Here's the latest news in the continuing Nuix saga.

Tax authorities visit Nuix HQ to secure files in pre-IPO claims probe (afr.com) [28-Sept-2023]

Excerpt:

A 2020 presentation prepared by Macquarie and obtained by the Financial Review shows that Nuix needed to maintain a 5 per cent tax rate ahead of an IPO in December. “Nuix’s free cash flow is highly dependent on tax paid,” reads the presentation prepared by two Macquarie bankers.

“However, any budget miss will drive negative cash flow” and the gap between earnings and cash flow “may have a negative impact on the valuation that acquirers assign to Nuix”, the presentation says.

Macquarie noted the low 5 per cent tax rate was a result of paying tax on cash receipts and an R&D tax rebate. In Australia, technology companies can offset some of their research and development costs to incentivise innovation and development. Macquarie, which sold $565.7 million during the IPO, remains a 30 per cent shareholder of Nuix.

In 2021, a joint investigation by the Financial Review, The Sydney Morning Herald and The Age revealed that Nuix had claimed more than $70 million in R&D projects in early 2020. The company had claimed 55 per cent of that expenditure was in Australia, but it was closer to 9 per cent.

As it stands, the bulk of Nuix’s engineering is done in California and Pennsylvania, in the United States.

In June, Nuix said it had signed several major contracts that would push annual revenues higher. That was in part due to the ATO agreeing to sign a three-year extension to February 2026 for $6.8 million.

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And

Brother of Nuix CFO had swipe card for office before share sales (afr.com) [23-Aug-2023]

Excerpt:

The brother of former Nuix CFO Stephen Doyle was working out of the technology company’s head office with a swipe card that gave him access after hours when he raised $17.8 million in share sales before the 2021 half-year results triggered a crash in the stock price.

The Australian Securities and Investments Commission opened an investigation into $17.6 million in alleged insider trading by Stephen and Ross Doyle in May 2021 but closed its inquiry in September 2022 with no findings of insider trading against either of the Doyles.

Stephen Doyle, former CFO at Nuix. ASIC says he benefited from $17.8 million in share sales by his brother ahead of the disastrous half year results. 

In a submission to the Senate committee inquiring into the corporate regulator, ASIC said it had established that Stephen Doyle as CFO was aware of Nuix’s half-year results before they were announced to the market, but it “did not identify any direct evidence that Stephen Doyle communicated the inside information to Ross Doyle or that Stephen Doyle had procured Ross Doyle to dispose of the Nuix shares on Stephen Doyle’s behalf”.

A former Nuix executive told the Senate inquiry that he believed ASIC was not aware that Ross Doyle was living with his brother at the time, or that he had access to the Nuix office. Ross Doyle, a former Glencore exec, had been unable to return to his home in Switzerland because of the COVID-19 epidemic.

“Ross Doyle sat outside my office for nine months,” Nuix’s former global vice president of technological services, Rolf Krolke, told the inquiry on Wednesday. “He was having a personal relationship with one of Stephen Doyle’s direct reports. And he had unfettered access to the company’s financial and corporate records.

“Ross Doyle had full access to the Nuix office. He had a swipe card to get himself in and out of his own free will.”

ASIC’s maladministration had allowed insider trading cases to go unpunished, Liberal Senator Andrew Bragg said. “The Senate heard ASIC did not interview key people at Nuix and therefore didn’t know all the information before dropping an insider trading case.

“Had ASIC undertaken proper interviews, they may have won the case in court. Unfortunately, ASIC’s failure to bother with law enforcement sends a green light to insider trading schemes. This is an issue of capability, not capacity.”

Mr Krolke said Nuix executives only learned of the share sales by Ross Doyle when he read a report in The Australian Financial Review on June 30, 2021, after ASIC executed search warrants on the Nuix head office.

In court proceedings at the time ASIC said that six days after the Nuix prospectus was released in November 2020 Ross Doyle set up a Singapore company, Black Hat Pte Ltd, with a single share owned by Black Knight Foundation in Liechtenstein.

