Peregrine Shares Tumble After Earnings Warning

The stock fell 36 percent, or $5.24, to close at $9.27, and was the biggest loser in both net and percentage terms on the Nasdaq stock market. The stock fell as low as $8.55, its lowest level since May 1999.

San Diego-based Peregrine, whose software is designed to help companies manage their employees, assets and purchasing, sharply cut its fiscal third-quarter results forecast late Wednesday.

"There were really three primary areas of contribution to the shortfall in revenue: Europe, our managed-services provider customer segment and the direct sales of our business relationship management products," CEO Steve Gardner told analysts in a conference call Thursday morning. "Europe was by far the biggest issue of the December quarter, accounting for over almost 75 percent of the shortfall."

Peregrine says that for the third quarter, ended Dec. 31, it expects revenues of $175 million, 20 percent lower than its October forecast and also lower than the consensus forecast of analysts polled by Thomson Financial/First Call.

Historically, Europe has accounted for 40 percent of Peregrine's total license revenue--sometimes as much as 50 percent. But during the third quarter, European revenues are expected to account for only 20 percent of total license revenue of about $75 million.

Gardner says he expected the fourth quarter to be "no worse than December."

The company expects to issue further guidance during its quarterly conference call Jan. 24.

Gardner says the company probably will cut its staff but it will not be an across-the-board reduction. At the end of December, Peregrine had about 3,900 employees.

"What we're going to be doing now is looking at each of our business segments and making sure we have the appropriate amount of expense matched to revenue," he says. "Undoubtedly we will have some reduction in force in certain elements of the business."

Peregrine forecast a third-quarter pro forma net loss of between 7 cents and 8 cents per share, excluding $75 million in acquisition and restructuring costs. Including those costs--the most significant of which were from the acquisitions of Harbinger, Extricity and Remedy--Peregrine says its loss would be 32 cents to 33 cents per share.

As recently as Oct. 24, Peregrine told analysts it expected third-quarter earnings of 10 cents a share and fourth-quarter earnings of 11 cents a share. Analysts had expected a profit of 7 cents to 11 cents a share before unusual items, with a mean estimate of 10 cents, according to First Call.

Following the announcement, FAC/Equities analyst Damian Rinaldi, lowered his rating on the stock to a "buy" from a "strong buy," lowered the price target to $19 from $25 and cut his earnings estimates for Peregrine's fiscal 2002, 2003 and 2004.

Although Europe's economic slowdown contributed to Peregrine's problems there, the company's sales staff also had problems executing sales efficiently after Peregrine's European General Manager Jerry Crook left in October.

Gardner says the company will announce Crook's replacement on Monday, but added that the change will take a while to be effective.

"He is someone who has a lot of experience in enterprise software in Europe," he says.

Another problem was Peregrine's sales to management-services providers such as Electronic Data Systems and IBM's Global Services unit, he says. Such sales were hot during the first half of 2001 but tumbled in the third quarter as management-services providers cut back in a weak economy.

Peregrine's business relationship management arm, which includes new agreements to resell some of its products or have them bundled in with others by IBM and BEA Systems, did not debut as well as expected because of poor execution, Gardner says.

"We expect this area ... to be the most readily fixable," he says.

The third quarter loss comes after Peregrine lost $522 million, or $2.91 per share, in the second quarter. Those results included charges from its acquisition of Remedy. Excluding unusual items, it earned $8.4 million, or 5 cents per share in the second quarter.

Peregrine shares fell nearly 25 percent in 2001, while the S&P Software index gained less than 1 percent.

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