A Material Change at SciQuest? by Jon Hansen

Posted on September 6, 2015

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Analysts, however, didn’t share his unwavering confidence, with Stifel, Nicolaus & Co, Inc’s Tom Roderick asking what assurances Wiehe could offer that implementation issues didn’t contribute to the contract dispute.

“How much comfort do you have that we won’t see this sort of situation replicated with other large bodies?” he asked.

Wiehe repeatedly insisted Colorado and Oregon were isolated cases. “The other states are either fully in production or their implementation projects are well underway,” he said. “So we assess the risk as very, very low. Having said that, I’m asking you to take my word for it, and it’s difficult for me to give you other facts other than that.” – from the August 2nd, 2013 Triangle Business Journal article SciQuest shares spill as two customers backpedal

Back in 2013 Stephen Wiehe gave the above response when asked about potential issues with implementations. In other words, Colorado and Oregon were “isolated cases” and that the company did not have any “implementation issues.”

While one can only speculate upon what facts, in 2013, Mr. Wiehe was basing his statements, the following audio excerpts – which were provided to me by insiders – from the company’s most recent Q2 Scoop session, tell a much different story today.

“we’ve constantly heard from customers that integrations are too timely and costly to them” – SciQuest CFO Jennifer Kaelin Q2 2015 Scoop Session (Note: you can access the Kaelin audio excerpt through the following link – between the :21 and :32 mark) (NOTE: You may have to sign-in to Box.com to access the audio clip – you can also setup a free account)

Bear in mind that this is the company’s CFO talking about the very integration problems to which I had referenced in my previous posts, and first heard about from my sources outside of the company – including end-user clients.

However, and as telling as the Kaelin audio revelation is, it is actually the following words of CEO Wiehe that are even more notable.

In the first of two audio excerpts, Wiehe makes the statement that “we’re still playing a little catch-up with the development and products that we’ve got we’re going to shift to high gear into more of an offensive mode.” He then goes on to talk about a whole “new messaging” and “new product positioning.” You can listen to this audio excerpt through the following link – between the :03 and :12 mark.

In a second excerpt, Wiehe then makes the statement that “we’ve made some great progress in reducing implementation times . . . working on how to install this in weeks and days, rather than months and quarters.” You can listen to this audio excerpt through the following link – :41 to :52 mark.

It is clear by both Kaelin and Wiehe’s own words, that the problems about which I had written, and that they have challenged as being libelous and/or slanderous, are in fact real.

Wiehe then goes on to say that “it’s starting to pay off,” and “we’re seeing it with our customers.”

But is it? Is it beginning to pay off?

Besides the clients to which I had previously referred in my most recent post, there now appears to be many more clients with issues. I will talk about those in a moment.

However, and as an update to my August 26th, 2014 post Is Duke ready to make a move away from SciQuest, the institution has in fact issued an RFI. I will leave it to you to draw your own conclusions as to what this may or may not mean.

As for the State of Ohio – and despite the reported comment by Wiehe in the Q2 Scoop session that “Ohio loves us,” that State has just issued an RFP.  As it was explained to me, there “will be a change to the catalog piece” (which is presently with SciQuest), and that “this part will be bid later.” While SciQuest admittedly has the same chance as everyone else to win the RFP, it was also pointed out to me that the”key point” is that there are “plans to do a bid rather than a re-new of an existing contract.” Once again, I will leave it to you to draw your own conclusions.

This provides a segue into the next revelation.

Based on the information that was provided by another inside source, there have been approximately 50 clients over the last 10 to 11 months, who have either cancelled or did not renew their contracts with SciQuest.

While some have been smaller clients, there have also been more noteworthy losses, as demonstrated by the following copy of an internal e-mail, which indicates that Purdue University had made the decision to not renew its contract with SciQuest. This contract was worth $251,600 per year.

SciQuest Purdue Cancels

Other names that were provided include Louisiana State University, Time Warner, Howard University and pharmaceutical company Quintiles. Quintiles, it should be noted, is where former SciQuest controller Chris Barbee is currently employed as the Senior Director Finance. I find this to be a somewhat interesting coincidence.

