Nuix CEO exits, CFO axed after multiple earnings downgrades

The software firm’s top executives will exit after multiple earnings downgrades, in a stunning fall from the biggest IPO of 2020.

Nuix CEO Rod Vawdrey at last year’s IPO. Picture: Bianca De Marchi

Former US Ambassador to Australia Jeffrey Bleich described Nuix’s early months as a public company as akin to a new marriage, but few marriages end with this degree of bloodletting and financial turmoil.

Tuesday capped stunning a fall from what was at the time of listing the biggest IPO of 2020, with the Sydney analytics software company terminating its chief financial officer Stephen Doyle and announcing chief executive officer Rod Vawdrey would be gone by the end of the year.

Nuix’s share price has collapsed by almost 80 per cent in 2021 destroying more than $2bn in investor wealth, with the company plagued by corporate governance scandals, two earnings downgrades, three profit warnings and extreme share price volatility. On Tuesday Nuix shares closed up 4.2 per cent at $2.76. Still well down on their January peak of $11.16.

The tech company’s chairman Bleich now has the sizeable task of rebuilding Nuix’s leadership team, and bolstering its internal governance structures and processes which he has now admitted were not up to scratch.

The company is still facing an ASIC probe, potential investor class action suits, and an ongoing Australian Federal Police investigation into former chairman Tony Castagna over potential breaches of the Corprorations Act. Nuix is also facing legal action in the Federal Court from former chief executive Eddie Sheehy.

“All of us have long been used to good news when we talk about Nuix,” Bleich wrote on Tuesday in an internal email to staff, seen by The Australian.

“We have had a phenomenal experience based on our exceptional people and world class technology. Those of us who have been fortunate enough to be on the ride of recent years have seen us go from strength to strength with new product lines, new markets, and double-digit growth.”

The former diplomat said that Nuix’s ASX debut, in which its share price soared by 50 per cent in its first day of trading, had raised market expectations to previously unexpected levels but that bad luck and timing were to blame for the company missing its financial expectations, which were hobbled despite what was otherwise “continuing healthy performance.”

“That has had unfortunate consequences for our share price. At the same time, we have been the subject of media reports that have also impacted our share price and, importantly, many of you,” he wrote.

“The past few months have been some of the most turbulent in our corporate history. And I am sorry for that. My colleagues on the board and I, along with senior management, are working hard to promptly address all issues and shift the focus back to the things that define us – our world class people and products, and meeting the needs of our customers in a rapidly expanding market. Those things have not diminished and instead have only continued to improve since we listed.”

Despite blaming bad luck and timing for the underperformance, Bleich said Nuix would be strengthening its internal systems for managing information and risk, a tacit admission that its processes were not fit for purpose. Its high-powered forensics software is used by the likes of the Australian Defence Force and the US Securities and Exchange Commission. The company will also appoint two new independent directors to its board, establish the roles of chief operating officer and head of risk, and appoint a new head of investor relations.

Those steps come weeks after a painful strategy day, in which Nuix attempted to hit reset and assuage nervous investors. The online event was peppered with technical glitches and did little to stop the share price slide, amid a second earnings downgrade, and revelations corporate regulator ASIC is investigating its multi-billion dollar float.

A fortnight ago Nuix revised its revenue pipeline, telling investors to expect pro forma revenue of between $173m and $183m, compared with the $180m to $185m result it had forecast in April.

The company’s board, which is facing ongoing pressure from shareholders who are understood to be mulling at least two separate class actions, said in a statement on Tuesday that Vawdrey will continue in his role while an international search is conducted for a new CEO, with executive search firm Russell Reynolds tapped to conduct the CEO recruitment program. He’ll remain at least until the company’s annual financial results in August.

Investors reacted positively to the executive changes, sending shares up 4.5 per cent.

“It has been an honour and a privilege to have led this amazing Australian software company over the last five plus years. After four decades in the technology sector, to be able to use that experience to scale Nuix to become a truly global company, completes my career ambitions,” Vawdrey said in a statement.

In a separate statement to the market on Tuesday, Nuix said its CFO Stephen Doyle would step down effective immediately, to be replaced on an interim basis by former Star chief financial officer Chad Barton from June 21.

Doyle, who had been with the company for over a decade, had reportedly not been sighted in the Nuix offices for weeks. The Australian approached Nuix for comment, but the company declined to discuss the matter beyond its ASX statement.

“While Doyle retains no operational duties, he will be available in the coming weeks to work on an orderly handover of his responsibilities before concluding his employment on June 30,” the board said in a statement, adding it had initiated a global search for a permanent CFO.

As The Australian reported this month Nuix received a green light from the corporate regulator to float despite repeated warnings and growing concerns over its management of financial risks.

Its largest investor is Macquarie, which cashed in $575m in shares but still owns about 30 per cent of the company. The bank declined requests for comment.

At the abortive strategy day last month Vawdrey apologised for the tech company’s imploding share price and issued a mea culpa for months of underperformance.

He said sorry to many company family and friends who had bought shares in its sharemarket float and lost money.

Rod Vawdrey, second from left, with other Nuix executives and directors at its listing ceremony last December. Picture: Bianca De Marchi

“I wanted to say that as group CEO of Nuix I do take full responsibility for the performance of the business, to those investors, big and small, that have been impacted by the share performance over the last few months including many Nuix families and friends, I feel incredibly sorry,” Vawdrey said.

Cyan Investment Management portfolio manager Dean Fergie, who did not invest in Nuix due to concerns about a lack of transparency, described the CEO and CFO departures as inevitable.

“There‘s been a huge loss of confidence in the whole company. The numbers would have been presented by the CEO and ratified by the board so someone at the top had to go and take the bullet for that,” he said.

“This was a big marquee float, and it‘s all just a very bad look. The market has lost confidence in these people, so getting some new people in to reset expectations is the right thing to be doing. I think they can improve the profitability of the business, but how long it takes for the market to get excited about it and value it as a premium stock is anyone’s guess, but they have a whole lot better chance of doing that with a new management team than the current one.”

Bleich closed Tuesday’s staff letter with a quote from one of his favourite US Presidents, Franklin D. Roosevelt, who said, “the only thing we have to fear is fear itself.”

“As long as we deliver for our clients as we always have, we will come out of this period stronger, more resilient, more cohesive, and more equipped to succeed,” he said.

“Our clients, our investors, and a world that needs our products depend on us to not lose faith. As long as we stay strong, stay focused, achieve our results, and work together as a team, we will do more than endure – we will live up to our potential and each of you can say that you made this a company that any person would be proud to be part of.”