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Diligent won’t meet deadline for first-half results, sees Feb. 28 delivery date

Diligent Board Member Services [NZX:DIL], the governance software developer, says it won't meet a Dec. 12 deadline to release its first half results and now expects then to be as late as Feb. 28, when it is due to publish its full-year report.

The company said NZX has indicated it won't suspend trading in Diligent's shares provided it meets the new Feb. 28 deadline. The delay comes as it ploughs through a major exercise to restate its results for fiscal 2010, 2011 and 2012 to adjust for revenue that was recognised earlier than is accepted under US GAAP rules.

"The restatement process is very complex and time consuming and involves reviewing the recognition of revenue for approximately 20,000 transactions over the period covered by the restatement," the company said.

"Due to limitations in the company's legacy accounting systems, extensive manual spreadsheet entries are necessary in order to recalculate revenue and deferred revenue using the new revenue recognition conventions," it said. The "revenue recognition errors" identified by Diligent don't affect the total revenues ultimately earned or to be earned.

The delays mean shareholders have limited information about the performance of the company. While it can't disclose detailed financial results because of the ongoing restatement process, it does expect to be able to release "selected operating highlights for the company's fourth quarter" in mid-January.

"We are looking forward to providing investors information about the performance of our business and initiatives for future growth," said chief executive Alessandro Sodi. Still, "until the restatement process is complete, our ability to provide business information to our shareholders is limited because of disclosure laws in New Zealand and the US that prohibit us from providing financial information that might be deemed to be incomplete."

The company last announced a delay in completing its financial statements in October.

The shares declined 5.2 percent to $3.65 and have fallen 30 percent this year.

(BusinessDesk)

Comments and questions
12

Ironic that a business that is in the business of governance again fails to make deadlines.
The result of a culture of being above the law? normal governance rules dont seem to be of any consideration some folk.
What do HWM, NZF and Diligent have in common?

The sad thing is that with the hype on these stocks, if they actually had their act together and had really fronted and nailed this issue, they would probably be up 30 percent....

This has been an hugely expensive process for everyone involved for what I hope is a very minor impact on the business (valued on cashflows, not arbitrary accounting rules).

Oh dear.

State of the art software. Yet they are running excel spreadsheets to manage this mess.

The problem Diligent have is they outgrew their accounting software and Accountant long ago. Brian Gaynor sold out all of Milford's shares at the top, he is no fool. Any company wishing to be listed in the USA and especially with software must have revenue recognition down pat. Computer Associates was a huge up call in the USA a few years ago when license fees were recognized fraudulently (same happened with ENRON and power).

This could still turn out very badly for Diligent even if their software is great.

So what you are saying is that this company has the wrong people managing it?

Surely any good management team would have had the foresight to know when a new accounting platform would be required and that having an ace CFO on board be mandatory.

This is one over hyped company
The in ability to file results on time bodes well for zero
The Brian Henry influence is the major impediment here
Let's see what comes out of the FMA investigation of Henry and his
Artful share trading ...

Installation fees taken up early. Supposedly meant to be spread over 9 years but all being taken in one year.

If that is the case then significant change in revenue is likely. However if the "installation fee" is for services provided by people who were paid wages then the income is recognized at the same time as the cost.

The problem (if one exists) will be if the installation fee is out of all proportion with the human cost, in this case the fee is treated as part of the "license to use" and because it is SAAS that fee has to be spread over the life of the use. Not sure how that life would be determined but it has to be multiples of years as you said in your comment.

As per DIL's statement:

' The Company recognized revenue from installation fees under the Company's customer agreements over the twelve month contract term, rather than the period during which the customer receives the benefit of the installation services.
The effect of the Company's prior policy also was to accelerate the time when revenues (in this case installation fees) were recognized. The Company expects to correct this error by recognizing revenue from installation fees over an estimated nine-year customer life, based on current customer history and renewal rates. '

It only has to be spread over 9 years as that is the estimated life of the customer, not the contract period - one 'problem' with having a 97%+ retention rate. This is only a small part of their revenue. The cash is still received upfront.

Does anyone know over what period do SkyTV spread their installation fees?

From the responses above it appears that the quantum of revenue shift from one year to the next may not be significant, and in that case the drop in share price is telling us something else is concerning sellers.

Next support levels for the price are $2.60, $2 and then $1 Given that there is USA end of year approaching these levels could easily be tested even though Diligent are profitable.