One of the things I want to stress is that when I received the above information, one of the questions I asked was whether or not it would be a normal procedure for a client such as Purdue, to cancel a contract before entering into another contract with the company. I asked this question, because I wanted to be both thorough and fair in that if this is part of a normal administrative procedure, I would report that as well. The answer I received was no. Given that the above e-mail advises the recipient(s) to “close out their site and discontinue any work,” would seem to confirm that Purdue is no longer a client.

Here is the point regarding both the Q2 Scoop session audios, and the client losses; if the company discloses to the financial community that they had landed 20 new clients in Q2 2015 – which was a notable improvement over the 11 new clients they added in Q2 2014, wouldn’t a loss of 50 clients over a 10 to 11 month period warrant a similar disclosure?

As an investor or potential investor, I would also like to know that the CFO made the statement that the company has “constantly heard from customers that integrations are too timely and costly”, or that the CEO is admitting that“they are still playing a little catch-up” and that they are working to install their solution “in weeks and days,” as opposed to the current “months and quarters.”  Just to reiterate, this confirms what I have been told by sources and have written about in this blog regarding implementation issues.

In other words, would this be considered a material change, in that it would have an impact on an investor’s decision to put money in the company? Would it have an impact on your decision to invest in the company?

This leads into the next revelation.

“I stumbled across your blog quite by accident, but found it very interesting . . . Toxic is exactly how I would describe the work environment, and your assumption that Rudy Howard was fired is correct. That was about two weeks after the Controller, Chris Barbee, was fired – completely out of the blue.”

It would appear that whatever is being said about me within SciQuest – something about which I will go in to greater detail in my next post, has actually motivated people to come forward with even more information.

While many within the industry – myself included – were left wondering about the true nature of Howard’s sudden departure, I was not aware that 2 weeks earlier Barbee also left the company. While the official word was that Barbee had stepped down, sources within the company seem to indicate otherwise.

This again raises the questions that I had posed in my August 3rd post Assessing former CFO Rudy Howard’s departure: Is SciQuest’s Wiehe looking for true leaders or puppets?

It is fairly clear, by their own admissions surrounding customer push-back regarding integration issues and having to play catch-up – let alone client losses, that the company is experiencing some serious challenges. In such a situation, I would want my most experienced finance people right there with me. From everything I have researched about both Howard and Barbee, I would do everything I could to hold onto these individuals – whom it should be noted had both landed on their feet with their new companies, almost immediately after they left SciQuest.

Once again, look at both Howard’s and Barbee’s respective backgrounds.

For example, both are active CPAs.

By comparison, I was informed that SciQuest’s current Vice President of Finance, Lisa Baker – who for the past five years has been an executive coach, has an inactive CPA license. What makes this odd, at least according to one of my CPA friends with whom I have spoken, is that the “majority of the employment listings in finance from senior accountant on up, list certification as a CPA as a requirement.”

Again, and no disrespect meant towards Ms. Baker, but why, when the company is going through such a difficult period, would you make changes in these critical executive positions? Even if they were not fired, you still have to wonder why Howard and Barbee would leave at this particular point in time?

At the end of the day, what is becoming clearer is that there are more troubling questions surrounding SciQuest, than there are answers.

Coming back to the opening paragraphs of this post, there is a world of difference between Wiehe’s assertion that “Colorado and Oregon were isolated cases,” and current CFO Jennifer Kaelin’s statement that “we’ve constantly heard from customers that integrations are too timely and costly to them.”

It is the gap between this public assertion and private admission, as well as the other points of conflicting messages, that warrant further investigation.

In my next post I will address head on the accusations by Stephen Wiehe that I am not being truthful in my posts, his reference to me being like Big Foot and, his statement that I have an agenda. This last point is particularly interesting, in that it was reported to me that he had indicated to some that I was being paid by a SciQuest competitor to write these posts.

You can follow my coverage of this story on Twitter using the hashtag #SQSLAPP.

Posted in: Commentary