State budget decisions in Oregon and Colorado have put SciQuest (NASDAQ:SQI) in a bind, leaving the company to revise its revenue expectations for the rest of the year as those two states who had signed on to use the its software are now financially pressed to pay for it.
SciQuest provides cloud-based software used by businesses, universities, states and other entities to manage their purchasing. During a conference call to discuss second quarter financial results, CEO Stephen Wiehe said that Oregon and Colorado, which signed on with SciQuest in 2011, have yet to go live with the software they purchased. They’ve stopped implementing the software and are not intending to make future payments, Wiehe said.
The loss of Colorado and Oregon as customers would reduce revenue by about $750,000 per quarter. While SciQuest is taking a conservative approach and planning on losing that revenue, the company doesn’t believe the states have the right to end the contracts and is taking steps to enforce them.
“The position we’ve taken is they do not have the right to terminate,” Wiehe said, according to a transcript provided by SeekingAlpha. “They have noncancelable agreements. But in the spirit of transparency with our investors, as what I committed during the IPO, we felt we wanted to go ahead and tell them about this so that if push comes to shove and we’re unable to resolve it, there is no surprises.”
Wiehe said that Colorado and Oregon are the only two states that have not followed through on implementing the software after initially signing up. He said that the risk that other states would do the same is low.
The original five-year deals entered into by Oregon and Colorado were signed under the Western States Cooperative Purchasing Alliance, or WSCPA. The group, consisting of 14 Western states, wanted to work together installing common procurement systems allowing the WSCPA to act as a purchasing organization. Wiehe said that following changes in the administrations of both Colorado and Oregon, the WSCPA became less important to them.
Wiehe said that SciQuest’s sales were also affected by a leadership transition; the company in May hired a new senior vice president of worldwide sales. Wiehe said that Doug Keister has had some significant customer wins but the company underestimated the impact that the leadership transition would have on second quarter sales.
With revenue challenges, SciQuest adjusted guidance for the year. Full-year revenue under generally accepted accounting principles is now expected to be between $84.9 million and $88.5 million. In the first quarter, SciQuest had said it expected revenue 2013 revenue to be between $86.1 million and $90.1 million.
