Bear77
09-May-2024: One year and two months on from my last post in this forum thread - about Nuix (NXL) - and they've been heading in the right direction over the past year:
Appen (APX), not so much. However I don't really rate Appen as a true software company and don't even think they should be included in a tech index to be honest. They are a labour hire firm that pay peanuts, as we have discussed previously here.
Nuix were a market darling for all of about 7 weeks after they IPO'd at the end of November 2020, peaking at $11.16/share on January 21st 2021, then it's been all downhill from there until about October 2022. They both look like losers below, and for longer term shareholders who have held on - they both still are, but there has been profits to be made by people who bought NXL near those 55 cps lows at the end of September 2022.
They closed at $2.18 today.
Chart data sourced from Commsec.
Still not interested because Appen has a structurally challenged business model and Nuix has morally challenged management.
Bear77
Yes @neke86_ Appen has been a shocker:
Inside Appen’s $4.5bn fall from grace...during an AI boom (afr.com) [by Tess Bennett and Jessica Sier, AFR, May 19, 2023]
Armughan Ahmad is hoping generative AI can reverse Appen’s fortunes. Photo: Louise Kennerley
Inside Appen’s fall from grace (during an AI boom)
Until 2021, the technology group was a darling of the market. Now it hopes to jump on the buzz of generative AI in a bid to turn around its fortunes.
It was early 2021 when Melanie noticed a drop in available work being offered to her by Appen. It was, in hindsight, the first discernable sign of the coming trouble at the company, at the time a darling of the ASX tech scene.
Melanie had been part of the Appen “crowd” – the term given to the thousands of low-paid employees who label and check the vast datasets that the ASX-listed company sells to the likes of Facebook and Google – since 2018.
At the time, she was being paid about $US7 an hour. Melanie, who didn’t want to use her real name because she hopes to stay working for Appen, labelled and checked that thousands of pictures matched their descriptions.
“I was fine with the money, to be honest. The work was regular, I didn’t need a college degree, I could do it with my babies around, it was good for me,” she told AFR Weekend from her home in Denver, Colorado this week.
She bid for that work against more than a million other contract workers on a dashboard provided by Appen. As the COVID-19 pandemic receded, so too did the volume of work that was available. At first, Melanie thought it was just malfunctioning technology. The app could be “pretty janky”, she said.
It never recovered. “I used to see two or three jobs a week pop up whereas now I’d be lucky to see one or two a month. And everyone’s fighting for those jobs, so I don’t really get them,” she added.
The generative AI bet
Appen’s fall from grace has been swift, and at odds with the artificial intelligence boom that has pushed companies from Canva to Microsoft, the AFL and Sydney University to experiment with inserting machine learning into their products and operations.
This week, Appen tapped the market for $60 million in fresh capital. Its plan is an attempt to recast itself as part of the latest tech zeitgeist: generative AI. This technology – which underpins the globally popular ChatGPT bot – uses neural networks to identify the patterns and structures within existing data to generate new and original content.
DALL-E 2 and other image bots such as those created by Australian design company Canva are also powered by generative AI. They can draw and design fresh new pictures from user text prompts, confounding copyright lawyers and pushing the boundaries of web-based design.
Appen’s newly installed chief executive, Armughan Ahmad, is hoping to catch this wave. He wants to begin selling Appen’s scrubbed and ordered datasets to the companies training their own generative AI bots, whether they are banks, professional services or tech companies.
“We’re now seeing green shoots over the last few weeks in these new areas that I’m really positive about, even in the generative AI area,” Ahmad said during the week.
Investors warily welcomed the news. Shares are up more than 10 per cent since the announcement on Tuesday. While analysts are quick to point out that investors might also be buoyed by Appen’s ambitious $US46 million ($69 million) cost-cutting programs, they also urge caution.
Chris Tynan, analyst at DNR Capital, says the shift towards generative AI comes with risks. Photo: Madeline Begley
“New management are diligently repositioning to gain exposure to the large language model AI boom,” said Chris Tynan, an investment analyst at DNR Capital. “[But] the risk is a new strategy hitches their wagon to the hype cycle of generative AI that may end up taking a seat next blockchain, Metaverse and 3D printing as themes that create manias and draw investment but ultimately deliver little in the way of sustainable businesses.”
