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NXL - NUIX LIMITED


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Nuix Ltd NXL is listing today at 12:30pm. IPO price of $5.31 sees it as a $1.8billion company.

 

 

Existing shareholders of Nuix have sold down $875 million worth of stock at the IPO price, and the company has raised another $100 million of new capital for the business to invest in growing into new verticals. Macquarie Bank, which owns more than 66 per cent of the business, will reduce its stake by more than half to 30 per cent.

 

Nuix is a leading provider of investigative analytics and intelligence software, with the vision of finding truth in a digital world.

 

Nuix was first conceptualised in the early 2000s, with the development in Australia of an algorithm to make unstructured data searchable and was first commercialised for a specific use case with an Australian government agency. Since then, Nuix has grown to provide its software to over 1,000 customers across 78 countries. It remains headquartered in Australia today, despite over 80% of Nuix's Total Revenue in FY20 being generated from markets in North America and EMEA.

 

The Nuix platform is underpinned by over 15 years of research and development, with over A$200 million of total research and development costs incurred by Nuix since 2008 (including both capitalised and expensed research and development spend), resulting in the creation of one of the world's leading technologies for processing data at scale. Over the last five years in particular, Nuix has made significant investments in talent, process improvement, sales and marketing, acquisition integration and technology, and improving customer experience, while continuing to enhance the functionality of its platform.

 

Nuix generates revenue through a number of different software licensing models, predominantly through the sale of subscription licences. In FY20, the Company achieved:

  • ... A$175.9 million Total Revenue, an increase of 25.9% on the previous financial year (FY19: A$139.6 million);
  • ... subscription revenue equivalent to 88.7% of Total Revenue, an increase from 87.4% in FY19 and 80.8% in FY18; and
  • ... a gross profit margin of 88.2% (FY19: 88.8%) and an EBITDA margin of 31.5% (FY19: 20.8%), on a pro forma basis.
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The Nuix business model precludes the sale of its data analytics software to Chinese controlled companies and Chinese government agencies.

 

Some of the largest customers for Nuix software are Western intelligence agencies who spend much of their time thinking about China's latest strategic move. Nuix software engine can allow prosecutors from police organisations or intelligence officers from spook organisations to find the truth in the data.

 

Digital forensics teams in law enforcement and intelligence agencies use the Nuix software to collaborate and share intelligence as well as to prosecute the fight against criminals terrorists and other bad actors. It is believed the software has been used to collect, preserve, analyse and store evidence of crimes and atrocities by Islamic State. The software can ingest large quantities of structured and unstructured data at high speed and review it quickly

Nuix started with a very simple idea: to make emails searchable. Conventional thinking at the time was encapsulated in isn't that what Google does? That typified conventional wisdom. We are now well beyond that ambition and can successfully claim that we can make any digital data searchable and in near real time ...and at a speed and scale that is unmatched by anyone on the planet.
founder Tony Castagna

 

 

Nuix is one of the few Australian tech companies to have founded its success on global patents of its intellectual property (IP). The Nuix algorithm to make unstructured data searchable was first patented in 2013. The company has since registered a further six core patents in the US as well as 100 other patents of its unique IP.

 

Australia lags in the world in patent filings .... Very few Australian companies are filing patents for artificial intelligence, either because they have not invented new ideas or cannot afford the $50,000 it costs to register a global patent.

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With $5.31 for shares on offer at the IPO, Nuix has traded strongly. Opened about $8.50, dipped below then ended Day One at $8.01, then Day Two was very positive, trading in the $9 to $10 a share range, closing at $9.06, and making it a company with a MC well over $2 billion.
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  • 2 months later...
  • 2 weeks later...

now $4.80. Insto's bailing.

 

Following the Half Yearlies, CEO Rod Vawdrey reaffirmed its full-year guidance and blamed the half year revenue hiccup on currency movements, a resurgence of COVID-19 in key geographies and delays in contract signing given a longer than expected transition among government clients following the US election.

 

Statutory revenue fell 3.9 per cent to $85.3 million and its pro forma net profit was $9.5 million.

 

An insider said,

.the feedback he is getting from existing and prospective investors is that Nuix could do a better job in terms of enunciating the key drivers of its business and prospects.

Its revenue recognition policy is now under scrutiny and a number of shareholders are evaluating its status as a growth stock and where it goes from here. There are two ways to measure revenue: statutory revenue, required under its accounting standards, and annual contract value, a commonly used metric in the software industry to average annualised revenue per customer contract. The prospectus describes ACV as "removing fluctuations from multi‑year deals in Nuix's total revenue which results from its revenue recognition policies".

 

Under its statutory revenue measure, multi-year contracts can be recognised and booked upfront ... as much as 80 per cent can be booked upfront , and the rest deferred over the life of the contract for support and maintenance. In a statement, Nuix said upfront multiyear deals made up 25 per cent of its 2020 revenues and 23 per cent of revenues in the first half of FY21.

With a continued rise in software as a service deals which are recognised on a
month to month
basis, the percentage of MYDs is expected to decrease.

