Nearmap counterattacks short-seller's scathing claims, jumps 14 per cent

Aerial mapping tech company, Nearmap (ASX:NEA), has just released an announcement to the market rejecting a Hong Kong-based short-seller’s claims that it was hiding its struggling operations in the US.

After the announcement, its share price jumped by more than 14% off the block in morning trading.

Nearmap share price today:

Background

Last Thursday, Hong Kong based J Capital Research released a scathing report on Nearmap that sent its share price tumbling by more than 7%.

One claim in the report was that Nearmap was trying to hide problems in its US operations by using accounting tricks.

J Capital claimed that Nearmap was spending $2 for every $1 of revenue, and was covering the operational hole with constant capital raising.

The short seller also suggested that Nearmap was using aggressive accrual accounting to book revenue before actual cash was received, and created $11.7 million of revenue in the process.

The activist also claimed that Nearmap was ammortising its expenses instead of booking them upfront. J Capital said booking them upfront would have reduced its operating cash flow by $24 million, and resulted in a $12 million loss.

Nearmap strikes back

Nearmap has today counter-attacked each of those claims, saying that J Capital’s report contains “many inaccurate statements” and makes “unsubstantiated allegations of a very serious nature”.

Nearmap said that it was never consulted by J Capital, and accused the short-seller of trying to make a quick profit by making “speculative claims” through “adverse publicity”.

In its response, Nearmap said that North American client portfolio generated annual contract values (ACV) of $US35.1m in the six months to December — an increase of 41% from the prior year period.

It said it had also seen an increase in all three vertical markets in North America – with insurance, government, and roofing segments booking double digit growth in ACV over the past year.

Nearmap denied that it used “accounting tricks” to hide problems, saying that it recognised revenue in accordance to the Australian Accounting Standard (AASB15), and in compliance with International Financial Reporting Standards (IFRS15).

The company said it accounts for subscription fees as unearned revenue and then books those revenues over the relevant accounting period.

This process can be “impacted by the timing of sales and invoicing”.

It also emphasised that its books were audited by an independent auditor, KPMG.

Regarding its cost base, Nearmap said that J Capital based their claim on a “hand-selected image” that used one of the company’s older technology patents (from 2015).

Nearmap “has since delivered a significant new generation of camera technology in 2017 which flies at altitudes above 10,000 feet”.

“The cameras enable an update frequency of the North American capture footprint of up to 3 times per annum which is unequalled in the industry”, the company said.

Pre-capitalised gross margins on its 2017 camera technology were actually above 50 per cent, Nearmap said.

That means it generated US$2 of annual contract value for every US$1 spent on capture, not the other way around.