Diligent annual profit slides 40 percent as restatement costs mount; shares hit four-month high

Friday 28th February 2014

Diligent Board Member Services, the governance app software developer, reported a 40 percent slump in annual profit as the cost of restating its accounts overshadowed revenue gains after a series of accounting blunders.

Net profit fell to US$6.4 million, or 5 US cents per share, in calendar 2013 from US$10.7 million, or 9 US cents, a year earlier, the New York-based, NZX-listed company said in a statement. Revenue surged 66 percent to US$64.8 million from a revised down year-earlier figure. General and administrative expenses jumped 92 percent to US$18.4 million and the company faced special committee and other one-time costs of US$7.8 million. It expects more costs to come in the first quarter of 2014, it said.

On an operational basis, profit rose to US$10.3 million from US$7.6 million, Diligent said.

The shares gained earlier today after the company said it would meet today's deadline, and rose as high as $5.05, a four-month high, recently trading at $5.01, up 6.6 percent.

The company had until today to file restated accounts after recognising revenue too early under US GAAP accounting rules to avoid having trading in its shares suspended by the stock market operator. The effect of the restatements reduced previously reported revenue by US$4.6 million in the year ended Dec. 31, 2012.

"We lacked a sufficient compliment of trained finance and accounting personnel and did not establish adequate accounting and financial reporting policies and procedures as a general matter," the company said in an explanatory note. "In particular, there were material weaknesses in our control environment and the design, establishment, maintenance and communication of effective controls relating to revenue recognition."

During the review, Diligent found it had to reclassify a note receivable from a related party and has recorded provisions of US$700,000 and US$500,000 for the 2013 and 2012 financial years relating to uncollected sales tax in certain US states.

The company is still reviewing internal controls and will provide an updated assessment and related remedial activities in its amended annual report, it said.

Diligent had previously said it had 2,450 client agreements as at Dec. 31, from 1,808 a year earlier, with a client retention rate of 97 percent.

It had an operational cash inflow of US$27.1 million in 2013, up from a restated US$22.8 million in 2012, leaving it with cash and equivalents of US$56 million as at Dec. 31.

BusinessDesk.co.nz

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