ASIC said Black Knight’s beneficial owners were Stephen Doyle and his father Ronald, and another Liechtenstein company, Signa Consulting Treuunternehmen, linked to Ross Doyle.

Black Hat held 2 million Nuix shares that Stephen Doyle had transferred to his brother several years earlier.

Mr Krolke said at an executive meeting on January 15, 2021, 42 days after Nuix floated, CEO Rod Vaudrey said the company was tracking $11 million less than the prospectus forecast, a 6 per cent miss, and the company had to consider whether to update the market.

“We were told that would be handled by the CEO and the board,” Mr Krolke said.

‘Shredding documents’

Later that day a senior Nuix executive told Mr Krolke “there was no chance of Nuix ever hitting its prospectus revenue forecasts”.

Black Hat began selling down its Nuix shares on January 22. After stock sales raised $4.6 million on February 12 Ross Doyle instructed his broker to sell all of Black Hat’s remaining 1.55 million Nuix shares immediately.

Nuix announced the date of its half-year profit announcement on the following Monday, which would be February 26. ASIC said the timing of the Doyle share sales saved $5 million. Nuix did not downgrade its prospectus forecast until April 21.

While Ross Doyle did not attend executive meetings, “he was seen in finance staff meetings in Stephen Doyle’s office which was right next door to mine”, Mr Krolke said.

“At one point in time Stephen Doyle had two A4 document pouches couriered to Liechtenstein ... I did watch he spent a lot of time shredding documents.”

He said ASIC had failed to interview senior Nuix execs who had knowledge of problems in the prospectus and the failure to meet continuous disclosure requirements.

“I have not been interviewed by ASIC to this day,” he said.

ASIC said without direct evidence any case against the Doyles would be entirely circumstantial: “We concluded ... that the evidence obtained during our investigation was not sufficient to exclude alternative explanations for the communications between the brothers and other notable characteristics of the trades.

“While there was evidence that Stephen Doyle and Ross Doyle communicated around the time of the Nuix trades, there was no evidence that such communications were about inside information or that their communication patterns were unusual for brothers who lived together at various times and spoke regularly on the phone.

“There was also documentary evidence to support aspects of the explanations provided by the persons of interest in various section 19 examinations about their trading and the structure of their holdings of Nuix shares. Our investigation was comprehensive.”

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Yeah, sure it was!!

And

ASIC secretly investigated Macquarie over conflict of interest claims (afr.com) [22-Aug-2023]

Excerpt:

The Australian Securities and Investments Commission was investigating Macquarie’s handling of the Nuix IPO when the then treasurer, Josh Frydenberg, appointed its former chief executive Nicholas Moore to lead an independent review into the “effectiveness and capability” of the regulator.

ASIC’s investigation into how Macquarie Capital handled conflicts of interest in the December 2020 IPO had been under way for four months when Mr Moore was appointed chairman of the Financial Regulator Assessment Authority in September 2021.

Mr Moore left Macquarie in November 2018.

ASIC chairman Joe Longo at a parliamentary hearing this year. ASIC will appear before a committee again this week. Alex Ellinghausen

ASIC closed its investigation three months later, in December 2021, saying there was “insufficient evidence” that Macquarie Capital had breached Australian Financial Services licence obligations.

Macquarie raised $565.7 million by selling part of its 76.2 per cent stake in the former glamour software company as joint lead manager and underwriter of the IPO, which took the shares from $5.31 to touch $12 the following month before a spectacular fall below $1.

On Tuesday, the shares closed at $1.67.

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Today (Thursday 9th November 2023), Nuix shares closed down 7 cents (or -4.49%) at $1.49.

And

Nuix share price: CEO Jonathan Rubinsztein says he has ‘nothing to hide’ as losses narrow (afr.com) [17-Aug-2023]

Excerpt:

Nuix boss Jonathan Rubinsztein has defended his purchase of shares amid a possible takeover discussion, saying he has “nothing to hide” as the investigation software company narrowed losses for the year and reported a sharp uptick in underlying earnings.

