I've been meaning to address this inexcusable act of mass destruction. Here's a play by play of this unprovoked annihilation of over $1B of market cap in a matter of minutes (can you feel the outrage?).
November 7 to November 14, 2012
A side note here as a point of interest: the average price dropped more than 8% during the week leading up to the "news release". This is compared to a steady price over the preceding months. Admittedly, a price movement like this during such a short time frame may be considered normal for a company like this, but nonetheless it's something to keep in mind if you're interested in efficient market theory. Also consider that the small handful of sellers who are in the know, would be offset by a large majority of buyers who don't know - the magnitude of gain for the smaller group is muted by the offset from buyers who see the drop in price as an opportunity. Only the OSC can tell if certain individuals benefited (directly or indirectly) from this event.
November 15, 2012 - PSN "Announces" Q3 2012 Results and "New Product and Service Offerings"
I had a difficult time choosing which words to exaggerate here - guess it could have been just the one word "PSN". In any case, you will see later that this "announcement" was part of the magic show.
- FY 2012 guidance was cut to $140M. The original guidance was $130M, then evolved to $170M and then $210M in May 2012 (right now, it's probably closer to 0 than $140M)
- Management's explanation for the unfavourable results/outlook was cyclicality in the industry they service
- Management hinted at the accounting magic during this release
- Let the lawsuits begin! And Poseidon says Bring It!!
At this time, I was still hopeful... a hopeful idiot, it turns out.
December 27, 2012
Management starts looking into their accounts receivable collection issues - they were having trouble collecting the money that their customers never owed them.
- Dividend suspended
- Special Committee formed
- Matt MacKenzie is no longer CFO (but will still work at the company until February)
- Lyle Michaluk (previously CEO) is now CFO
- Scott Dawson is CEO
At this time, I was too drunk from the holidays to lose hope - at this point I was delusional. This news release confirmed my biggest identified risk to the PSN stock - why was AR turnover so funky. What I didn't know at this time was that their AR and revenue were fictional works of art.
February 14, 2013 - Happy Valentine's day!!
- Michaluk leaves, along with his sidekick MacKenzie
- Accounting firm retained (E&Y), advising that 70% of previously recorded revenue and AR had never existed (Damn it, what happened to the magician code?! Never reveal!!)
- EY has identified that the misstatements are related to "long term take-or-pay arrangements"
- Oh shit, now that we erase the Asset column on the balance sheet, the Assets do not equal Liabilities + RE... aaaand 6 days later PSN is in default and stock ceases trading.
At this point, I am hung over. So let me get this straight. First it was the industry's cyclicality that was hurting earnings. Then the story takes a new direction and instead it's because their customers don't pay on time. And now... What?! 70% of your company has evaporated? You know, there are a lot of people ($1B worth of people) who are relying on this information (or lack thereof) to make decisions.
April 9, 2013 - CCAA Protection
At this point, I've regained some sense of reality and am wondering - why is Mike Tyson in my room? And why is he singing Phil Collins?
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Had enough? It's painful, I know. I'll just take a break here, since most of the pain has been delivered at this point. Stock is worth zero - from here, there's nowhere to go but up!
I'd like to do some research on the accounting for long term take-or-pay arrangements and will report back in a few days. I also want to address money flow (where did all the money go?), the auditors, the investment community and how Management played them all during the months leading up to this catastrophe. All in all, in order for an open market to work, someone needs to be held accountable for providing reasonably reliable financial statements (which are, by the way statements of fact, not opinion). We can't have everyday investors second-guessing reported actual results.
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