Ahmad, who took over from Mark Brayan in February, hopes his turnaround plan will entice investors back to the company which has suffered one of the sharpest market capitalisation contractions on the ASX. He’s starting with the sales culture.
“We were a very reactive sales culture,” Ahmad said on an investor call. “We needed to pivot ourselves to proactive sales culture, especially going after our big five global customers that we have, along with the Fortune 2000 large enterprises.”
From $5b to $300m
It will be a difficult turnaround. At their height, during a technology boom in 2021, Appen shares traded at $42. That gave the company a market capitalisation of some $5 billion.
Since then, however, shares have fallen 94 per cent. On Friday, they were trading at $2.50, giving the company a market value just shy of $320 million.
The slide in Appen’s value followed an impressive ASX debut. By 2018, just three years after hitting the bourse, the company was among the exchange’s largest 300 companies. It also comes despite a surge in interest in AI, when demand for its datasets should be at a record high.
Christopher Vonwiller, one half of the Sydney couple that pioneered speech and text recognition technology and founded Appen in 1996, says the company’s downward slide stems from its reliance on one customer.
Julie and Chris Vonwiller were set to net $20 million from the public float of their company, Appen Holdings in 2015. Photo: Janie Barrett
“Appen suffered because of its revenue concentration,” Vonwiller told AFR Weekend. “This made it very vulnerable to its customers taking a big hit. It had a double whammy with pressure on margins and pressure on revenue.”
Though he did not say it explicitly, many in the market have little doubt that the key customer is Meta, formerly known as Facebook.
Vonwiller was the Appen chairman for most of its ascent. He left the business in October 2021, and he and his wife, Julie Vonwiller, have cashed out millions of dollars in Appen stock over the years.
He maintains that selling large-scale datasets to the likes of Facebook, Google, Microsoft and Amazon was a lucrative gap in the market that yielded hundreds of millions of dollars a year in revenue. It also meant the company was profitable while many of its industry peers were losing money.
“Over the years, Appen was developing its own technology to improve efficiency,” Vonwiller said. “There are algorithms that help annotate speech data, and that will pull out extraneous noises like breaths and hesitations, but all that needs to be backed by an operator.”
Contracting more than 1 million people across the world in the “crowd” meant Appen could support Facebook and its other customer’s demands for various datasets, especially as AI-based products changed over time.
“The industry was evolving quickly and the need for search engines that were tuned to customer interactions required a lot of innovation,” Vonwiller said. “That put pressure on costs to reduce the unit cost of the work.”
The Facebook feed
While Melanie’s work was drying up, Appen was discovering how uncomfortably reliant it was on revenues coming in from Facebook. And investors, who may have bundled Appen in with software-as-a-service companies and their predictable revenue streams, began to catch on.
Ross Barrows, an analyst at Wilsons, said the project-based nature of Appen’s work – and its revenue concentration – had been the main cause of the stock’s volatility recently.
“Appen’s growth potential is a double-edged sword, in that the majority of it is project-based work with limited visibility,” he said. “When a project’s remit is expanded that is great, but when it contracts, that has a negative impact on both revenue and EBITDA.”
In October 2021, Facebook began a lengthy transformation into Meta. The company’s chief executive, Mark Zuckerberg, wanted to shift its direction away from the ad-driven social media platform.
Facebook CEO Mark Zuckerberg began changing the company’s direction, which hit Appen’s revenues. Bloomberg
The hit to Appen was hard. Facebook cut its advertising spend, and the corresponding AI-backed projects were put on ice, meaning Appen found many of its contracts weren’t renewed.
Tynan, of DNR Capital, likened this to a mining contractor which enjoys a market capitalisation that reflects growth in perpetuity, until the cycle kicks in and the opposite occurs. “Unfortunately, there is a huge imbalance in ... power with a very concentrated mega-tech customer base,” he said.