Some investors believe ACV is a better measure of the company's revenue performance. In its prospectus, Nuix forecasts ACV growth of 18.6 per cent for the full year, a figure that attracted growth investors. In the December half, ACV was 4 per cent, which many investors believe will make it difficult to reach its full-year forecasts, something the company rejects.

 

....xxxx.....x.x.x.x.x.x.....xxxxx.....

 

 

In a further reiteration, today the company once again said it was still on track to hit its full-year estimate of $193.5 million in revenue, as well as an annualised contract value of $200 million (the company's preferred growth metric), earnings before interest, tax, depreciation and amortisation of $28.6 million and a net loss of $7.7 million.

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  • 1 month later...

got down to just above $4

 

NXL provides commentary on recent trading conditions following completion of an internal quarterly management review.

• Pro Forma Revenue of $180m to $185m (vs $193.5m forecast in the IPO Prospectus)

• Annualised Contract Value of $168m-$177m (vs $199.6m)

• Pro Forma EBITDA of $64.6m-$66.6m (vs $63.6m)

• Acceleration in customer transition to consumption and software as a service (SaaS) licenses impacts the revenue profile but delivers significant longer-term business model benefits

• Current operating climate has reduced near-term upsell opportunities, while revenue from renewals and new business remain in line with expectations

• Strong underlying business performance with substantial increases in new customers won, and total and average order values, compared to the same period in FY20

During April, a significant and larger than expected number of Nuix's customers, including one of its largest, elected to transition from module-based subscription licenses to consumption and SaaS license models, resulting in a shift in both revenue and ACV profiles.

Some of Nuix's law firm, advisory and service provider customers have also recently informed Nuix of a reduced add-on (upsell) requirement for existing licenses. This is due to both their unutilised license capacity in the current climate, as well as the recovery in legal case backlog being slower than anticipated.

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  • 2 weeks later...

and back under $4.00 today. There is quite a searing article on Nuix in the AFR today, along the lines of

[t]he Nuix honeymoon is over and investors are now wondering whether they are the victims of a well-orchestrated heist or a bumbling transition to public life.

Nuix, an intelligence analytics and data firm, was exactly what the Australian share market wanted ... a global software company that was a leader in a growing and critical field.

 

After a strong 60+% stag at IPO time and trading as high as $11.90 (IPO was at $5.31) the reason for the miss, Nuix said, was due to a delay in sign ups and renewals. Not to worry. It had "strong visibility" it would make up for the delay via a strong second half and still deliver the full-year target of $194 million of revenue, or $200 million via its preferred annualised contract value metric.

Then on 21 April it confessed it would not make prospectus forecasts. Post the IPO, there is universal agreement that Nuix's accounting has been on the far end of the aggressive scale.

 

When Nuix signs up a client on a multi-year contract, it books at least 80 per cent of it up-front. These large contracts have tended to account for about 15 per cent of its annual revenues, but in 2020 that shot up to 23 per cent, and was forecast to drop back down to 15 per cent.Interestingly, the share of multiyear deals ran ahead of prospectus forecasts in the first half, at 23 per cent. Nuix said this was a result of more corporate clients requiring a mix of its subscription, consumption and software-as-a-service offerings.

 

Nuix also changed its revenue recognition policies in mid-2020, just as it prepared to float.

Under the new measure, it accounted for less of its revenues from multi-year contracts up front as licensing fees and more as recurring service and maintenance. That led revenues to be restated, lowering previous years, but also led to a sharp increase in deferred revenues. The new policy also allowed Nuix to show a better match between revenues and cash receipts.

 

A dig into the accounts also showed that once adjustments are made for its acquisition of Ringtail in 2018, Nuix's revenue growth was fairly modest at around 10 per cent.

..
The challenge now for investors is to know what base revenue they should work off to determine how well the company has tracked, and is likely to track.

 

When Nuix flagged it would miss its full year revenue guidance in April, they did give it a positive spin. The reason was a higher-than-expected number of clients were transitioning to a consumption model from an up-front 'all you can eat agreement'.

 

The consequence was that the large up-front contracts would be replaced by steadier more reliable streams. Those in aggregate were higher margin and therefore more valuable, even if the transition would be a little painful.

Then there is the capitalisation of research and development, which is high among ASX companies. Nuix capitalises, rather than expenses, about 84 per cent of R&D which it amortises over 10 years.

 

This treatment may boost earnings but it manifests itself in the negligible free cash flow. The low free cash flow, according to one fund manager that ran the ruler over Nuix, can be tolerated for a fast growing organic business that is investing for growth. But for a mature company with sub 10 per cent revenue growth, "it's a red flag".

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  • 4 weeks later...

and whoopsy daisy .... drop another 15% and settling around $2.80

Nuix has downgraded its financial year 2021 revenue targets for the second time in two months, adding fresh pressure to its share price after a sharp drop over the past few weeks.

 

Nuix anticipates revenue for the year to June 30 of $173 million to $182 million, down from a forecast in April of $180 million to $185 million.

 

The company said the outlook for earnings before interest and tax would remain the same, but its annualised contract value would also fall, and is forecast to slip to $165 million to $172 million, down from prior guidance of $168 million to $177 million.

 

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