Losses narrow at Nuix after legal woes, changing business model

Embattled software player Nuix has reported mixed financial results as it rolls out a new subscription-based model after a torrid few years.

Recently appointed Nuix CEO Jonathan Rubinsztein is confident the worst is behind the embattled tech group.

Investors have sold down Nuix despite assurances of no more surprises as the embattled tech player cut its losses on the back of its new subscription business model.

Total revenue across the business fell 1.5 per cent to $84m for the six months to December 31, coming in the mid range forecast by the company in January.

Nuix’s shifting business model is starting to make itself felt in the company numbers, as it seeks to move customers onto contracts that charge based on usage.

Revenue from Nuix’s new consumption based model has more than doubled to 19 per cent over the six month period from a year earlier.

Losses were slashed by more than half to $2.3m from $5.3m a year earlier, coming in at the low end of the forecast range.

The company forecast last month a loss after tax of $2m-3.5m, well down on the $16.6m reported in the first half of 2021 financial year.

Nuix is facing an array of issues that have captured the company’s attention, including efforts by its former chief executive Eddie Sheehy to claim damages for an alleged failure to honour an options agreement, as well as several investigations by the corporate regulator into the company and key figures.

The Australian Securities and Investments Commission recently cleared Nuix for misstatements in financial documents in the years leading up to its initial public offering, but investigations continue into its prospectus as well as former chief financial officer Stephen Doyle.

Initial investors in Nuix have seen a torrid run for the stock, which collapsed from its peak of $11.05 in the months after listing on the ASX. Its shares were down more than 7 per cent to $1.32 on the ASX on Monday morning.

Recently appointed Nuix CEO Jonathan Rubinsztein said he was confident there would be no more surprises.

“I haven’t seen any skeletons (in the cupboard), I’ve been remarkably impressed with what we have in the business with the structures and processes,” he said.

“I’m hoping we can focus on executing in the future. That’s what the business has brought me in to do.”

The legal issues have seen Nuix pay $3.9m in legal fees in the first half after forking out $9.3m on legal costs in the 2021 financial year.

Mr Rubinsztein said he wasn’t going to suggest what the ordeal would cost the company, but “our expectation is that those should reduce as we clear out some of the cases”.

Much of the trouble at Nuix took place during the period the company was chaired by former Macquarie banker Dan Phillips, who remains on the board.

Mr Rubinsztein said he was pleased with the composition of the board.

“We’ve got a very capable impressive board,” he said.

But not all is gloomy at the businesses, with the profit jawboning on the back of a big run up in costs as Nuix attempts to tackle a litany of legal tangles and scale up its headcount

The company has lifted its customer base and “annualised contract value”, a measure the tech player uses to smooth earnings.

Nuix posted a $164.5m annualised contract value in the first half of the 2022 financial year, up from $161.8 a year earlier.

Average order value from customers has fallen to $186,000 from $278,000 a year earlier.

However, Nuix noted the lower new business was offset by a net upsell to existing customers.

The tech player is spending up big, with Nuix ramping up research and development spend by 29 per cent. Its headcount across the business has jumped by 13 per cent to 478.

Mr Rubinsztein said Nuix was now set on developing its products and business, noting the uncertain geopolitical period may see more customers.

“Is this a countercyclical stock? In some sense I think it could be,” he said.

“There might be in a world that is more uncertain there might be a growth towards using our software to solving some of these things.”