Nuix, which sells investigative software for large enterprises, reduced its losses to $5.6 million for 2022, down from $22.8 million a year earlier. Underlying earnings before interest, taxes, depreciation, and amortisation came in at $46.4 million, up 59 per cent on the previous period.

Nuix chief executive Jonathan Rubinsztein says he has nothing to hide, after the company reported its latest earnings results. Louise Kennerley

“Our legal costs are lowering and we’ve been signing up more pharmaceutical and legal customers,” Mr Rubinsztein said.

“We’ve also just launched our new platform, from which revenue is likely to flow through to the bottom line within the next six to eight months.

Nuix shares fell 12 per cent in early trade to $1.40.

Nuix burned through $17 million in cash over the past year, but Mr Rubinsztein said most of that was through one-off legal costs and two acquisitions – natural language processing company Topos Labs and long-term Canadian technology partner Rampiva.

“We’re very comfortable with the cash position, and the current cash burn is not from operations, it’s from legal costs and acquisitions,” he said. Nuix has about $29 million in the bank, and Mr Rubinsztein said Nuix had no plans to go to market and raise further cash.

Nuix has been plagued by several ongoing legal battles, including an ASIC investigation into the company’s reporting following its 2020 IPO and another investigation into the purchase of shares by Mr Rubinsztein.

“I have nothing to hide,” Mr Rubinsztein said of the investigations. “We are working with ASIC to close it out quickly.”

Nuix has also been dealing with a five-year court battle against former chief executive Eddie Sheehy, whose appeal will be heard next week.

Earlier this year, the court dismissed Mr Sheehy’s claim that he was entitled to a stock split that would have allowed him to cash out during the company’s billion-dollar IPO.

“Hopefully that [appeal] will be dealt with very quickly,” Mr Rubinsztein said.

The tech stock reported a 19.8 per cent rise in statutory revenue to $182.5 million over the past year. Most of the new revenue was added during the month of June and the company benefiting from a currency tailwind.

Despite the jump in new customer sign-ups, multi-year deals fell from 40 per cent to 30 per cent for the financial year.

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.

This metric rose 14.5 per cent to $185.5 million for the year, with the company pointing to growth in North America, Europe and Asia-Pacific.

Customer churn slipped from 5.4 per cent to 5.3 per cent for the year, though Mr Rubinsztein said increased upselling contributed to the boost in underlying earnings.

Excluding the legal bills, Nuix booked underlying cash flow of $9.1 million for the year.

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And

ASIC ‘addicted’ to secrecy, parliamentary committee claims (afr.com) [20-June-2023]

Excerpt:

The corporate regulator is “addicted” to secrecy and obfuscation, Liberal Senator Andrew Bragg says, after a parliamentary report rejected 11 of 13 claims for public interest immunity made by the regulator Joe Longo, who insists he is a transparency leader.

The immunity claims made by the Australian Securities and Investments Commission relate to questions by Parliament’s Economic References Committee, which is chaired by Senator Bragg and is examining the performance of the regulator.

ASIC has told the committee it is not able to provide any information about investigations into technology company Nuix, the use of sensitive insider information by superannuation trustees to maximise their personal gain and allegations of ‘fake coal’ testing by laboratory giant ALS.

ASIC chairman Joe Longo says ASIC is taking the lead in transparency. Alex Ellinghausen

The claims also relate to communications between ASIC and MPs and their staff when the inquiry was being established, which the report said left a “question of whether ASIC sought to interfere in the Senate’s work by influencing the terms of reference of the inquiry”.

Senator Bragg said an interim report tabled on Tuesday was “designed to end the secrecy and obfuscation to which ASIC is addicted”.

“Rather than engaging with the committee in a transparent and accountable manner, from the outset ASIC has chosen to attempt to undermine and influence the process of the inquiry before evidence had been gathered or hearings held,” he said.

