Global logistics software developer WiseTech (ASX: WTC) has come under renewed attack from investment advisor company J Capital. WiseTech continues to reject all claims of impropriety and asserts J Capital is simply “wrong.”
As previously reported in FreightWaves, a fight has broken out between investment advisor J Capital, which has accused Australia-headquartered global logistics software company WiseTech of trickery in reporting its financial accounts. WiseTech has denied all allegations of financial impropriety made against it.
J Capital has come back for round two in this fight by, first, slamming WiseTech’s response to J Capital’s initial round of criticism as “weak,” and, secondly, it has issued a further scathing report. WiseTech is not happy and it has issued a new set of denials to J Capital’s latest allegations.
Following publication of the second set of allegations, WiseTech requested a temporary halt to trading in its shares on the Australian Stock Exchange. The software developer followed the same course of action after J Capital published its first set of allegations.
The initial allegations were published on Wednesday, October 16 and WiseTech’s share price was then A$33.40 per share. By Monday, October 21, the price had fallen by 23.17% to A$26.30 per share. There was a rally on Wednesday, October 23 to A$28.53. But by market close on Thursday, October 24, the price had fallen to A$26.58.
Renewing its attack: J Capital
“WiseTech’s response to our first report follows a well-worn playbook by cherry-picking immaterial points to refute, remaining silent on major points, and taking a high moral tone about “short sellers.” Tellingly, the company failed to provide any information on the abrupt resignation of the head of the Audit Committee, and it confirmed that, indeed, key subsidiaries with the majority of profit are not individually audited,” J Capital said in “WiseTech Part II: the Closer You Look the Uglier it Gets.”
J Capital goes on to say that, since the software company’s initial public offering, WiseTech has spent $400 million acquiring 34 companies. “We do not think the acquisitions have been great logistics software companies that can gain from being part of the WTC network. Instead, WiseTech’s acquisition spree looks like a frantic effort to maintain the narrative that this is a fast-growing technology business,” according to J Capital’s report.
J Capital also claims, based on what it says are interviews with “18 former employees and competitors” that most of WiseTech’s acquisitions remain “stand-alones” because WiseTech fails to put resources into integrating the companies.
“When WiseTech does attempt to integrate these business, it usually raises prices on existing customers, and they tend to go elsewhere,” J Capital alleged.
Further key allegations made by J Capital in its 31-page report are that the acquisitions are poorly integrated; that WiseTech has been offering “virtually free access” to its flagship CargoWise software to counteract an alleged decline in the Australian market; that the company is misleading investors that customer attrition is less than 1% and that there is allegedly a “huge churn” in acquired customers; that WiseTech has misrepresented its client relationships; that WiseTech’s customer service is “allegedly terrible” and that 25% of its customers want to switch providers.
On its website J Capital discloses it is a short seller and that both it, and its clients, have the potential to benefit from any fall in share prices.
WiseTech: it’s a campaign to “destabilise the business”
Richard White, the founder and CEO of WiseTech, described the release of the reports as a “campaign” and an attempt to destabilise the business. He added that the WiseTech business is in “great shape.”
“It’s the nature of such a campaign, as an attempt to destabilise the business driving down the value of our stock, and this can have the effect of misleading and manipulating the marketplace. We are doing everything we can to make sure that our investors can make informed decisions. We reject entirely the allegations of financial impropriety and operational misrepresentation. We are subject to comprehensive independent verification and audit processes and I can assure you the business is in great shape,” he said during an investor briefing.
White rejected all allegations of financial impropriety and he asserted that the company would meet its previously issued financial guidance.
“We confirm our guidance for the FY 20 [the 2020 financial year] of revenue of A$440 million to $460 million, with revenue growth of 26% to 32% and an EBITDA of A$145 to $153 million; and EBITDA growth of 34% to 42%,” White told the briefing.
In a written statement to the Australian Stock Exchange, WiseTech said that there “are many wrong and misleading statements throughout the Report.” It added that it rejects the claims of financial impropriety and irregularity contained in J Capital’s report.
WiseTech reiterated its previously announced statements that it provides logistics solutions to over 12,000 logistics organizations across 150 countries. It further repeated that all 25 of the top 25 global freight forwarders are customers, as are 43 of the top 50 global third-party logistics providers. It said that it is “still in early penetration of both new and existing customers” and that 22 of the 25 top global freight forwarders are using CargoWise One “specifically.” It added that J Capital’s claims that only six of the top 25 are using CargoWise One are “wrong.”
WiseTech added that there has been “significant growth” in the major customers’ usage of CargoWise One in the past four years and that J Capital’s claims “are wrong.” The software company stated that CargoWise One has less than a 1% customer attrition rate and that J Capital’s claims are not correct.
White told the investor briefing that the attrition rate for CargoWise One includes attrition from all sources including bankruptcies, closures and departures. He added that the company examines the reasons why any customer stops using CargoWise One.
“We are confident about that number, it is absolutely true. It is very low and very true,” White told the investor conference.
The WiseTech statement to the Australian Stock Exchange said that J Capital’s estimates of organic revenue growth are wrong and that the software company has average organic growth in the range of 20% to 30% a year.
WiseTech also said that its on-demand licensing model evolves over time and that, in some circumstances, it may offer transitional pricing arrangement and pilot testing of alternative license arrangements. It added that J Capital’s reference to a “legacy conversion offer taken up by 20 small regional customers is a select example of one such pilot and does not reflect our broader global approach to pricing. The claim that we offer discounts through systems integration partners is wrong,” the company wrote.
The software company indicated that a wide range of J Capital’s allegations were wrong. Contrary to the allegations in the J Capital report, WiseTech said it does invest in its technology (about A$113 million in the 2019 financial year); that it has a high retention of founders, key staff and customers in acquired businesses; that it invests in acquired businesses following purchase; that prices are generally stable and that when there is a reduction in revenue it is often the result of deliberate action; that it has in fact developed its CargoWise One in both traditional and simplified Chinese; and that CargoWise One revenues in South Africa are growing.
In summary, there are also a wide range of other claims in J Capital’s research that WiseTech said are incorrect.
Concluding its refutation, WiseTech said it “reaffirms its previous statements rejecting entirely the unfounded allegations of financial impropriety and irregularity in both this and the previous report. In addition to the initial responses provided… it is the Board’s opinion that this report erroneously either misunderstands, selectively presents or misrepresents the company’s performance, acquisition, product quality and customer relationships.”
In reporting this story FreightWaves necessarily must summarize the communications made between J Capital and WiseTech. However there are no allegations, assertions or claims about any of the companies or individuals involved.