InPhonic's Dropped Calls
Web-based wireless phone reseller InPhonic (INPC) announced that it has to correct its June 30 and Sept. 30 quarter financial results for 2006, amid accounting errors that will add between $5 million and $7 million of loss. Investors dumped the stock on Apr. 3 after the news.
The estimate is subject to change until InPhonic's accounting review is complete. The company also expects to revise its results for the year ended Dec. 31, according to an Apr. 2 filing with the Securities & Exchange Commission.
The errors involve the company's accounting of when it received services revenue in 2006, as well as its process for recording fees due from consumers when contracts are canceled without returning wireless devices as agreed.
InPhonic management "identified a material weakness in its control environment" because the company didn't have enough employees with the training to use generally accepted accounting principles, the company said in its filing. As a result, the company couldn't properly perform certain accounting procedures in a timely manner. The company is required to provide an evaluation of its internal controls when it files its annual report for the year ended Dec. 31, but says it may need several quarters to fix the staffing problem.
After the news, InPhonic shares fell 11.7%, closing at $9.15 in Nasdaq trading.
The company also lowered its unadjusted 2007 earnings per share guidance to between 24 cents and 27 cents. In one example of how that surprised some market players, Standard & Poor's analysts Ari Bensinger and Chris Muir had made an unadjusted estimate of 30 cents per share. Adjusted for options expense, S&P's estimate is a loss of 2 cents per share.
While noting the recent news, S&P nonetheless maintained a 12-month target price of $15 per share on InPhonic stock. "We like INPC's strong market position in the fast-growing wireless-phone Internet market and its new residual revenue model," the S&P analysts said in a research note. (S&P, like BusinessWeek.com, is owned by The McGraw-Hill Companies.)