Nuix refresh delivers ‘early positive impacts’ as tech group swings to profit after legal wrangles, price rises

The embattled ASX-listed investigative software provider swings to an interim profit amid early signs its strategic refresh is working.

Nuix boss Jonathan Rubinsztein said generating profit was a key test for Nuix, as the market was punishing tech players without a pathway to profitability. Picture: Britta Campion/The Australian

Investigative software provider Nuix said its strategic refresh is delivering “early positive impacts” after swinging to a $1.3m interim profit on the back of higher prices and customer’s buying more.

That compares to a $2.3m loss in the first half of the 2022 financial year.

Nuix confirmed its annualised contract value, the measure used by the company to chart multi-year deals, rose 3.4 per cent to $170.2m over the six-month period.

Nuix chief executive Jonathan Rubinsztein said generating profit was a key test for Nuix, as the market was punishing tech players without a pathway to profitability.

“This business is operationally cash neutral for the last two halves, we’ve got no debt and again our focus is on growth and driving positive cash flow,” he said.

Cash generation is super important for us, for any business in this space this is a shake-out the new world is not around – it’s not only about growth it’s is about cash generative approach.”

Underlying earnings were up 8.5 per cent to $25.1m, but Nuix noted it saw a small decline in underlying cash flow in the first half, excluding the impact of the acquisition of Topos Labs.

The widely forecast results come after Nuix flagged its earnings in January, offering guidance of ACV landing 3.7 to 5.6 per cent higher than the level reported in the first half of 2022. Shares in Nuix rallied after the firm told investors it expected to report ACV in the range of $168-171m.

This takes Nuix above the $164.5m ACV reported in the 2022 financial year.

Mr Rubinsztein has been pushing to simplify Nuix’s business model and its customer licensing system, which previous management allowed to become overly complex.

He said the “strategic pivot” had another 12 to 18 months to run and involving putting many Nuix products on the cloud.

“There’s no hard line when something starts and ends,” he said.

Nuix said on Monday that it had paid $US4.8m last month as part of a milestone payment for its $US20m ($29.1m) acquisition of purchase voice processing businessTopos Labs in 2021.

Former Nuix CEO Rod Vawdrey speaks at the Australian Stock Exchange (ASX) when the company listed in a $1.8bn IPO. Picture: Bianca De Marchi/NCA NewsWire

Nuix also lifted licensing costs 20 per cent for renewing customers, but Mr Rubinsztein said this was only after five years of near to no price increases.

Customer churn rates rose to 4.8 per cent from 4.1 per cent reported in the first half of 2022, but lower than the peak of 5.4 per cent in December.

But Nuix said the churn was offset by customer upsell.

Nuix noted it had made efforts in the half to implement a new price book across its software offerings, including modernising and simplifying its licence model.

Nuix had flagged its earnings in a market update in mid-January, which saw stocks lift. But its shares were heavily sold off after rumours the Australian Securities & Investments Commission was looking to sever its relationship with Nuix.

Nuix said no individual customer represented more than 3 per cent of the firm’s ACV, noting around 85 per cent of ACV was generated outside Australia.

Mr Rubinsztein said ASIC was among Nuix’s top 10 customers, but declined to comment on the relationship.

“There is a whole lot of erroneous chatter,” he said.

Nuix noted it was seeing strong growth in government business, along with continued demand from law firms for the Discovery Saas product.

Nuix warned in January it was facing around $2.4m in legal bills, with the firm facing multiple actions before the courts.

In recent weeks, the firm was able to beat back a court claim by its former chief executive Eddie Sheehy, who alleged Nuix had not honoured his options in the business when it hit trading boards in December 2020.

ASIC launched legal action against the company’s board in September, claiming they allowed the business to publish incorrect earnings information.

Nuix chair Jeffrey Bleich flagged he would step down from the role in November, but will remain on the board and hold the role of deputy chair.

Robert Mactier, who joined the board in October 2021, will take on the role of chair.

Mr Mactier is one of several changes on the board, with long serving Macquarie banker Dan Phillips quitting the board in August 2022. Alan Camaeron and Sara Watts both joined Nuix’s board last month.

Nuix is also facing a shareholder class action over its disclosures.

No dividend was declared.

Nuix shares closed up 2.34 per cent to $1.10.