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Technology Stocks : Art Technology Group Inc - (ARTG) -- Ignore unavailable to you. Want to Upgrade?

To: -Mad-Jon who wrote (136)	11/8/2000 11:50:35 AM
From: Sam Citron	Read Replies (1) \| Respond to of 167

Jon, I think the reason for the extremity of the sell-off is a credibility issue. It seems that ARTG was not as forthcoming with the street as it might have been earlier concerning these receivables. The timing of these revelations in the midst of a secondary offering is a bit like GWB's DUI arresy surfacing 4 days before an election. It's having the effect of making institutional investors a bit skittish... Excerpt from "Did ARTG Try to Paint A Better Picture OF Itself" by Herb Greenberg 11/08/00 in RealMoney The Street.com thestreet.com "When I first heard from a source yesterday that Art Technology (ARTG:Nasdaq - news - boards) had factored $10 million of its receivables bills owed by customers my first question was: Do they have recourse? There's absolutely nothing wrong with factoring, or selling, receivables to a bank. Companies do it all the time to raise cash in return for taking a slight haircut, or discount, on the amount they otherwise would have received. If they're sold without recourse -- as Art did -- the receivables can't come back and haunt the company if any of the customers turn out to be deadbeats, and therefore shouldn't be included in a calculation of the real receivables days outstanding (DSOs). In the case of Art, based on its earnings report on Oct. 26, the real DSOs appeared fine if not great; they were flat at 64 days from the prior quarter. If DSOs had gone up it would've suggested that the company was pulling out stops to generate sales by offering incentives and generous payment plans to distributors and other customers. The result, of course, would have made a company's sales look better than they really were. That would have been especially alarming at a company such as Art, whose software is geared to the battered world of e-commerce and which (it just so happens) is trying to do a secondary offering, in which insiders are among the sellers. There was no mention of the factoring in the company's earnings report last week. But what's really surprising is that the factoring wasn't mentioned in the original registration statement, which was filed the same day as earnings were released (when Art's stock got pounded on slower than expected revenue growth). I say "surprising" because the factoring deal was signed with a bank in September! Instead, the factoring showed up in the 10-Q and an amended registration statement, which were both filed on Monday. Investors don't like those kind of surprises, so they were left to interpret it based on the numbers, and this is what they came up with: Had the receivables not been sold, DSOs would've shot up to around 84 days. (Which can only make you wonder why.) What's more (and this is important for a fast-growing, cash-hungry company like Art in what has turned into a rocky industry) is that Art's cash burn from operations from the prior quarter would've been more like $15 million rather than $5.4 million. (Remember, they received $10 million from the factoring; without it cash and cash equivalents would've been lower.) As word of the findings started to spread, Art's stock fell by 9% in the blink of an eye; I heard about it and mentioned it on the RealMoney.com Columnist Conversation. Another blink: the stock was down 19%. Why did the company, in the face of an offering to raise cash, have to do factoring? And why wasn't the factoring disclosed in the original registration statement? I called the company and asked, and was told the CFO would return my call; she didn't. But she did hold a conference call with retail and institutional investors to discuss the upcoming roadshow for the offering..." BTW, It appears that the factoring was nonrecourse (which is a positive for ARTG). It is odd that this is all being disclosed in this fashion: "street_jjcramer-gues: How bad is that receivable thing at ARTG Herb? Ten millon bucks? Can there be a reason for it besides stuffing to make the Q?? RM_Herb: Jim (Cramer), I have a call in the CFO who may be calling me back this very moment based on the beeps I keep getting on my phone. I think you always have to wonder why a company that supposedly is so hot, and which is about to do an offering for cash, would have to factor. Now, these receivables that they're factoring have no recourse, meaning that ARTG loses all liability, but right now there doesn't appear to be any explanation. Also, you don't know which receivables were being factored...the new or the old. I look forward to talk with the CFO. " thestreet.com Sam