Ahmad acknowledges the problems, and this week went out of his way to note that revenues from Facebook had stabilised. “We have seen some challenges unfortunately over the last two years with our number one customer, with their shift into newer areas of growth that they wanted to drive towards,” he told investors.
Vonwiller also remains a substantial shareholder.
He said the new strategy made sense and with some luck, Appen could start to sell into more enterprises looking to experiment with generative AI.
“There are plenty of negative issues with generative AI around bias in the data, toxicity, hallucinations,” he said. “And the only way to stabilise that at a wide scale is by having human feedback in the loop.”
Melanie may see more jobs reappear on the Appen dashboard before long.
--- end of excerpt ---
Also: APX ASX : Appen reveals US takeover bid by Nasdaq-listed Innodata (afr.com) [by Tess Bennett, AFR Technology reporter, Mar 13, 2024.]
Appen forced to reveal $154m takeover bid after shares surge 30pc
Appen says it cannot explain why its share price rose 30 per cent in four hours on Tuesday despite confirming it received a confidential takeover offer valuing the struggling data services group at $154 million.
The buyout proposal, lobbed by Nasdaq-listed Innodata, was only disclosed following queries from the ASX, which stopped the trading of Appen shares on Tuesday after they spiked from 87¢ to $1.11 without the company having made any announcement.
Appen’s shares have rallied more than 200 per cent over the last month under newly appointed chief executive Ryan Kolln. Photo: Louie Douvis
Listed in 2015, Appen scrubs large data sets and on-sells them to large companies experimenting with artificial intelligence. Its revenue has long been highly concentrated among a handful of big tech clients such as Google and Meta, which have cut back spending on Appen’s services to focus on generative AI.
In January Google walked away from its $US82 million ($124 million) contract with Appen, causing its share price to decline 40 per cent. However, its shares have rallied more than 200 per cent over the last month under new chief executive Ryan Kolln.
Appen told investors on Tuesday evening it had received “a highly conditional, confidential, non-binding, indicative proposal from Innodata” concerning a “potential combination of the two companies through a stock-for-stock transaction”.
The proposal offered 70¢ worth of Innodata shares per Appen share, more than double Appen’s market capitalisation at the time the offer was put on the table. Despite the ASX’s questions, Appen did not reveal the date the offer was made.
Innodata is a New Jersey-based data engineering company that provides AI-enabled software platforms for AI data collection and annotation. It had a market cap of $US205 million before its shares fell 16 per cent on news of the deal.
Appen is worth about $198 million and is struggling to reverse a 30 per cent decline in revenue last financial year as demand for its data services dwindled. The firm is attempting to recast itself as a provider of tools and services to help businesses customise their own generative AI chatbots.
Appen’s shares fell 8 per cent to 98¢ when they resumed trading on Wednesday morning.
Carl Middlehurst, Appen’s company secretary, said the board wanted to understand the potential value the proposed bid implied for its shareholders.
“The Appen board has agreed to a limited exchange of non-public information on both businesses to occur, on a non-exclusive basis,” he wrote.
Investors The Australian Financial Review spoke to said they were concerned that an all-stock offer indicated Innodata wouldn’t have the capital required to invest in Appen’s turnaround and shore up its balance sheet if the deal went ahead.
They also noted that Innodata was facing its own challenges, including a shareholder class action lawsuit, which alleges the company misrepresented its artificial intelligence capabilities. The lawsuit is based on a report produced by activist short seller WolfPack Research which alleged Innodata’s AI is “powered by thousands of low-wage offshore employees, not proprietary software”. Appen is also the target of short-sellers, who make money from stocks falling, and is the 16th most shorted stock on the ASX.
In May 2022, Canadian giant Telus International abruptly abandoned its $9.50 a share bid for Appen, a deal that would have valued the company at $1.2 billion. Telus owns Appen’s main rival, Lionbridge, having acquired it for $C1.2 billion (A$1.32 billion) in a debt and equity deal just weeks before it was due to go public in 2021.
Appen tapped investors for $30 million in November, telling them the company was considering a sale of all or parts of the business which has led to conversations with various parties.
