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.
Bear77
17-Sep-2022: I came across this article earlier tonight. It's a ripper: ‘The share price was going to go off a cliff’: why ex-Nuix boss raced to sell (afr.com)
Plain Text: https://www.afr.com/technology/despite-huge-tax-bill-former-nuix-boss-wanted-get-rid-of-shares-as-soon-as-i-could-20220628-p5ax7e
Here's my favoruite bit, from near the end of the article...
Former Nuix chief executive Eddie Sheehy’s told the Federal Court he wanted to sell his shares before the first earnings results.
Mr Sheehy confirmed his capital gains could have exceeded $200 million if he had been able to sell 22.7 million shares [which was what he thought his options entitled him to], which in turn would have attracted a tax bill of between $60 million to $100 million.
But he also confirmed he would not have held on to the Nuix shares for 12 months to attract the government’s 50 per cent tax discount.
“I thought the share price was going to go off a cliff and I wanted to sell them as quickly as possible,” Mr Sheehy said.
Mr Sheehy, who had been chief executive officer of Nuix since 2008, said the growth rates touted in the Nuix prospectus were unlikely.
...Mr Sheehy told the court that the growth rate touted in the Nuix prospectus that was shopped around to institutional and retail investors ahead of the December IPO was “vapour”.
“They were telling the market they were going to grow at 15 per cent, but they had never grown at 15 per cent,” he said.
The Macquarie-backed Nuix listed in December 2020 at an issue price of $5.31, jumped above $11 in January, then slumped 32 per cent in February. The shares are now worth 80¢.
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They closed today at 78c, but traded as low as 60.5c/share on September 5th (less than 2 weeks ago) before closing that day at 62.5c. They then rallied up +40.8% to as high as 88c/share (in intraday trading) on the 9th based on M&A activity reported in the media that week which followed Nuix boss Jonathan Rubinsztein being quoted in the media in August saying the embattled tech company was “very cheap” and a “very attractive acquisition target”. The ASX sent them a "Please Explain" letter on the 9th requesting further information on Rubinsztein's purchase of over $200K worth of Nuix shares on-market just before the M&A news broke. I posted a straw about that earlier tonight tiitled "M&A Rumours, Pt#2".