Jonathan Rubinsztein calls turning point for Nuix

Nuix CEO Jonathan Rubinsztein.

After months of angst, Nuix chief executive Jonathan Rubinsztein used the company’s AGM on Friday to call a turning point in the Nuix story.

He told shareholders of the first green shoots he sees in the critical metrics after he reset strategy for the beleaguered former tech darling four months ago.

By market close, Nuix shares had rocketed 21.9 per cent to 69.5c.

“People have lost sight of what we do. There was a reason why the market got so excited about us, maybe overexcited,” Rubinsztein tells The Australian.

Given the noise of class actions and court action brought by ASIC and a former CEO against Nuix, Rubinsztein knew his decision to hone his AGM speech on the core business as a global force for good held some risk. That paid off.

The entrepreneur was brought in 11 months ago not only to fix Nuix but to put it back on track to join Canvas and Atlassian as Australian tech legends.

And he wants to go one better, to claim the moral high ground in tech with the Nuix mission: tackling the wicked problems created by the baddies that now populate the digital world.

Is this really possible? Until the AGM, shares in Nuix had fallen over 90 per cent since it was listed by Macquarie Bank in December 2020, and 95 per cent since six weeks of market euphoria pumped it to a high in mid-January 2021.

Nuix prospectus forecasts were badly missed, sparking the ASIC investigation and threats of class actions. The company has been plagued with legal costs, leadership changes, insider trading allegations, a tech meltdown and a media angry it had been naive enough to pump the stock on listing.

Yes, a Nuix comeback is really possible, says Rubinsztein. His faith lies in the quality of the Nuix product and its customers.

It is understood Optus used the Nuix platform to help it get to grips with their devastating breaches. All four global consultancy firms use it internally and on consulting assignments with Nuix.

Nuix was founded in the wake of Y2K in 2000, with analytics and intelligence software that makes sense of reams of unstructured data. The Nuix Engine is used behind the scenes by large corporations, advisories and law enforcement.

Three months ago the head of homeland security for a major European country thanked Nuix for averting six terrorist attacks.

“As a business we did the Grenfell fire in London, the royal commission into financial services in Australia. The Volkswagen diesel investigation, the Panama Papers investigation all used Nuix software,” says Rubinsztein.

Perhaps Nuix could help Elon Musk unscramble his Blue Tick issue at Twitter that is now riddled with impostors. “Yes that’s exactly the sort of wicked problem,” he nods.

In August, Nuix reported a 13.5 per cent drop in annual sales and a net loss of $22.8m. Now Rubinsztein sees signs of growth – not astounding, but enough to talk about with some confidence at the AGM.

Annualised contract value, which smooths out contract revenue from customers on an annual basis rose 4.6 per cent in the four months to October to $169.5m, or up 2.2 per cent adjusted for foreign currency differences.

Rubinsztein notes statutory revenue as down because a major customer had resigned a multi-year contract in the prior period and the bulk of revenue is booked upfront. But the ACV shows momentum picking up.

Customer churn rose slightly from 5.4 per cent to 5.5 per cent but Rubinsztein points to net dollar retention which indicates how well Nuix keeps and engages with customers, is net of any customer churn.

In June 2022 NDR was 96.8 per cent. It is now up at 101.9 per cent, or in constant currency at 99.2 per cent, a significant jump.

In six months new customers include two US social media giants and an international bank.

“It is now about execution. In eleven months I have not had one customer that says I don’t like your product,” says Rubinstein.

Last week Nuix launched a new data privacy product, a step up from the current offering used for forensic investigation.

For a bank the new product can scan all data assets interpreting thousands of different file types and identify where the risk data assets are. Nuix can then help the customer archive and manage that data.

Nuix’s existing product is round 96 per cent accurate. Rubinsztein says that a large consultancy trialling the new product has found the number of false positives has been reduced by 95 per cent.

“So now when a data breach happens we get 20 times fewer false positives, and that is about speed and accuracy,” he says.

This is all better news, but legal action against Nuix has not gone away.

ASIC has launched action under continuous disclosure rules against both the company and the IPO board. The irony of ASIC using the Nuix platform to investigate it is not lost on the CEO. The downside risk may be a fine, legal bills may be higher.

“The weight of legal fees on the bottom line is an issue, but if we can prove out the business and get growth, people will look at it as a one off cost,” says Rubinsztein.

At the AGM all resolution passed including the remuneration report with only 11.54 per cent voting against. Signs of a board refresh were evident: the board was re-elected and former chair of ASIC Alan Cameron confirmed as a new director. Chair Jeffrey Bleich announced he would step down with a successor announced in due course.

Three class actions have whittled to one which will take time to progress.

The biggest liability is former CEO Eddie Sheedy who claims $183m over options in the business. This matter should be clearer in around three months.

If it goes against Nuix the company will appeal. If it goes in Nuix’s favour, that may well flush out a takeover bid for the business.

Rubinsztein’s other work is on staff morale. At a recent team off-site in Nashville, Rubinsztein changed the company’s purpose.

“Our old purpose was finding truth in the digital world. So what?” he says. “If Vladimir Putin finds truth in the digital is that a good outcome? A lot of the people at Nuix are ex-military, ex-secret service. They come here because of the purpose, so we changed the purpose to be a force for good.”

In October Australian Ethical Investment, the second largest shareholder after Macquarie Bank, increased their stake in Nuix to 7.17 per cent.