“Other than an indicative proposal from Innodata … to date, none of these discussions have progressed to any indicative proposal being put to Appen,” the company said.
--- end of excerpt ---
Yeah, nah!
Bear77
08-March-2023: Nuix's SP has been yo-yo-ing lately...
Here's what's been driving it all...
7-Feb-2023: Nuix-successfully-defends-legal-proceedings.PDF
13-Feb-2023: ASIC ready to dump Nuix (afr.com) [by Neil Chenoweth]
Excerpt:
Corporate regulator ASIC is expected to dump Nuix when it chooses its software partner late next month, as concerns rise over the troubled tech stock’s cash burn and a wave of client defections.
While Nuix still hopes to win the 10-year tender to provide digital forensics and eDiscovery platforms, insiders close to the process said ASIC was keen to distance itself from the company as investigations continue, and that other government departments including the Tax Office and the ACCC were likely to follow ASIC’s lead.
Former Nuix executives expressed concern over cash levels despite a rocketing share price after a January trading update and last week’s court victory over former CEO Eddie Sheehy, which has seen Nuix’s share price jump from 70 cents to $1.52.
Nuix is under intense pressure to retain clients, with law firms Minter Ellison and Ashurst and advisory firms KordaMentha and Grant Thornton Australia all switching to competitors.
At least 14 Nuix corporate clients in Australia are now trialling eDiscovery systems provided by a major US competitor, Reveal-Brainspace, whose marketing team is run by former Nuix staff. The trials are a potential preliminary step in switching away from Nuix while hedging their exposure to the troubled tech stock.
Nuix recently farewelled 15 senior staff including head of strategic alliances Chris Pogue, head of legal sales Matthew Geaghan and chief product officer Daniel Pidutti.
Nuix’s cash reserves have dropped from about $100 million when it floated in 2020, to $46.9 million in June 2022 and $40.5 million last October.
If Nuix continues to burn close to $2 million a month, insiders say that by mid-2024 it risks running short of working capital.
Awkward position
Nuix told The Australian Financial Review that its customer relationships remained strong and the company was comfortable with its balance sheet.
A spokeswoman pointed to Nuix’s November AGM when it said customer churn was 5.5 per cent, while net dollar retention rate (a measure of how much revenue is received from existing clients) was 101.9 per cent.
Nuix said it would update these figures when it released its December half results on February 20.
ASIC’s chief operating officer, Warren Day, told Senator Deborah O’Neill in a Senate committee in December that the regulator was looking at who else could provide services to replace Nuix, after paying $5 million to extend its Nuix contract for two years last April with a further one-year option to extend.
ASIC is in the awkward position of using Nuix software to run its case against the company and five of its directors for publishing allegedly misleading or deceptive statements in 2021. The trial is set down to begin November 20.
Complicating any decision by ASIC on whether to stay with Nuix is the knowledge that on top of Nuix’s looming cash shortage, losing either the ASIC action or the pending class action could potentially push Nuix into administration.
“Do you have a response plan for your continuing relationship if Nuix actually come out on the wrong side in this court outcome?” Senator O’Neill asked on December 5.
“The nature of that, I assume, will be the same as for all the other law enforcement agencies around the country,” Mr Day said. “I’ll have to consider those things when that occurs.”
ASIC has 17 years of investigations, court documents and evidence control and unstructured data held in massive Nuix files, which are owned by the Nuix application and can only be opened with a Nuix licence. Without the licence ASIC will lose not only access to the case file, but to case notes and links to any file exports. This can make it difficult to prove chain of custody.
It is difficult to switch software providers. The Financial Conduct Authority in the UK switched after eight years with Nuix and the process took two years, laboriously transferring files to a new system.
FBI and CIA
If Nuix goes into administration, customers are free to terminate their contracts. However, contracts seen by The Australian Financial Review state that on termination customers must remove all their data from the Nuix service within 10 days, after which Nuix will delete the files and “all customer data will be unrecoverable within 90 days”.
