A new short report alleges that Aviat Networks is not “generating the earnings it reports” but instead is borrowing those earnings against its own balance sheet.

Here are the allegations from the Glasshouse Research note.

Aviat Networks has beaten analyst estimates for earnings per share and revenue in five straight quarters.

Glasshouse Research alleges there could be more than meets the eye when it comes to the company's earnings reports.

"The company is recognizing revenue before it bills customers, struggling to collect cash, and delaying payments to suppliers – creating the illusion of growth and profitability," the short report alleges.

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Glasshouse Research is short Aviat Networks stock, meaning they could benefit if the share price goes down.

Benzinga reached out to Aviat Networks for comment on the short report.

The short report says Aviat Networks' revenue is "being pulled forward through aggressive accounting," which includes unbilled receivables and booking sales based on estimates and not completed customer payments.

Glasshouse also highlights that Aviat receives "significant revenue" from companies in emerging markets like telecom operator MTN Group.

"In this environment, revenue can be recognized well before it is billed or collectible, increasing the risk that reported sales do not convert into cash."

Analyzing inventory, Glasshouse Research says inventory levels imply costs are being deferred by the company.

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Outside of the acquisition of Pasolink, Glasshouse Research sees Aviat's core sales declining and growth driven by this deal.

"Microwave backhaul – the core of Aviat's business – is a mature and increasingly displaced technology. Across developed markets, fiber has become the preferred solution for network transport due to its superior capacity, reliability, and long-term cost efficiency."

Glasshouse Research sees 60% downside for Aviat Networks stock with a price target of $8.75. The short seller sees a price target of $0 for the long term.

"In our view, Aviat's financial profile is best understood not as a growth story, but as a working capital-driven model that has increasingly relied on balance sheet expansion to sustain reported performance," Glasshouse Research said.

The short seller said Aviat's financials are based on assumptions and not an actual balance sheet.

"We believe Aviat is not a growth story. It is a melting ice cube and working capital unwind in progress – and the unwind has already begun."

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This article Aviat Networks 'Melting Ice Cube': Short Report Alleges Company 'Not Generating The Earnings It Reports' originally appeared on Benzinga.com