WiseTech shares rebound after founder attacks "self-serving and misleading" claims

Written on the 23 October 2019 by Business News Australia

WiseTech shares rebound after founder attacks "self-serving and misleading" claims

"Our acquisitions of small, targeted, predominantly founder-led, software businesses are strategic - not revenue rollups, nor for the primary purpose of acquiring customers," WiseTech stated in a rebuttal to the second part of a report from short seller J Capital Research (JCAP).

The market response was brutal after software logistics outfit WiseTech (ASX: WTC) hit back at a short seller report from JCAP, wiping $1.2 billion off its market value early this week.

But today fortunes have been kinder, at least for now.

WTC shares went back into trading following the release of a rebuttal to part II of the JCAP report, galvanising investor confidence with a 6 per cent share price rise in the morning that added $525 million to the volatile unicorn's market cap.

"We are resolute in our vision to be the operating system for global logistics," WiseTech CEO and founder Richard White said in the response.

"We continue to stand strongly by our strategy, our technology and our business model, all of which together fuel significant growth and global expansion."

White reiterated revenue guidance of $440-460 million for FY20, as well as EBITDA growth of 34-42 per cent to $145-153 million.

The second report alleged WiseTech was offering "virtually free" access to its CargoWise platform, that the group had a "huge churn" in acquired customers who did not convert to CargoWise, and cited a survey JCAP claims demonstrates only seven of the world's top 25 companies use the platform.

"Our interviews with 18 former employees and competitors show that most acquisitions remain standalones two years post acquisition, as WiseTech fails to devote resources to integration," the JCAP report said in part II of the report under the headline "The Closer You Look the Uglier It Gets".

"When WiseTech does attempt to integrate these businesses, it usually raises prices on existing customers, and they tend to go elsewhere.

However, WiseTech highlighted all global rollout customers grew revenue in FY19, as did "every CargoWise customer cohort of the past 10 years".

"Despite the Report's claims to the contrary, there has been significant growth in major customers' usage of CargoWise One in the past four years," WiseTech replied.

"The Report's claims about our customer attrition rate are wrong."

The group claimed the report's survey was not a representative sample, selecting "just 13 smaller customers of the thousands of logistics and many global providers using our solutions".

"The increases in usage of our solutions, transactions and revenue, along with new customers joining the platform, and our low annual customer attrition rate, are more relevant in speaking to the quality of our products and customer relationships," the company said.

With regards to JCAP's claims about pricing, WiseTech offered some context.

"In select circumstances, we may offer transitional pricing arrangements and may pilot test alternative licence arrangements, including those for onboarding or legacy conversion, as part of the iteration of our commercial model," the group said.

"The Report'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."

WiseTech emphasised it had acquired 33 software companies since listing in 2016 for a total consideration of around $400 million, with values reflecting the strategic nature of the assets.

"Our acquisitions of small, targeted, predominantly founder-led, software businesses are strategic - not revenue rollups, nor for the primary purpose of acquiring customers.

"We bring these assets into the WiseTech group to amplify knowledge, resources and access to new key markets, or accelerate the convergence of technologies.

"Contrary to claims in the Report, the frequency and volume of our transactions reflect our need to move swiftly to secure these assets to support the resourcing and speed of development necessary to deliver on our global customs strategy and expand our total addressable market."

The Sydney-based group stood behind its claims about executing its strategy in China, growth in South Africa, the benefits of its SmartFreight product and the development of CargoSphere. WiseTech also sought to put to bed criticisms about its TradeFox business.

"The Report's 'appears fake' allegation is wrong. TradeFox was a smaller owner-managed business in Australia, of which we acquired the assets, staff and small customer base," WiseTech said.

The board concluded the report erroneously either misunderstands, selectively presents or misrepresents the company's performance, acquisitions, product quality and customer relationships.

"Regardless of the noise and market disruption of these short-seller, self-serving and misleading claims, we will continue to strive to ensure our shareholders are informed about the fundamental performance of our business," White said.

"Ultimately, the best way to protect the integrity and value of our business is to rise to the challenge and continue to deliver on what we have set out to do.

"Our people, in all our teams across the world, are aligned in our determination to execute our growth strategy to deliver long-term value for our shareholders, our communities and the logistics industry."

A leading point in part II surrounded the departure of non-executive director and audit and risk management committee chair Christine Holman, which was not addressed in the latest rebuttal.

"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," JCAP said in part II.

"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."

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