Cysive's Stock Plunges 42%; Reston Firm Terminates Contract With Biggest Customer

Shares of Cysive Inc., a Reston builder of electronic commercesystems for businesses, sank more than 42 percent yesterday on newsthat the company had dropped its largest customer and could suffer a$5 million decline in revenue this quarter.

After announcing that it had terminated a contract with CorPaySolutions Inc., a Washington-based provider of transportation andfreight-processing services to large companies, Cysive's share pricefell nearly $6 to close at $8.12 1/2 on heavy Nasdaq volume of nearly14 million shares.

CorPay had engaged Cysive in October 1999 and paid the companyabout $4.5 million through June, both companies agree. But last montha dispute developed over the progress of the applications Cysive wasdeveloping for CorPay, and CorPay withheld further payment.

"We came to the conclusion that the likelihood of getting paid waspretty low, and that presented an unacceptable risk for ourbusiness," said Nelson A. Carbonell Jr., Cysive's chief executive.The company intends to take "the necessary legal steps" to collectfees it maintains CorPay owes it for work done up to Cysive'stermination on Tuesday, Carbonell added.

CorPay issued a brief statement yesterday acknowledging that thecontract had been terminated by Cysive but asserting that it received"no value and no deliverables" for the $4.5 million it paid Cysive.CorPay said that its development project with Cysive was behindschedule and over budget and that it will seek to recover the $4.5million already paid for the project.

Officials at CorPay could not be reached for further comment.

In terminating the contract, Cysive will forgo about $3.9 millionin anticipated revenue this quarter and $1.5 million in the fourthquarter. Factoring in other costs incurred in canceling the contract,including bad-debt expenses, Cysive expects to take a hit of $5million this quarter, or 12 cents per diluted share after taxes,Carbonell said.

Wall Street analysts surveyed by First Call/Thomson Financialwasted no time yesterday lowering their consensus estimates ofCysive's third-quarter earnings, to a loss of 6 cents a share from aprofit of 6 cents per share, said Charles Hill, First Call's directorof research. For the fourth quarter the consensus estimate shrank to3 cents per share from 6 cents a share, and to 7 cents per share from22 cents for all of 2000.

Its contract with CorPay represented 15 percent of Cysive'srevenue, noted William Loomis, an equity analyst at Legg Mason WoodWalker Inc. in Baltimore. Small service companies such as Cysive areparticularly vulnerable to problems that arise with their largeclients, and they typically remain at risk until they grow largeenough to spread their business among more clients.

Cysive, which generated revenue of slightly more than $25 millionand posted a net loss of $6.4 million in 1999, gets 53 percent of itsrevenue from its top five customers, Loomis said. Like other Internet-related issues, Cysive stock has been battered this year. Yesterday'sclosing price was more than 87 percent off its March peak of $63 pershare.

But Loomis isn't throwing in the towel on the company.

"With $4 in cash per share on the balance sheet and no debt, and,outside of CorPay, business going very well and growing strongly, thevaluation looks attractive," he said.