Shares in Riverdeep plunged by 23 per cent to an all-time low of €0.85 as the company claimed yesterday it was the victim of a smear campaign by a US short seller.
The educational software publisher released first-quarter results yesterday but they were overshadowed by growing concern about the company's approach to investor communications.
Chief executive Mr Barry O'Callaghan's failure to host a question-and-answer session as part of the routine conference call with analysts after the results raised eyebrows in the investment community. Although Mr O'Callaghan said the company was happy to speak to investors privately, it did not go down well with some of those taking part in the call.
However, the company also believes it has been the victim of unfair treatment, stemming from the activities of a single US trader, who has held a short position in the stock for the past two years. Riverdeep believes he has been trying to drive the share price down so he can buy shares cheaply to cover his position.
"We have been the subject of a conspiracy and an extremely well-orchestrated one by a hedge fund which has been trying to discredit our growth," Mr O'Callaghan said. The activities of the short seller were a key factor in the company's decision to delist from the Nasdaq. But recent trading patterns in Dublin - including heavy trading towards yesterday's close - have caused concern that he may be continuing his activities even though the shares are now only listed on the Irish market.
Riverdeep reported adjusted net income of $11.9 million (€11.8 million) in its fiscal first quarter after excluding non-cash charges, compared to $3.2 million in the same quarter a year earlier.
But after a restructuring charge of $8.2 million related to its acquisition of Broderbund, it posted a net loss of $110,000 for the three months ending September 30th. The charge was taken to cover the cost of 200 redundancies and the integration of Broderbund's facilities in California and Washington.
Revenue in the quarter was up by 92 per cent to $56.7 million, boosted by contributions from The Learning Company. Mr O'Callaghan said Riverdeep was on target to deliver $205-$225 million in revenue this year and adjusted net income of $45-$55 million.
Next year, he expects the school business to grow 10-15 per cent in a tough budgeting environment while any improvement would lead to better growth prospects. Riverdeep's consumer business should grow at 5-10 per cent and these growth figures, combined with fixed cost base, should generate earnings growth of 20-25 per cent, he said.
Reflecting the lack of consensus in the market, the results were ahead of Goodbody's forecasts but behind those of broker Davy which described the drop in gross margins as "particularly disappointing". Merrion, which has been critical of the company's lack of visibility and management's approach to communication with the financial markets, noted revenues were ahead although margins were also below its expectations.
Analysts were concerned the results did not contain the same level of detail as in previous quarters.
