BW ONLINE DAILY BRIEFING

STREET WISE by Amey Stone	June 24, 1999

For a business to have major E-commerce potential, it helps if its products and services can not only be bought and sold online but can actually be delivered via the Web. Products that can be distributed online can reach a larger audience less expensively and more efficiently than via traditional means.

While you might not think it fits the bill, corporate training is a business service increasingly in demand that has this kind of E-commerce potential. And Provant (POVT), a Boston company that provides a broad range of corporate training programs, is positioning itself to take full advantage of the trend. While it isn't an Internet play, Provant does have a big Internet opportunity.

Provant, formed through a roll-up of small training companies in 1998, is primarily a play on corporations' need to better train their workers to make them more productive. "Skilled labor is so scarce," says Brandt Sakakeeny of Salomon Smith Barney. "Increasingly, what companies need to do is hire unskilled labor and train them." While demand for information technology workers has garnered most of the headlines, IT training is actually only about 30% of total dollars spent on training, he says.

"VERY QUANTIFIABLE." Provant emphasizes what are sometimes termed "soft skills" -- training employees to become better managers or salespeople, or to give better presentations. "Some of it is very quantifiable" in terms of improvement in sales or level of productivity, says Bernard Picchi, an analyst with Lehman Brothers. One recent big win: On June 2, Provant nabbed a multimillion-dollar contract from Home Depot to provide diversity training to 30,000 department supervisors in all its locations.

Corporations are tired of dealing with dozens of small training firms for different needs, say analysts. By buying up small outfits (at a rate of roughly three or four a quarter), Provant can offer "one-stop shopping" for all a company's training needs, says its CEO, Paul Verrochi. "I believe we are 85% there" in terms of offering a full training menu, he says. But Provant will still do acquisitions to fill in gaps.

So far, the company's online program operates mainly through corporate networks, or intranets. In October, 1998, it acquired Strategic Interactive, which builds what Howard Block, an analyst with Banc of America Securities, describes as, "proprietary learning portals." Provant is converting its current training content to be delivered over these corporate intranets, which also keep track of employee coursework and report progress to supervisors.

On May 25, Provant launched its new E-commerce site, 1stoptraining.com. The site currently sells video and audio tapes, books, CD-ROMs, and self-study courses to small companies that can't afford customized stand-up training. Provant estimates that 25% to 30% of its training is technology-based, while in the industry only 5% is done online or through software. Provant plans to start marketing the new site at the end of July.

HYBRID LESSONS. Verrochi's vision for the "new paradigm of training" would incorporate both online and offline components. Instead of an executive taking a five-day course, which is costly for companies in terms of time spent away from work as well as hotel and travel expenses, the same executive would spend only two days at Provant instructor-led course. Prior to that, the course would include an online assessment phase and perhaps a primer course. After the face-to-face component, it would end back at the office with an online test and perhaps a supplemental online course to go over material that wasn't mastered. Verrochi believes 60% of the training that is done with instructors now will move online. "Technology-driven training is gigantic, and we've really just scratched the surface," says Sakakeeny.

Provant is already showing it can generate faster-than-expected internal growth and benefit from cross-selling different training programs to customers. On May 4, it reported fiscal third-quarter results that exceeded analysts' expectations. Revenues were $36 million, an increase of 82%. Net income was $2.7 million, or 18 cents a share, a 91% increase over the same quarter the prior year. Analysts had expected Provant to report earnings per share of 16 cents.

Provant has delivered on its goals, but its stock hasn't. The volatile shares reached a high of 24 3/4 on Jan. 4, but they have stumbled lower since then, despite a series of positive announcements. Provant closed on June 23 at 14 3/4. "We have exceeded earnings, we have exceeded internal growth rates," says Verrochi. "We have done everything over what we promised, yet the stock is at 14. Quite frankly, we are as perplexed as everyone."

OUT OF FAVOR. Analysts attribute Provant's slide to its being lumped in with other business and educational services companies, some of which have disappointed investors. "Anything to do with business services has not been the flavor of the month," says Picchi. Provant did a secondary offering at the end of January, which diluted earnings per share (but the additional $56 million raised and greater liquidity should help the company). Small-caps continue to be out of favor, as do roll-ups. That strategy is frowned upon now because of its perceived risk, says Sakakeeny.

"The stock is not necessarily reflecting the strength of the business," says Block. But analysts are putting their faith in Verrochi, who turned an ambulance company roll-up into a huge success in the early 90s. "Paul Verrochi is a great executor," says Mark Hughes, of C.E. Unterberg, Towbin. "He's proven in the past he can do it." Merrill Lynch analyst Michael Moe refers to Provant's "all-star management team."

Analysts, who recommended the stock when it was 10 points higher, now say Provant is undervalued. Most have price targets between $25 and $28. Given its long-term growth rate of nearly 30%, Moe believes Provant should trade at a multiple of 30 times calendar 2000 estimates of 90 cents a share, or $27. Its next earnings report, due on Aug. 10, could give investors more confidence in Provant's game plan. Says Verrochi says of the current quarter: "Things seem to be in line."

Of course, plenty could go wrong. Acquisitions could prove tricky to integrate, and training demand could drop off. "In a tough economic environment, it could be put further down on the list of must-do things," says Picchi. But Provant seems to have all its bases covered -- a full menu of training courses and a compelling strategy for delivering training online to large and small companies.

Stone is an associate editor at Business Week Online

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