Continuus Stock Plunges After Loss Report

Continuus Software Corp.’s stock tumbled Tuesday after the Irvine Internet software company warned that it will post a loss for the first quarter and that revenue will fall below estimates.

The shares fell 35.5%, or $2.69, to $4.88 in Nasdaq trading, the ninth biggest percentage loss in U.S. markets. Earlier in the session, the stock slumped to $3.69, its lowest point since the company went public late in July.

In a prepared statement, Chief Executive John Wark blamed the disappointing financial results on delays in “a handful of significant deals that we expected to close late in the first quarter.”

Continuus, which provides products for corporations to develop and enhance their Internet software systems, said it expects to post a first-quarter loss of 15 cents to 18 cents a share on revenue of $9.9 million. Analysts had been anticipating a profit of 3 cents a share on revenue of about $11.3 million, according to a survey by First Call/Thomson Financial.

Continuus said the shortfall won’t affect total revenue expectations for the full year.

Since the revenue shortfall only accounts for part of the bottom-line woes, however, Wall Streeters wondered whether there weren’t deeper problems.

The company, which was founded in 1987, competes with Rational Software Corp. and London’s Merant PLC.

The three companies, along with some larger rivals, offer software with comparable functions, said First Albany analyst Damian Rinaldi, who is bullish on Rational. But Continuus has “a smaller sales force and a management team that has not had the same reach or breadth as other competitors, so you end up with a vendor essentially operating at the second or third tier,” he said.

Late Tuesday, CIBC World Markets analyst Melissa Eisenstat lowered her rating on Continuus Software from buy to hold.

Company executives attributed the first-quarter shortfall to six-figure deals, as many as five, that slipped to the second quarter, Eisenstat told clients in her note. But she said the warning “causes us concern about the company’s ability to grow at the rate we had projected for the year as a whole, since the comparisons become harder going forward.”

Although management said its outlook for the year remains unchanged, she said that her revenue and earnings estimates will have to be “revised down substantially.” She currently forecasts in 2000 revenue of $54.7 million and earnings of 27 cents a share. In 1999, the company earned $270,000, or 3 cents a share, on revenue of $37.3 million.

Eisenstat also said that operating expenses in the first quarter were higher than she expected because in addition to the hiring of new sales and research staff, a recent acquisition has raised costs. So even if revenue had matched top forecasts, “earnings would have been light,” she said.

Continuus executives could not be reached for further comment.