Nuix chairman and CEO say sorry for crashing share price, pledge to do better

Nuix chair Jeffrey Bleich quotes Warren Buffett as CEO apologises for missed forecasts and a 70pc slump in its stock since its IPO.

NUIX CEO Rod Vawdrey rings the ASX bell when the company listed last year. Since then, its share price has slumped 70 per cent. Picture: Bianca De Marchi

Shares in under-pressure investigative software outfit Nuix rebounded on Tuesday after chairman Jeffrey Bleich, the former US ambassador to Australia, issued a spirited defence of his company while also conceding early mistakes and admitting it needs to get its house in order.

Mr Bleich was joined at an investor day by Nuix chief executive Rod Vawdrey, who in a speech 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.

“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,” Mr Vawdrey said.

“But also resolute in my commitment to do everything I can to lead our team to deliver on the opportunity before us.

“I cannot directly influence how the market reacts and the media reports but I am acutely aware that helping you all understand this incredible business will help deliver for our shareholders.”

Nuix jumped by 10 per cent in early trading on Tuesday, before closing up 11.5 per cent to $3.50 per share.

The Macquarie Bank-backed Nuix, which produces investigative analytics and intelligence software, has come under fire and seen panic-selling by investors since February when it issued its first profit warning, which triggered a 70 per cent share price collapse.

A new round of allegations this week over the financial preparation around its float and the involvement of Anthony Dante Castagna, a former company executive who was jailed but then acquitted of tax fraud and money laundering, generated a fresh wave of selling.

On Tuesday, the company acted to repair the damage by wheeling out its well-connected chairman to offer a mea culpa.

Mentioning his mentor Warren Buffett and his work with former president Barack Obama, Mr Bleich said Nuix had to do better in terms of its corporate governance.

He described its early months as a public company as akin to a new marriage.

“The first few weeks of a marriage can be a little surprising, but you figure it out,” Mr Bleich told investors who have seen more than 70 per cent of the value of their shares dusted since December.

“For a long time Nuix had basically one investor, and that means it didn‘t develop the internal structures that you generally need to ensure strong investor relationships across the broad spectrum, and to communicate business priorities and processes broadly to stakeholders, beyond your own customers and future customers,” he said.

Jeffrey Bleich compared Nuix’s early months as a public company to a new marriage. Picture: Fran Foo

Mr Bleich said Nuix’s initial success and attention as the biggest IPO of 2020 also came with a cost.

“We’ve been in the news a bit for the past couple of days. Nuix had a spectacular launch six months ago, the biggest tech IPO of the year and a rapid bounce in our price, and an event like that is a two-edged sword,” Mr Bleich said.

“On the leading edge, it (caused) investors to look carefully at Nuix and our prospects and think about us deeply, do the due diligence process, and they were keen to buy shares. So many were keen that of course the price went up rapidly, and has given us resources to do important things going forward that will improve on market opportunity.

“But on the bleeding edge, that kind of price pressure is based on a supply demand imbalance in shares, rather than company performance. And inevitably, it produces some unrealistic expectations and extraordinary scrutiny.

“The very first chance of anything that’s less than spectacular will bring swift reaction.

“Let me be very clear, Nuix is every bit as good as people thought it was six months ago.”

Mr Bleich said he grew up doing legal work for Warren Buffett and his business partner Charlie Munger, who said “good investment is like a marriage”.

“They taught me to think long term, and find a partner you understand and respect and then stay the course.”

Mr Bleich, a Washington insider, added that he had tremendous confidence in Nuix’s long-term prospects, but was clear-eyed about the short-term work needed to turn it into a mature public company.

When Nuix floated on the ASX in December it grabbed the honours as the biggest IPO of 2020, with its promised hi-tech growth potential exciting investors just as the market was chasing growth stocks and pushing share prices to record highs.

The buoyant conditions for growth stocks saw Nuix shares rocket from its IPO price of $5.31 to as high as $8.50, a 60 per cent stag, which rewarded existing investors and allowed its major owner Macquarie Bank to cash in $575 million in shares - which helped boost the investment bank’s own profitability for the period - while it kept a 30 per cent stake.

Macquarie Group CEO Shemara Wikramanayake. The bank is a backer of Nuix. Picture: Britta Campion

The excitement around growth and tech stocks bolstered the Nuix share price to just over $11 a share by January.

But then the profit warnings came rolling in, prospectus forecasts proved illusory and the share price collapsed, quickly turning float success into the worst performance of an IPO in recent years.

The horror dive for investors began in February when Nuix issued disappointing half-year results, which triggered a one third dive in its share price. The gloss had come off its high-growth credentials and investors punished it.

In April Nuix shares again collapsed, plunging more than 17 per cent to all-time lows after the company trimmed its revenue guidance.

The Macquarie-backed company cut the full-year forecasts laid out in its IPO prospectus, just over a month after it restated them following its half year results.

At that time Nuix said its revenue was forecast to land within the $180m-$185m range, compared to the $193.5m originally forecast. Annualised contract value was also revised downwards, to the $168m-$177m range as compared to $199.6m.

By Tuesday, as it prepared its investor update, shares in Nuix shares were trading at $3.14 a share, down 71 per cent from its peak only a few months ago.

Macquarie Bank declined to comment.

Dean Fergie, founder and portfolio manager of Cyan Investment Management, said there was clearly a real business “somewhere” at the heart of the Nuix company but that it is also rather opaque given its highly secretive list of clients and sensitive intelligence it deals with which can put investors offside.

“Any business that does that amount of revenue has definitely got a real business and people paying a lot of money to use their products, the question is what they are spending on software development, marketing etc.

“When I looked at the IPO, and we didnt take any shares in the float, I just saw it and thought a massive selldown by the owners, managers don’t have much of a stake in the business and there is marginal profitability on a very big market capitalisation which I think at the time was around $1.8bn.

“And these businesses that are priced to perfection, they are trading on very big multiples of revenue, almost no profitability, you can’t put a foot wrong, you have got to have your numbers coming in at expectations or ahead. Any misstep means the downside from that is greater from any upside.”

Mr Fergie said looking at Nuix now at around $3 a share it was still capped at around $1bn.

“There might be a view that it has fallen away, it’s actually okay, it is near the bottom but you are still paying a big price for it even at half the IPO price.”

Mr Fergie said the confidentiality and highly secretive nature of its business, and clients, could also be a hindrance for investors.

“It is not like a Tyro that is putting terminals in shops, it is all this secret service, confidential clients, hard to verify their end customers and they are not likely to talk about what the software does, how well it works and those issues so you can understand when there are a few questions over the business it is hard to perhaps prove them wrong.”

Jason Teh, chief investment officer at Vertium Asset Management, had a direct challenge for the company and what it needed to do to resurrect its reputation in the market, and its share price.

“They just need to grow revenues. Simple.”

Mr Vawdrey said the company was doing everything possible to reach its revised profit forecast and to achieve the full potential of its business.

Executives were grilled about the company’s aggressive cloud-based software model, which was a key reason behind Nuix’s latest earnings estimate downgrade.

“We’ve got some work to do, and having to restate our forecast was a disappointment for everyone,” Mr Bleich said.

“I think we need to do a much better job of explaining our business to people and I think this is a good start with the investor day.”