This is unthinkable for most of Nuix’s client list, which includes the Australian Federal Police, Border Protection, DFAT, the ABC, Attorney General’s Department, Infrastructure and Defence.
Overseas, Nuix clients include the FBI, the CIA, the US Department of Defence, the Securities Exchange Commission in the US and the National Crime Authority in the UK.
Clients could continue to use Nuix products until licences expire. But products that include third-party software would require programmers familiar with the millions of lines of Nuix coding to physically renew the licence.
While the prospect of a collapse remains distant at present, Nuix is a timebomb if it fails, which has to be part of the risk assessment for its clients.
Since March 2017 ASIC has had an escrow agreement with Nuix. It allows ASIC to have access to the Nuix source code stored with Assurex Escrow if Nuix is in administration, and to use a third party to maintain the data.
Insiders say a number of Nuix clients have since sought similar escrow agreements, but even with the source code programmers typically take 18 months to two years to become familiar with it. And almost all of those planners live in Sydney.
Nuix infuriated customers last May by lifting its prices close to 25 per cent, at a time when many clients had exhausted their annual budget. After intense pushback Nuix deferred the price rises for many legal firms who threatened to walk.
The higher prices only came into effect when licenses were renewed, which would produce an 8 per cent revenue rise this year.
At the annual meeting in November chairman Jeffrey Bleich and CEO Jonathan Rubinsztein both described the latest results as showing “green shoots”, yet last month’s update indicated that despite the price rise, annualised contract value only rose between 1.5 and 4 per cent in the December half.
In the update Nuix said there had been “a continuation of the trend of revenue growth from existing customers, while revenue from new customers is lower than the prior corresponding period”.
--- end of excerpt ---
20-Feb-2023: 1H23-Results.PDF
ASX Nuix: Customers are happy and diverse, says CEO (afr.com) [by Tess Bennett]
08-Mar-2023: Former-CEO-Proceedings.PDF (NXL down -15.23% today)
Excerpt:
Nuix (ASX: NXL) refers to its announcement to the market, on 7 February 2023 where the Federal Court of Australia delivered judgment in relation to the proceedings brought by Mr Edward Sheehy dismissing those claims.
Nuix has now been notified that Mr Sheehy has lodged a Notice of Appeal in respect of certain aspects of that decision. In particular, Mr Sheehy contends that the primary Judge was incorrect in concluding that he was precluded from raising the matters in his claims by reason of the doctrine of Anshun estoppel and that share options held by Mr Sheehy could not be exercised following Nuix’s IPO in December 2020.
Mr Sheehy has not made any appeal in relation to the primary Judge’s findings that Nuix had not engaged in any oppressive or unconscionable conduct. Mr Sheehy has also not appealed the primary judge’s finding, that:
- even if he was to be successful in his claims that he was entitled to 22,663,650 shares in respect of his 453,273 options; and
- that he was entitled to exercise those options following the Nuix IPO, his maximum potential damages claim would be approximately $61 million plus interest rather than the $169 million plus interest he originally claimed.
Nuix continues to reject Mr Sheehy’s claims and will defend the appeal.
--- end of excerpt ---
Stillll... $61 Mill ain't nothing. I'd take it...
But as far as Nuix as a prospective investment? Yeah, Nah!
Nuix 1 year chart:
Nuix 3 year chart:
Bear77
19-Jan-2023: 1H23-Results-Update.PDF
That's page one of today's update: 1H23-Results-Update.PDF
The second page contained the following:
"Nuix continues its strategy of funding software development costs from free cash flow. During the half, the Company was cash flow neutral before non-operational legal costs and acquisition and operating costs related to the Topos acquisition, in line with its near term stated aim. Nuix ended the half with cash on hand of $37.1 million and no debt."
"Nuix will release its half year results on 20 February 2023."
--- ends ---
So, they closed at 57c/share on the day I last posted about them here (on 29-Sep-2022), and I said, "But I still reckon they're going lower."
