 2001. "These statements are forward-looking statements subject to risks and uncertainties, including the risk that the full revenue target may not be achieved," the filing says. It then provides some additional disclamation (yes, that's a real word and not some new kind of animation).
In addition, the filing cites a Dec. 3
article published here that quotes Johnson as saying he expects a "significant leap" in non-hospitality revenue in the fourth quarter. (PurchasePro.com started out serving the Las Vegas hotel industry but has since expanded its e-commerce offerings to serve small and medium-sized businesses in a variety of industries.)
"While we believe the percentage increase in our non-hospitality transaction fees in the quarter ending Dec. 31 will be significant, the amount of non-hospitality transaction fees will not be a material component of our revenues for that quarter," the filing states.
Pattern or Pittance?
As I first reported on
Nov. 3, PurchasePro.com's Johnson is nothing if not energetic and brash. With Johnson's 1,000 miles-per-hour style, it's not hard to imagine him making comments "on the fly" that could be misconstrued (although the company never requested I correct or clarify any statements made in any article about it).
Take, for example, Johnson's comment to me on Dec. 3 that "hospitality isn't our core business." The remark came in response to a short-seller's criticism that transaction fees in PurchasePro.com's hospitality business had fallen, raising questions about how it could successfully expand in other markets.
PurchasePro.com's amended filing did not directly address that comment, and I sense Johnson genuinely sees the hotel industry as where PurchasePro.com first tested its "model," but not necessarily as its prime focus going forward. But the following appears not only in the company's amended S-1, but also in the Dec. 8 original and a first amendment, filed a day later.
We have historically received substantially all of our revenue from companies serving the hospitality industry. A serious downturn in the hospitality industry could adversely affect us. Our dependence on members associated with the hospitality industry makes us vulnerable to downturns in this industry. Such a downturn could lead our members associated with this industry to reduce their level of activity on our e-marketplace.
Given PurchasePro.com's relatively short lifespan as a public company, Johnson's probably not as sensitive as he could or should be to the potential implications of his comments, especially during a quiet period. However, I suspect that's going to change, or that his "handlers" will keep him on a shorter leash from now on.
Judging by the performance of PurchasePro.com's stock, Johnson's aggressive wooing of the media has not hampered his company thus far. However, the executive and others of his ilk should take heed, as attorneys familiar with the SEC's internal policymaking say the regulatory body has been taking a more proactive approach to quiet-period transgressions. The watchdog is paying especially close attention to nascent public companies, suggesting PurchasePro.com may have just dodged a bullet by having only to amend its filing rather than postponing the offering.
"The most significant signal the SEC sent out to the community was the action they took on the
filing," said Scott Dettmer, partner at
Gunderson Dettmer Stough Villeneuve Franklin & Hachigian
Webvan action wasn't inconsistent with anything the SEC has articulated, but it was a dramatic and very visible reminder that issuers and their advisers need to be reasonably careful on quiet-period issues."
Dettmer, whose firm serves the Silicon Valley community and thus handles various SEC filings for a variety of companies, said IPOs garner the most attention from the SEC, but "if a company isn't careful on subsequent offerings, they will get tagged."
Citing quiet-period considerations, PurchasePro.com officials declined to comment for this article. They have an open invite to reply in this space after the secondary offering, should they choose to do so.
Tag. You're it.
Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at