ASIC said that releasing information about ALS may jeopardise its case against miner Terracom and former chairman Wal King, following claims about fake coal testing.

ASIC also said that despite an investigation into super fund trustees having been finalised, further information may unfairly damage the reputation of the individuals involved.

Senator Andrew Bragg says ASIC is shrouded in secrecy. Alex Ellinghausen

The report largely rejects ASIC’s immunity claims and argues the regulator is obstructing the committee’s work.

“The committee has formed a view that ASIC’s refusal to provide this information is obstructing the committee’s ability to conduct this inquiry,” the report says.

“The committee expects that ASIC will take this as an opportunity to reflect on its conduct to date and to reassess how it will better engage with the committee’s inquiry in an open and transparent manner”.

The report makes recommendations that the Senate order the provision of the information sought. The Coalition has three members on the committee, Labor two and the Greens one.

The disclosure stand-off comes after Senator Bragg accused ASIC of an “embarrassing cover up” earlier this year after Treasurer Jim Chalmers blocked an order requiring to hand over its investigation into allegations against ASIC deputy chair Karen Chester.

On Tuesday, Mr Longo gave a speech in Sydney that emphasised that ASIC is “taking the lead in transparency”.

“I encourage you to be ever more open and transparent with ASIC,” Mr Longo said. “This is not empty rhetoric, but a genuine and sincere call for further communication on a deeper level.”

“Transparency isn’t half-silvered. We don’t sit behind a one-way mirror like a detective watching an interrogation, seeing everything you do, while the market sees only its own reflection. No, true transparency must go both ways.”

But economist John Adams – whose report that ASIC investigates fewer than one per cent of complaints received helped spark the inquiry – shared the concern of the Citizens Party that Senator Bragg’s inquiry was being stonewalled.

“Labor Senator Deb O’Neill established an identical inquiry that same day through the Parliamentary Joint Committee on Corporations and Finance Services, and she accused Bragg of constructing a platform ‘to provide himself with an opportunity for media, not for the service of the Australian people’,” the Citizens Party said.

“Eight months later, Senator O’Neill’s inquiry has done absolutely nothing, while Senator Bragg’s inquiry has published 162 submissions, but that’s it - it hasn’t held hearings yet, or taken any other action.”

Mr Adams recently obtained Freedom of Information documents which revealed that Treasury officials concluded that his claims about ASIC’s enforcement record were “substantially correct”.

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And

Nuix board split under insider trading cloud (afr.com) [27-May-2023, updated 14-June-2023]

Excerpt:

The first signs of trouble came in September, when officials from the corporate regulator started searching for evidence that the company’s chief executive, Jonathan Rubinsztein, traded shares while possessing confidential information.

Since that moment, the company’s board has been bound up in animosity and suspicion. “I am paranoid and don’t want to use email if I can help,” wrote one director, Sue Thomas, in a text message as she complained of being kept in the dark by Nuix then-chairman Jeff Bleich.

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Sue Thomas has now quit the Nuix Board, effective from the date of their AGM, which was 19-Oct-2023, as explained in their Director-Retirement.PDF announcement on 13-Sept-2023. She was up for re-election and chose to retire from the board instead.

Of the remaining 7 Nuix Board members, three have no shares, and only their CEO, Jonathan Rubinsztein, has a decent amount of shares, and some of those were bought just before Nuix revealed that they'd had some M&A interest from North American software group Reveal, a trade that was investigated by ASIC for possible breaches of Insider Trading laws, after it was highlighted in the AFR. As usual, ASIC did bugger all and JR got the benefit of the doubt, as they always do.

While they're certainly still alive and kicking...

...it hasn't exactly been a wonderful story or an inspired journey, particularly for any early shareholders who held on expecting things to get better...

Disclosure: I do not hold NXL obviously, and I've recently fully exited SNC (Sandon Capital) IRL, because I have become increasingly concerned with their investments into companies like Nuix and MFG, so now, as an ex-SNC-shareholder, I no longer have that indirect exposure to Nuix either.