They did - with a subsequent low of 53c/share during the following week - an an intra-day low of 52c/share - but that appears to have been their low point. They have recovered to trade in a range between 62 and 73 cents/share through December, and have been up as high as 83c/share during the past week. They closed up +14.63% today at 94c/share today on the back of this update, which is very positive for those who still hold and have been waiting for a recovery - you may have one now.
It's still a LONG way down from their previous highs of course, but the recent movement has been up, so they may have stopped the rot, and regained some growth, or at the very least stemmed the losses. Future court judgements in various legal cases will clearly impact them, so I wouldn't touch them myself, but I hope for the sake of those who still hold that they continue to recover from here.
Since IPO:
Past 12 months:
https://www.afr.com/technology/nuix-stock-soars-18pc-on-trading-update-20230119-p5cdyu "Nuix stock soars 18pc on trading update", by Jessica Sier, AFR.
Nuix stock soars 18pc on trading update
Journalist
Updated Jan 19, 2023 – 6.14pm, first published at 5.56pm (19-Jan-2023)
Investors sent Nuix shares roaring higher on Thursday, after the investigations’ software developer said it expects half year earnings to outstrip last year’s effort.
But it warned a judgment in the ongoing legal battle with former co-founder Eddie Sheehy might weigh on the embattled tech stock’s half-yearly results next month.
In the trading update, Nuix said annualised contract value is set to come in between $168 million and $171 million for the half year ended December 31, a jump of 3.5 per cent to 5.6 per cent on the same period last year.
Nuix’s new CEO Jonathan Rubinsztein. Photo: Louise Kennerley
Investors shrugged off the reminder of the lawsuit, sending the stock surging 18.9 per cent higher to 98¢ on Thursday afternoon.
Contract values are a key metric for Nuix, which sells technology that analyses large swaths of unstructured data and is embedded within large companies such as banks, auditing firms and investigations units within the FBI and UK intelligence agencies.
Despite the persistent threat of ASIC actions and three shareholder class actions following the company’s $1.8 billion IPO in 2020, Nuix shares have staged a recovery throughout January this year.
The stock is up 50 per cent this month, one of the largest monthly improvements since the company began trading on the bourse, according to data from Bloomberg.
That said, Nuix stock is still trading 54 per cent lower than it was 12 months ago and has slipped off the radar of many market watchers.
According to Bloomberg, Macquarie – the bank that led the disastrous IPO – remains a 30.1 per cent shareholder, Australian Ethical has a 7.2 per cent stake, UBS has a 5.3 per cent stake, Regal Funds Management has a 3.8 per cent stake and AMP has a 2.1 per cent stake.
The trading update states statutory revenue will be between $85 million and $88 million, an improvement on the $84 million reported last year thanks to a strong December and a currency tailwind.
Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) is set to report between $24 million and $26 million, a slight improvement on the $24.7 million booked over the same period last year.
Statutory EBITDA is set to come in between $19 million and $21 million, a large variation on last year’s $13.8 million which the company attributes to multi-year deals.
Despite an expected uptick in earnings, Nuix acknowledged that non-operational legal fees may be higher in the second half compared to the first half, potentially influencing both earnings and profit in the second half of 2023.
While the company had no updates regarding the legal proceedings brought by Mr Sheehy, Nuix’s former chief executive officer, it did say should a judgment emerge before the results, it might need to adjust the print.
Mr Sheehy, who left Nuix at the beginning of 2017, has been in a four-year battle with the technology company over 453,273 options and whether they were subject to a 50-to-one stock split that took place in 2016.
Mr Sheehy argues his shares should have split out to 22.7 million, in similar circumstances to other investors such as Dr Tony Castagna who was Nuix’s chairman at the time and also had an options package.
Nuix says it will advise the market if a judgment is handed down, along with any potential financial impacts.
RELATED
ASIC sues Nuix over ‘misleading’ growth targets 
[29-Sep-2022]
[29-Sep-2022]Nuix CEO unaware of takeover bid when buying shares 
[15-Sep-2022]
[15-Sep-2022]Jessica Sier writes on technology, internet culture, cryptocurrencies and software from AFR's Sydney newsroom. She has previously covered global capital markets and economics.
