Revenue hit crunches market darling Nuix – The Australian Financial Review

revenue-hit-crunches-market-darling-nuix-–-the-australian-financial-review

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Yolanda Redrup

Updated

Key Points

  • Revenue ($m) 85.3, down 4pc from the year-earlier 88.8
  • EBITDA ($m) -4.4 v 34.2 
  • Net profit ($m) -16.6 v 14.5
  • No interim dividend

Investors carved $920 million off star ASX debutant Nuix’s market value on Friday after a disappointing maiden result, but chief executive Rod Vawdrey said its sales pipeline remained strong and US government deals would bounce back in the June quarter.

The company, which provides intelligent investigative software, was plagued by COVID-19 and US election-related sales challenges, which affected US government contracts, as well as unexpected currency headwinds.

Nuix CEO Rod Vawdrey led the company though an IPO in December. Ben Rushton

As a result, revenues went backwards by 4 per cent to $85.3 million, causing the market to wipe 32.4 per cent off its valuation to $6.06 at the close of trade.

Speaking to The Australian Financial Review, Mr Vawdrey said the company had real-time visibility over its sales pipeline, and he could say with confidence that the company was still on track to meet its full-year prospectus forecasts.

He said the second-half turnaround would be driven by three things – new sales, upselling current customers (as they expand their usage or sign on to more products) and an expected recovery in US government sales in the fourth quarter.

“Seasonally ... the fourth quarter is always the strongest,” Mr Vawdrey said.

“The forecast growth in the prospectus had some buffer and some of that’s now been used up by the exchange rate [hit], but I believe we have enough coverage to mitigate that and still make the forecast.”

The company’s $85.3 million in revenue represents 44 per cent of its full-year estimate of $193.5 million in revenue.

A number of contracts the business was expecting to win in the first half were pushed back, but were closed in January.

The company added 49 new customers to its books, including a top-10 global law firm and a leading financial institution based in Europe.

“Getting those deals closed in January ... and having good momentum suggests we’re in a good position to make the numbers,” Mr Vawdrey said.

Ausbil Investment Management small and micro cap funds portfolio manager Mason Willoughby-Thomas said the Nuix result was a “modest miss” which did not warrant the violent sell-off.

“It didn’t help that tech was sold off so heavily in the US overnight. I expect it would have been down 10 per cent even with an in-line result,” he said.

“Yes the top line indicated that it was a little weaker than you’d expect ... but it wasn’t that far off the mark.”

Mr Willoughby-Thomas said the company did a good job of explaining the lower-than-expected revenue figure, which was largely driven by factors outside of its control.

Consequently, he said it was reasonable to expect the company to still deliver on its prospectus forecasts.

“In the first half they did $13 million of new customer revenue, so that leaves $16-odd million for the second half. You’d assume they’ll at least get another $13 million, so $16 million isn’t that much of a stretch.

“The business looks to be a 20 per cent compound annual revenue growth type business. I’d be happy with that ... with mid to high 80 per cent gross margins and maintaining the cost base at the current level to ensure good EBITDA profitability.“

Nuix’s $1.7 billion float was the biggest of last year. Having come to market with an issue price of $5.31, the business hit a high of $11.86 in January.

The company’s software, which is used to manage cyber-security threats, as well as risk and compliance obligations and to investigate fraud, supposedly allows companies to “find the truth from any data in the world”.

It helps organisations identify patterns and trends from different formats of data, including unstructured data generated by things such as social media or emails, which do not fit into a database table.

It is used for everything from checking the accuracy of employee expenses data to making sense of large data dumps, like in the release of the Panama Papers.

It has more than 1000 customers in industries such as financial services, oil and gas and government.

Its shareholders include Macquarie Group, which retained a 30 per cent stake after selling down more than half its stake in the IPO, Aberdeen Standard Investments, Washington H. Soul Pattinson, OC Funds Management, Yarra Capital Management and Lennox Capital Partners.

Also in the first half, Nuix recorded a net loss after tax of $16.6 million, down 214.4 per cent, but on a pro forma basis, excluding costs related to the initial public offering, this came in at a $9.5 million profit.

The company’s preferred metric is annualised contract values (ACV), in which unrealised revenue that has already been contracted is also recognised. For the first-half Nuix recorded a 3 per cent fall in ACV to $162 million.

Mr Vawdrey said the business hoped to achieve consistent ACV growth rates of high teens to 20 per cent each year - a figure that this halves decline hadn’t changed.

The CEO, who took over from former leader Eddie Sheehy who has launched legal action against the company claiming it owes him share options, declined to comment on the fall of the share price.

Although the first half was soft, Nuix already has visibility over more than $100 million of revenue for the second half, thanks to its high recurring revenue base and low customer churn.

It said it was also targeting $15 million of new business in the second half.

For the 2021 financial year, Nuix has also forecast ACV of $200 million, earnings before interest, tax, depreciation and amortisation of $28.6 million and a net loss of $7.7 million.

The business ended the half with more than $102 million in cash, which Mr Vawdrey flagged could be put to use for mergers and acquisitions.

“The availability of capital means as we refine our M&A strategy, we’ll look at taking out customer bases that have legacy tech that can be replaced with Nuix, or [businesses] that have adjacent tech,” he said.

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