Bear77
29-Sep-2022: ASIC-Enforcement-Proceedings.PDF
'Bout Time!!
Good one @Noddy74 - I liked your #ASIC hits big red button straw (https://strawman.com/reports/NXL/Noddy74?view-straw=19962)
I've been waiting for them to "launch" proceedings against the company and its directors. Hope shareholders hit the other red button back when the writing was on the wall for all to see and the share price was substantially higher...
There's not much left of the share price these days...
Looks bad, but it looks worse when you look at their 3 year chart (below) which shows they've actually dropped from over $10, rather than "just" $3. They haven't been listed for 3 years; not quite two years actually, but what a ride! And they only dropped 2.5 cents or -4.17% today which suggests that this news today, bad as it was, was already expected by most people. And fair enough too. But I still reckon they're going lower.
ASIC sues Nuix over ‘misleading’ growth targets (afr.com)
ASIC sues Nuix over ‘misleading’ growth targets
by Jessica Sier, Journalist, AFR
The Australian Securities and Investments Commission is suing Nuix, alleging the board misled investors by touting false growth targets in a slickly marketed prospectus and failing to quickly inform investors when it knew the targets would be missed.
ASIC has been pursuing Nuix since a joint investigation by The Australian Financial Review, The Sydney Morning Herald and The Age revealed serious culture and governance issues, a history of missed sales forecasts, as well as insider trading charges for its then chief financial officer.
On Thursday, the regulator dropped its investigation into suspected insider trading.
But ASIC has now pushed ahead with its case against the board in the Federal Court, pointing the finger at Jeffrey Bleich, Nuix’s current chairman, Rodney Vawdrey, Susan Thomas, Daniel Phillips and Sir Iain Lobban.
ASIC alleges the board knowingly published misleading or deceptive statements when it announced to investors through the ASX that it would hit the statutory and annualised contract value numbers, or ACV, forecast in the company’s prospectus.
The announcements were made on February 26, 2021 and March 8, 2021.
Nuix had claimed the software company would be growing around 18.5 per cent by the end of the first half, but in reality the underlying business – measured by annual contract value – had shrunk by around 4 per cent.
ASIC alleges the Nuix board was aware the company would not hit those forecast numbers but failed to inform investors, making those announcements misleading and prompting the need for corrective disclosure or a downgrade.
“Nuix was a newly listed technology company with a complex business model,” ASIC chairman Joseph Longo said in a statement on Thursday.
“This meant investors relied heavily on the company making accurate and timely disclosures regarding its earnings.”
ASIC also alleges Nuix breached its disclosure obligations by bundling its 1H21 ACV results from January 18 with the half-year results on February 26, 2021.
And lastly, the regulator also alleges the Nuix board should have announced a downgrade to its prospectus forecasts from April 13, 2021 after the ACV and statutory revenue had been reforecast. A downgrade was not announced until April 21, 2021.
“Nuix had an obligation to promptly disclose this information,” Mr Long said, adding that during that time frames outlined by ASIC, $1.2 billion worth of Nuix shares changed hands.
ASIC is seeking declarations, penalties and disqualification orders from the Federal Court.
ASIC has been examining Nuix since the “biggest IPO of 2020” burst, spectacularly wiping billions of dollars of market value from investors who were sold the idea of a fast-growing technology company when in reality it was a much slower, enterprise software business.
The regulator has previously dropped an investigation into whether the IPO prospectus and financial statements between June 2018 and June 2020 were misleading.
It has also dropped its investigation into Macquarie Capital and whether the bank contravened the Corporations Act regarding the Nuix IPO.
The fresh lawsuit will weigh heavily on the Nuix balance sheet, which is now steered by Jonathan Rubinsztein who took over as chief executive officer nearly a year ago.
In the company’s most recent results, Nuix confirmed three class actions and a $180 million damages claim in the Federal Court brought by former Nuix CEO Eddie Sheehy had chewed up $13.8 million in legal bills over the past financial year.
--- ends ---
Further Reading: Topic | Nuix investigation | Australian Financial Review (afr.com)
'Nuff said.